OPINION - Pattrick Smellie: Earth to Key: Don't Forget Process

By Pattrick Smellie

Friday 13th March 2009

Pattrick Smellie

I went to a select committee hearing for the first time in years this week.

Freshly re-accredited to the Press Gallery, I returned to a once-favourite haunt: the finance and expenditure committee.

It was hearing submissions on the Taxation (International Taxation, Life Insurance and Remedial Matters) Bill. But wait! There's more...

It's a hodge-podge which tries to deal simultaneously with the taxation of foreign direct investment, life insurance tax, and changes to the "associated person" rules which are simultaneously scary and bafflingly obscure.

For good measure, there are some new rules about meal allowances tacked on as well.

On one hand, the Bill is just fix-ups and why should we worry? On the other, its passage as drafted would change several fundamental parts of the tax system with rather uncertain effect. It is also in the hands of a rookie select committee under pressure to pass law that was supposed to be in place before the last election.

Many of the same MPs are also on the Emissions Trading Scheme committee - also on a mad timetable at the moment.

For some, the pressure is already telling. As he lays about him on the ACC while also shepherding the rush to a new carbon emissions regime, Environment and ACC Minister Nick Smith looks every day just a little closer to blowing a valve.

From such pressure are stuff-ups made.

The pattern is observable across the Government's rapidly mestastasising agenda. Impatient to reform and get runs on the board, it is pursuing big ideas all over the place - the shape of the electricity market; a review of the public health system; ACC reform; the imminent rejig of national transport policy; the forthcoming defence white paper, to name but a few.

And looming over everything is the need for an active response to the world economic crisis.

Getting all those ducks in a row would be difficult at the best of times. The lukewarm reception this week to the nine-day fortnight, and the growing realisation that the Jobs Summit felt good but was over-hyped, had the whiff of a government in danger of speed wobbles.

John Key is setting the pace, and has seemed sure-footed to date, partly because of the fresh advice he's getting from another rookie Minister: Steven Joyce.

Joyce is at last displacing Murray McCully as the National Party's presumed Svengali, and also represents an umbilical parliamentary link to the non-parliamentary party elite.

However, the last Prime Minister parachuted in without experience of managing a Parliament was David Lange, the undisputed King of the Speed Wobbles.

Key needs to be very careful that he's not creating a lot of sound and fury, some of which ends up meaning nothing or not very much - like the Jobs Summit - or over-committing key Ministers with multiple political firestorms, a la Nick Smith.

In the end, anything a government wants to do tends to need new law, so managing the House under this weight of new initiatives is also shaping up as a major test for Key.

Time to Buy a House?

Theme of the week after the Official Cash Rate cut this week was: is it time to buy residential property again?

At best, the signals are mixed as to whether it's a "good" time to buy. What is clear, however, is that the market is unsticking. People who've held off moving for months are deciding to do it and be damned.

Only a mug would suggest they know where the bottom is in this market, but buyers can see that house prices have plummeted in some areas. Buyers are also emboldened by the prospect of fixing interest rates for as long as four years at interest rates under 6% and right to think that even though rates may fall a little more, this has to be near the bottom.

Meanwhile, sellers are either seeing the writing on the wall, or having it pointed out to them. A new data series from Terralink shows mortgagee sales are now running at their highest rate since the 1990-91 recession, a tragedy for the seller but those sales will be establishing new benchmarks.

Houses commanding $800,000 two years ago will now sell at $600,000, and in toney suburbs and for doer-uppers in good streets, the market is active, if not strong. It's not an investment play, apart perhaps from the shoebox Auckland apartment market, but it seems people with normal lives are starting to breathe again.

Such upbeat talk, however, irked the Reserve Bank's Governor, Alan Bollard, when journos at his OCR briefing suggested the bank's new economic forecasts are almost optimistic. The outlook was "extremely pessimistic," he insisted.

Yet, by failing to forecast apocalypse and noting numerous sources of relative strength, such as net inward migration, loose fiscal policy, export volumes holding up, Australia looking OK, and banks that aren't on their knees - it was easy to forget that the new forecasts confirm the Treasury's pessimistic pre-Christmas scenario.

As Bill English puts it, the forward track for the economy suggests somewhere between $50 billion and $60 billion has disappeared from the next four or five years' growth. To put that in perspective, the New Zealand economy clocks in at about $140 billion a year. So that's definitely bad, and with more potential to be worse than better.

However, the Pollyanna mood here persists and much of it is to do with approval for the new Government. The right track/wrong track poll is always closely watched by politicians and here, 51% of people are saying the country is on the right track.

At the height of a global economic meltdown of biblical proportions, you'd have to say we're surprisingly chipper. All the more reason for "Twinkletoes" Key to ensure he's not balancing too many plates at the same time.

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