Editorial: Budget comes with country's right to choose

Prime Minister John Key. Photo / Steven McNicholl

While Don Brash was writing his "Dear John" letter for Sunday newspapers last week, John Key was answering it. Speaking to a business lunch, the Prime Minister announced that the Budget to be delivered on Thursday will cut entitlements to family tax credits and student loans and reduce KiwiSaver subsidies. That covers three items of wasteful Labour spending nominated by Act's new leader.

But Mr Key tagged his plans with a proviso Dr Brash probably did not expect. All three decisions will not come into force until after the general election. In effect, the Budget's most unpleasant measures will be put to a popular vote. This will be a novel experience for the electorate.

New Zealanders are well accustomed to election-year Budgets that make their gifts conditional on the Government's return, but not their cuts. Savings in social programmes are normally made as far from an election as possible. Too often they have been announced just months after the vote, under a pretence that those newly elected have just discovered a need for austerity.

Mr Key, like Helen Clark before him, has been careful to keep faith with the country. He ruled out asset sales for his first term of office and has announced a programme of partial sales of energy companies in his second term, if the voters keep faith in him. He said he would not tamper with the terms of national superannuation for as long as he is Prime Minister and sadly, despite the costs of rising life expectancy, he will no doubt keep that promise too.

Labour is already feasting on the intended resumption of asset sales and will be just as eager to oppose whatever may be announced in the Budget to limit access to student loans and family tax credits. But the Prime Minister probably has less to fear from Labour than from his right flank, where most of Dr Brash's points of criticism reflect concern in business circles that Mr Key is not doing all he could to tackle continuing budget deficits and rising Government debt.

Last week, he told the business audience he did not believe "economic reform should happen all at once, involve a lot of noise and conflict and follow a strict adherence to ideology rather than what works". He believed that "sustainable change happens over time, building on itself year after year, with the general support of the public".

We will see on Thursday whether the decisions his Government has made on KiwiSaver, student loans and family benefits produce savings on a scale that might begin to bring social spending back to a sustainable level. He and Finance Minister Bill English have been adept at explaining how the previous government let spending grow by 50 per cent during the property and consumption boom, believing the surplus revenue it was enjoying would never end.

Mr Key and Mr English have told this story in Budgets for two years now. They have delayed doing much about it while the economy was struggling to recover from the 2008 recession. This year they believe the economy to be in shock from the Christchurch earthquakes. They clearly intend to do no more than hold public spending at its present level and hope that will assuage any foreign creditors and rating agencies that may be nervous about our rising government debt and total external liabilities.

Creditors should draw some confidence from the fact that the Prime Minister believes he can convince the electorate to back the savings the Budget will propose. Labour will say it is too much, Dr Brash will say it is too little. Mr Key will be in the middle, where he wants to be. The Budget will be his election manifesto and, he hopes, his contract for a second term.