National hangs onto the honeymoon

The honeymoon with voters is not yet over for John Key's minority Government.

Indeed, Thursday's fracas at Waitangi may extend its duration.

The prime minister will win plaudits for his composure after being manhandled by a couple of lone protesters and for his determination that the incident would not deter him from returning to Te Tii Marae.

Once again, Mr Key has shown the kind of leadership that makes a nonsense of Labour's pre-election spin that he was too inexperienced to hold the country's most challenging job.

Labour should worry it misjudged him so badly and that he is coping so comfortably with the demands of prime ministership, while building mana, prestige and authority in the process.

However, it will be heartened that the past week has witnessed a return to what might be termed normal politics, with Mr Key and his colleagues being given more than a few, albeit gentle, reminders that marital bliss with the electorate is not eternal.

For the first time since being sworn in in mid-November, the new Administration has had to cope with a flurry of problems while ensuring it retains control of the political agenda.

This week was relatively easy. It was easy to threaten to crush the vehicles of errant boy racers. The same went for ticking off Transpower.

The wake-up call, however, was the latest household labour force survey showing unemployment up by 10,000 in the final quarter of last year. It is the jobless and economic growth statistics on which Mr Key's Government will ultimately be judged.

The release of the unemployment figures came in the wake of National's measures to help small and medium-sized businesses cope with cash-flow problems as the recession bites.

Taken on its own, the $480 million package was widely welcomed as long overdue, but likely to be a drop in the bucket when the crunch comes. As National's bad luck would have it, its release coincided with Australian Prime Minister Kevin Rudd's $A42 billion ($NZ54 billion) "nation building" stimulus package.

Comparisons with that huge economic injection - which includes one-off lump-sum payments to workers - were unfair. The two had nothing in common: one was a red tape-cutting exercise as part of a wider rescue plan and the other a drastic, fiscal pump-priming exercise.

More pertinently, Mr Rudd's "big bang" response to the international financial meltdown raises questions as to whether the Key Government's strategy of staggering its initiatives is the right one for the economy.

It is surely the right one politically. As one Government source put it: "If we fire all our bullets now, what are we going to put in the budget?"

Labour argues the importance of the Rudd package is that it shores up both household and business domestic confidence by demonstrating the Government will do whatever it takes to save businesses from going under.

In contrast, the drip-feeding of Government initiatives here is detrimental because it gives the impression the Government has no plan and what is left of business confidence is evaporating accordingly.

National has taken some of this message on board. Finance Minister Bill English will next week put some analysis and explanation into the public domain.

Essentially, New Zealand has been in recession for more than a year and the surpluses have dried up.

When it comes to stimulating an already sluggish economy, National is relying on Labour's spending in last year's budget, last October's tax cuts, this April's tax cuts, the drastic loosening of monetary policy by the Reserve Bank and, last but not least, bringing forward Government-initiated infrastructure building projects.

Australia has not been in recession.

When it comes to the "fiscal impulse" being injected into the respective economies, New Zealand's is still larger than Australia's relative to gross domestic product.

However, while governments across the globe are being urged to come up with stimulation packages, the reality is National does not have much more it can hand out without provoking a credit ratings downgrade.

So, is National's economic stimulus large enough to stop the economy plunging into deep recession?

At this juncture, no-one can answer that. But plenty will do so in hindsight.

For that reason and knowing things are going to get tough, the Government's line is that its measures are designed to take the "sharp edge" off recession. It is promising no more than that.

In the meantime, it will continue to roll out measures at intervals.

Next week, Mr Key unveils a list of "ready to go" Government infrastructure-building projects to soak up spare labour in the construction sector.

Labour accepts there are limits on how much more and shares National's view there must be "quality" infrastructure spending, rather than make-work schemes.

Where the parties differ is in Labour's finance spokesman, David Cunliffe, urging National to think again and cancel April's tax cuts because they favour the better-off and the extra cash will be saved rather than spent on consuming goods and services. However, Mr Key is not going to break an election promise.

National also believes progressive tax cuts are better than one-off lump-sum handouts. National argues progressive tax cuts are more likely to be factored into household budgets.

Furthermore, lower taxes are a simple article of economic faith for National.

Whether National's strategy is valid will become apparent soon enough. The rising tide of layoffs in the United States and Europe has yet to reach these shores.

However, one major domestic manufacturer is said to be about to offer its workforce the choice of a 5% cut in the wage bill or 5% layoffs.

For Mr Key, it is a matter of holding his nerve. He should enjoy what is left of National's honeymoon while he can.

John Armstrong is The New Zealand Herald political correspondent.

 

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