POWER PLAY with Brent Edwards

5:48 am on 21 November 2014

Slowly but surely, the Government appears to be softening the public up to break its promise of getting its finances back into surplus by the end of this financial year.

John Key and Bill English.

Prime Minister John Key, left, and Finance Minister Bill English celebrate another win for National on election night. Photo: RNZ

Economically does it matter? No. As long as the the Government's books are getting into stronger shape - which they are - it is not crucial they are in surplus at the end of June next year, rather than a year later.

But politically this is a problem for the Government. It has been a long-standing promise - although it has been downgraded to a forecast - of National to get the books in the black.

It is part of the narrative that National has run: that voters can only trust a National Government with their money.

Both Prime Minister John Key and Finance Minister Bill English have repeatedly said the previous Labour-led Government left them with a decade or more of deficits.

That was based on the 2008 pre-election economic and fiscal update, which forecast 10 years of deficits into the future if there was no change. That forecast incorporated the impact of recession and the Global Financial Crisis on the Government's books.

But what Mr Key and Mr English routinely fail to acknowledge is the fact that Labour ran surpluses throughout its time in government.

And the wasteful spending which both men refer to when criticising Labour's financial management - extensions to Working for Families tax credits and interest-free student loans - remain in place.

From National's perspective, it has been a key political argument to perpetuate the narrative that only it can be fiscally responsible while in contrast Labour is irresponsible with taxpayers' money.

Setting a surplus target of 2014-15 has been an important part of that political strategy. Throughout most of this year, the Government has been softening its language on the surplus but has never admitted it will not achieve one.

Government not so optimistic

When the Treasury released the pre-election economic and fiscal update in August, Bill English stuck to his conviction that the surplus would be achieved, even though it was clear then the slump in prices for the country's dairy products would have a negative impact on the Government's tax take.

Then Mr English said: "While the surplus is a bit smaller than forecast in the Budget, we will achieve one, and the surpluses forecast for subsequent years have fallen by around $500 million each year."

This week, though, he told an Auckland business audience things no longer looked so optimistic, with falling dairy prices and lower-than-expected inflation posing questions.

"This combination of lower commodity prices and low inflation means that the nominal or dollar value of New Zealand's economic output will not grow as fast as previously expected. This will affect farm and company incomes and we expect this to flow into the Government's books through lower revenue."

Mr English said the Government still expected it could get back into surplus.

But given different forecasts of the surplus have all been paper thin, that must now be in serious doubt and the Government's language is less confident than it has been.

Going into the election campaign National was intent on keeping its surplus promise intact. Now it has been re-elected for a third term in office, there is not such a strong political imperative to achieve that target next year.

Voters might have reason to feel aggrieved, though, that they were not give a stronger signal before the election that the projected surplus was looking so shaky.

Opposition parties will feel particularly aggrieved after they accused National of being tricky with the books back in August.

But failing to get into surplus this year might not cause National too many political problems if it achieves that goal before the 2017 election. By then, voters will have probably forgotten about a missed target.

Follow Brent Edwards on Twitter @rnzgallerybrent

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