Editorial: Plenty to be done if Key really dares

John Key. Photo / Getty Images

The country has been keyed up for an important speech from the Prime Minister today. He needs to produce something more impressive than a merger of some departments mentioned in advance. Word has it that the ministries of Economic Development, Science and Innovation and the Labour Department, or at least its employment office, are likely to be melded into one. Ho hum.

Mr Key calls this a "structural change". It is nothing of the sort. The conversion of some departments into State Owned Enterprises in the 1980s was a structural change. The creation of Crown Research Institutes and Crown Health Enterprises in the 1990s, and the re-conversion of CHEs to District Health Boards a decade later, were "structural" as economists use the word. In each case the service was taken into or out of a market and had to change the way it worked.

The merger Mr Key seems about to announce sounds like nothing more than a reshuffling of departments. This is the sort of reform public servants propose when they can offer little else. They are forever worrying about "silos" and suggesting ways to cross-fertilise their operations. Every so often a government carves them up and reconstitutes them in different combinations but nothing really changes. Quite likely the next reorganisation will see them restored to their original form.

The ministries of Economic Development and Science and Innovation are relatively new and undeveloped. The first was a creation of Jim Anderton in the previous Government and the second has been around in different guises for longer but has never really found a use. There is not much for these ministries to do unless the Government is willing to use tax incentives and other tools to steer investment in its desired directions.

No government of the past 27 years has dared to do more than dabble with the likes of research and development incentives. The Treasury warns them of the risks of trying to predetermine economic welfare. But Mr Key came to power with the confidence of someone accustomed to trading on market signals and a desire to step up the country's economic capacity.

The global financial crisis left not much chance to pursue that idea in his first term but he may be anxious to get started now.

He has put the ministries about to be merged in the capable hands of Steven Joyce and together they could mean business. But they will have to do much more than push some public service desks together if they intend to indulge in economic planning. An inflated economic ministry under Mr Joyce could appear to be a rival to the Treasury but the test would be whether its ideas and arguments were as robust.

The Treasury's regular briefings offer plenty of strategic advice. The post-election brief advised the Government that besides aiming to balance the budget by 2014-15 and reduce net debt to 20 per cent of GDP by 2020, it needs to set high bank capital requirements, tackle the rising costs of health and pensions for an ageing population, reduce remaining tax distortions of saving and investment, make public services more innovative and competitive, improve education by targeting early childhood funding to low-income earners, consolidate schools and increase class sizes, charge interest on student loans and target funds to younger students and more valuable qualifications.

It had plenty to say about science and innovation initiatives, further tax reform and infrastructural improvements, too. There is, in short, plenty for the Government to do if it dares. A departmental reshuffle is a poor substitute, a sign nothing will really change.