Magazine article New Zealand Management

Politics: The New Term: Time for Strategic Policy

Magazine article New Zealand Management

Politics: The New Term: Time for Strategic Policy

Article excerpt

Byline: Colin James

John Key took office three years ago amid global financial and economic mayhem. Then came earthquakes in Christchurch, a mine disaster and a ship grounding causing widespread environmental damage.

Another such concatenation of disasters is unlikely in the next three years -- though financial and economic mayhem cannot be ruled out (whether the Greek crisis had really been resolved was unclear when this was written).

The lesson for the 2011-14 government from disasters and the global financial crisis (GFC): build resilience into the economy so it is strong and flexible enough to trade through big shocks. A GFC2 would slow world trade and production and this time governments and central banks, including China's, don't have the wherewithal to offset it effectively.

To handle disasters requires fixing the sorts of regulatory gaps exposed by the earthquakes, Pike River and the ship grounding. To handle a GFC2 -- or just to adapt to the global power shift -- requires cutting the towering debt to foreigners and banks' dependence on foreign funding. That demands two rebalancings: of the budget (called "fiscal consolidation"); and from domestic spending and consumer imports to exports.

There will be two counter-balances: from that section of the public, widening as stringency bites, who link fiscal constraint to foreign banks' arrogance and self-indulgence and therefore think it inappropriate or immoral; and from those who think that when employment is weak and real incomes are stagnant or falling, the government should spend more to pick up the economic slack.

Fiscal consolidation in part requires public service reform -- as, for example, outlined in this column last month -- not just to save money and improve international competitiveness but to meet rising generations' expectations of more customised public services. We are in transition from the baby-boom generation to the next one and 2011-14 policy needs to reflect and anticipate the next generations' needs and aspirations.

One of those next-generation needs is to address the steep rise in the cost of pensions and health services in the 2020s as baby-boomers swell the over-70s. …

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