Some have always reckoned National's target of surplus by 2014-15 was "fairyland", but oh no said John Key and Bill English, don't you worry. Now Alan Bollard has joined the naysayers, National has to realise just what's at stake
John Key seemed to shrug it off as if he'd promised New Zealand pudding, but now wasn't sure whether or not he'd have time to whip something up.
“I'm now a little less confident of reaching a surplus,” after hearing that no-one less than the Reserve Bank Governor Alan Bollard had forecast New Zealand wouldn't return to surplus until 2016/17, rather than the 2014/15 National has been promising for the past year or so.
While class sizes, mining conservation land and increasing GST may have been the most prominent u-turns by this government thus far, none has been as central to the government's platform as this. Of course it's not a u-turn yet; 2014 is still two years off and National could always, say, sell another power company or lay off more public sector staff to help it get over the line.
But to have the Reserve Bank saying you're not longer "on track" and be forced to admit doubts about the 2014/15 deadline, well, it's a long way from this government's previously confident rhetoric.
It was only May when John Key was boasting in a statement that "the National-led government's responsible management of the books means an operating surplus is set to be posted in 2014-15."
"Returning to surplus means we can start reducing debt. That is no small achievement. It has taken a combination of disciplined fiscal policy and a willingness to make trade-offs. We have a plan to rebuild and strengthen the country, we have stuck to it and it is working."
Bill English told the House in February:
"We have committed to a faster return to surplus in 2014-15..."
And he's repeated how it's the governments "focus" on numerous occasions.
Why is this economically so important? Several reasons, according to National. Only when debt is reduced will our credit rating be safe, and only then will the government be able to lift national savings, be able to protect New Zealand from any future global financial crisis, and make choices about expenditure increases.
Saving into the Super Fund? Not until surplus. Longer paid parental leave? Wait for a surplus? Even anything to help those most in need must wait, English has said:
"Governments with too much debt cannot sustain support for their most vulnerable."
And now that surplus could be coming two years late. That raises some uncomfortable questions, such as whether the vulnerable are now also vulnerable to government cuts, if a third zero Budget is likely and if our credit rating and low interest rates are now more at risk. It means much more than just missing dessert.
And it matters for political, as much as economic, reasons. Why? Because it goes to the heart of National's brand as competent economic managers. Remember John Key taunting Phil Goff during the election campaign with his "show me the money" line. Voters sure did.
When John Key launched National's finance policy on October 31, he said:
"National has a straightforward and comprehensive plan to build a more comprehensive economy. First, we're balancing the books sooner by getting back to surplus in three years".
Faced with recession behind them and uncertain times ahead, many voters decided to stick with the old car/house/fridge/whatever... and with the old government as well; safer pair of hands, y'know.
Labour by comparison was painted as the party of unreliable tax and spenders, what with its tax-free zones and the like. On Q+A last November, just six days before the election Key was hammering home his central campaign message:
"Do we want $15.6 billion worth of extra debt from Labour, or do we want to be back in surplus by 2014-15 under National?"
When it was pointed out that most business leaders were sceptical of his ability to meet that target, Key went onto ask, "why do people think that's fairy land?".
And before you say, 'what about Europe?', Key already recognised that risk (and had for some time, given it's been going on since 2009).
"Yes, okay, if Europe blows up, maybe that's an issue, and that obviously has an impact. We're not immune from what happens in the world, but our numbers have been adjusted to reflect that there's weakness in Europe. They match the IMF numbers."
So National had adjusted their numbers for European weakness and would still get us back to surplus "faster" and "sooner".
Except now even the Reserve Bank thinks it won't.
If you're wondering just how much that hurts politically, consider this quote from Bill English, talking to the Herald a few days before the Budget:
"With the huge public market for fiscal control, the surplus figure became during the campaign the symbol of responsibility".
So a 2014-15 return to surplus was at the top of National's finance policy – their own target – and even English recognises it as a "symbol" of responsible economic management.
So National's new uncertainty has to shake its brand as the party of responsible stewardship, led by the rich guy who knows about money and the steady-as-she-goes Southland farmer. No, it's not something people will march in the street about or even articulate very easily, but it undermines voter trust and confidence in this government, something that's vital to people's gut feelings about who they'll ultimately vote for.
As we all know, governments lose elections, opposition parties seldom win them. And governments look like losing when people lose confidence in them.
If National fails to deliver its promised surplus, it undermines one of the most basic reasons Kiwis have for voting National, beyond their fondness for John Key. It opens the door to voters saying, 'this lost hasn't done the job, perhaps the others are worth a shot'.