BUDGET 2013 COMMENT Plain sailing, but it's no America's Cup cat

Thursday 16th May 2013

Compared to the last four budgets, this year's reflects an economy moving out of recession and into calmer waters.

The global financial crisis is still a risk, but we're not in the maelstrom anymore. For now, at least.

Yet if the fastest annual growth rate we can expect over the next two years is 3 percent - - with the Christchurch rebuild in full swing - then you'd have to say New Zealand's underlying low-growth problem is far from fixed.

Christchurch was bad luck which, during the repairs, is good news for economic growth rates. But it's not an economic strategy for lifting the country's perennially sluggish productivity.

In other words, we may have moved from sailing a leaky P-class to a trailer sailer, but we're a very long way from America's Cup catamaran status.

Yes, there's a lot of money here reprioritised or found from somewhere to spend on new initiatives, many of them carefully targeted to areas of great social need, and the government talks a coherent game about the drive for Better Public Services to deliver better outcomes on the same or fewer funds.

But the crude numerical reality is that the government only achieves its totemic target of a surplus in the year to June 2015 by cutting from $1.2 billion to $1 billion the amount available for new spending in next year's budget. English rightly argues that's too simplistic an analysis, but it remains true.

And when it comes down to it, the forecast $75 million surplus could vanish in the blink of an eye or, for that matter, come in far larger.

Meanwhile, having expended far more political capital than it should have on the partial privatisation programme, the government is determined to bank the dividend and will sell half of Meridian Energy later this year to raise around $3.3 billion, barring an equity market cataclysm.

It's punting the threat of closure at the Tiwai Point aluminium smelter can either be managed in an orderly fashion over several years, or that it won't happen. Even if the smelter does close, it's credible to expect Meridian to make better money from other customers for its hydro-electricity than its current earnings from the smelter.

A smelter closure could, however, be bad news for Genesis Energy, because the costs of the ensuing electricity over-supply would be borne by owners of gas and coal-fired power stations, which are a big part of Genesis's business. But it's worth far less than Meridian, at around $2 billion.

So, whether the government pursues a part-sale of Genesis in election year remains to be seen. However, it will be keen. That's not only because it still expects to raise $5 billion to $7 billion from asset sales, but because it would make the Labour-Greens' electricity policy much harder to implement.

If every big power generator in the country has private shareholders by election day next year, it's a fair bet those shareholders will take unkindly to any move that slashes the value of their newly bought shares.

Add to that whatever election year sweetener the government comes up with next year - most likely a "jam tomorrow" promise that will require National's re-election - and the early shape of next year's election campaign can already be seen.

BusinessDesk.co.nz

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