Coalition Government Enters Critical Phase
April 23rd, 2009
John Key’s coalition is entering a critical phase. This is when the rubber hits the road. The political outcome is hard to foresee. The Govt faces major tests of its political skills in framing its first budget against the backdrop of a concerted economic recession across the developed world, and in guiding the Auckland super-city concept through the thicket of parochial opposition. The intractable Fiji crisis contains the seeds of a humanitarian disaster on NZ’s doorstep. The threadbare state of NZs defence resources, bled dry by extended peacekeeping operations preventing the development of an effective and easily deployed land-air military capability, was exposed this week. Beyond this NZ faces a difficult choice over whether to risk a SAS commitment to Afghanistan.
These issues have been obscured to a degree by the global economic recession. Now, as the recession deepens, the OECD has fired a warning shot over NZ’s vulnerability to a downgrade of its sovereign credit rating. What would be economically efficient solutions are ruled out by political constraints (including National’s own election pledges). Finance Minister Bill English believes the public is realistic, but it won’t wear a panic reaction. “We are not panicking.” But he concedes even if the economy picks up in 2010 unemployment could continue to rise for 12 to 15 months. Most of the OECD ideas for cutting spending, selling mature assets to reduce debt and freeing up capital for new investment are off the table. Instead the Govt will have to take hard decisions about postponing the tax cuts scheduled for 2010 and probably 2011, as well as accepting a holiday on contributions to the NZ Super Fund.
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Duncan Cotterill