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Peter Wilson: Government Faces A True Test Of Its Abilities

Peter Wilson
Peter Wilson

This year is the Government's second since taking office, and its actions over the next 12 months will influence the outcome of the 2011 election.

After spending most of its first year dealing with the recession, it now has to take on the task of rebuilding the economy, changing the tax system, and solving the problem of the Foreshore and Seabed Act.

Many other issues will come its way, and how it handles them will determine whether it ends 2010 still holding a strong lead over Labour in the polls.

Finance Minister Bill English's May budget could be the single most important event of the new year, and it is assumed he will bring in taxation changes as part of it.

There are hard calls ahead. The Government isn't going to be able to please everyone, which it mostly managed to do throughout its first year as the public accepted the need for tight fiscal management to cope with the decrease in revenue caused by the recession.

Voters may not be as accommodating this year, and any changes to the structure of the tax system will upset those who are going to be disadvantaged. Already, rental property owners are warning of severe consequences if they have to pay more tax on their investments and the rural sector is strongly opposed to any form of land tax.

Cutting the top tax rate will please the business sector but English is firm on his resolve that any changes will have to be fiscally neutral -- whoever gains, someone else will have to pay to maintain the Government's revenue stream.

Politically, any changes will be highly-charged. Raising GST, which is one of the more likely scenarios, will raise cries of alarm about the impact on low income families. Cutting the top tax rate will be seen by opposition parties as favouring the rich and there will have to be a careful balancing act if the Government is to avoid a fall in its popularity.

Toward the end of last year the question was being asked: Is John Key a populist prime minister? Does he go with the flow, careful not to do anything that doesn't have broad support? Is he the sort of leader ready to bite the bullet and do the unpopular things that are going to be needed to set the economy on a stronger footing?

Those questions will be answered in the coming months, and there will be an impact on National's long-term future as the governing party. He will have to persuade voters that the Government has a strong case for whatever decisions it makes, and the Labour Party will be there to make sure he has the answers.

And can the Government maintain the relationship with its partner parties, ACT and the Maori Party? There were some strains apparent towards the end of last year, particularly with the Maori Party, over social policy issues and this year the "three strikes" sentencing changes have driven another wedge between them.

The real test in this relationship will be the future of the Foreshore and Seabed Act. The Government is going to repeal it, which is what the Maori Party wants, but not until it has worked out replacement legislation.

Whatever emerges from the discussions, which are in the hands of Attorney-General Chris Finlayson, the public will have to be assured of their absolute right of access to the beaches. At the same time, Finlayson has to find a way to satisfy iwi that their rights are being recognised.

That was what the original Act sought to do, and Labour believes the replacement will be nothing more than a slightly re-worked version of it which really doesn't change anything. If that happens, the Maori Party will have a hard time selling it.

The Government could put the Foreshore and Seabed into the too hard basket this year, but it won't want to do that because it would then have to deal with it in an election year.

Will Economic Development Minister Gerry Brownlee press ahead with the mining of minterals in sensitive conservation areas? He wants to, and it is part of the Government's plan to broaden the economy, but unless he treads very carefully he will risk alienating voters who believe extracting minerals will cause more harm than it is worth.

And then there is the "catching up with Australia" problem, which the Government may come to regret saying so much about in the past.

The 2025 Taskforce, set up to find ways to close the economic gap, reported late last year and its recommendations were rejected as too radical to implement. Does the Government have any firm plans of its own? Labour doesn't think so, and when Parliament resumes on February 9 it will be posing some difficult questions for ministers.

Party leader Phil Goff is already pointing out that, for the first time in decades, Australia's unemployment rate is lower than New Zealand's. Far from closing, he says, the gap is actually widening.

If Goff is right, and at the end of this year Australia's economic growth is still outstripping New Zealand's, the Government will have some serious explaining to do.

With these issues ahead, 2010 is going to be a true test of the Government's abilities. Because of the international recession, and its potential to damage the economy far more than it actually did, the Government's economic management during its first year was largely a response to external circumstances.

This year will be different, because it has to find solutions to New Zealand's own problems.

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