The hard test for the government in next month’s budget is whether it can look past fiscal consolidation to the future.
Bill English restated his Presbyterian message to public servants last Tuesday. They packed the Beehive Banquet Hall, a phalanx of chief executives, luminaries, not-so-luminaries and unionists from the Public Service Association, to hear him tell them they have 10 years ahead of constraint and pressure to do “more with less”.
On English’s trajectory it will take five years to get back to a reliable surplus, then another two or three to reinstate full contributions to the Cullen Fund, then another two or so to establish a structural surplus which can withstand shocks. Nice or nasty shocks on the way could speed up or slow the journey.
Beyond that there are pressures for change anyway, not least because the countries we trade and compete with most are going increasingly to be in Asia, where governments are less generous than in Europe and North America, our current benchmarks. Although they will get more generous because their rising middle classes will demand it, they are not likely to get to European levels — or ours — in a hurry, if at all.
And the rising generations want more flexible arrangements: that is, they will demand government services be more customised in nature and come by way of more diverse delivery mechanisms.
English hopes for a spinoff: smaller, higher-productivity state services are in theory a positive for economic growth because they leave more room for productive, profit-making private enterprise. This is a contested theory — a department below critical mass becomes less productive or even counterproductive — but there is some logic to it.
The crucial point, which English emphasises in his homilies to public servants, is that to produce more with less requires innovation: smarter, more efficient, more inventive ways of doing things. Without that, less equals less.
The same goes for the economy as a whole.
So will English put your dollars where his mouth is in his budget next month to put the government’s weight behind innovation in the economy as a whole?
Innovation is not just science. The OECD defines it as “the implementation of a new or significantly improved product (good or service) or process, a new marketing method or a new organisational method in business practices, workplace organisation or external relations”.
But science and new technology is a big part of innovation. And that is the part a government can influence through grants, loans and research institutions.
In that English has continued Michael Cullen’s practice of fixing his gaze on his shoes.
This week, the word is, yet another restructuring is to be announced for the Crown Research Institutes, slicing and dicing them into three institutes. Apart from lowering morale and probably encouraging more of our better scientists and researchers to head offshore, just rearranging head offices will do little or nothing for output.
Last year both Science and Innovation Minister Wayne Mapp and Prime Minister John Key were hinting at some lift in funding for science and research. Mapp was taken with the correlation between government commitment to research and economic growth rates in some other small advanced economies.
A report Mapp commissioned last year argued for a boost over time of $1 billion.
Key’s Chief Scientific Adviser, Sir Peter Gluckman, also thinks the government should commit a lot more to science and research.
Today he issues a compelling report on the importance of giving children “some knowledge of how the scientific process works” (it is through inquiry, experiment and testing, testing, testing) and “general intellectual skills” to enable them to “distinguish reliable information from less reliable information”.
This is critical, Sir Peter argues, because science’s role is “very different from a generation ago”. And, he adds: “There is no challenge affecting our society which does not have science and technology associated with finding a solution.”
Another report to Key, due for release soon, spells out how science can and should inform policy. And a third, still being finalised, spells out the science in how to steer children and teenagers away from going off the rails.
All very well — but two Christchurch earthquakes and a mine disaster have sent English back to his ledgers and he has been preaching cuts for the past six weeks.
The question is whether yet again support for innovation will get unambitious treatment in the budget.
Ireland has something to say to English and Key. Announcing a fierce austerity budget late last year, then Prime Minister Brian Cowan nevertheless preserved a programme to make Ireland an “innovation hub”, underpinned with a $US660 million fund launched on the New York Stock Exchange last July.
Translate that: in a deep, dark hole Cowan looked not at his shoes but at the sky.
The budget will tell us which way English and Key will look.