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Corin Dann: 2013 is do or die for National

opinion Corin Dann

By Corin Dann ONE News Political Editor

Published: 1:02PM Friday February 01, 2013 Source: ONE News

  • John Key's State of the Nation Speech (Source: ONE News)
    John Key's State of the Nation Speech - Source: ONE News

With unemployment at a 13-year high of 7.3 per cent is it really any wonder that John Key has come out of the blocks this year firing and promising to make the economy his number one focus?

2013 is do or die for National.

If it can't get some strong economic growth this year and get the unemployment rate down to something under six per cent, its chances of another term are all but gone.

The jump in the unemployment rate to 7.3 per cent late last year came as a surprise to economists and officials. With many starting to question the reliability of the figure.

Caught on the hop, the Prime Minister also took issue with the number saying it was at odds with his Government's own anecdotal figures.

Next week Statistics New Zealand will give a fresh update on the unemployment number. Early forecasts are that it will come in at 7 per cent.

This will be the first big test for this Government this year as it will bring the jobless issue sharply back into focus and provide Opposition parties with fresh ammunition to attack Mr Key's economic management.

If the rate remains above 7 per cent then life is going to be difficult for Mr Key and any attempt to write the figure off as a 'one-off' blip won't be credible.

However I doubt Mr Key will resort to attacking the credibility of the number.

My feeling is that over the summer months there has been a change of heart on the issue.

It's more likely that Mr Key will instead use the number as a tool with which to impress upon his economic advisors, that they must shift their thinking faster from cost cutting to driving growth.

Mr Key is no longer so interested in the fiscal story of austerity and cost savings. That job has by and large been done.

He wants real growth and he wants his officials to start thinking the same way. He's not likely to accept excuses any more.

Cost cutting proposals that amount to sucking money more out of the economy (thereby weakening growth) such as putting interest back on student loans simply don't wash anymore either.

Apparently officials did suggest this to the Government last year, however senior Ministers would not have a bar of it.

The Reserve Bank may also want to watch out.

Whilst the Government is not supposed to interfere in its business.

Mr Key has already shown a willingness this year to put in his 10 cents.

He made it clear publicly yesterday that he personally saw no justification for raising the OCR yet.

Therein lies the other tricky dilemma for the Government.

Because if the economy does start to grow robustly (and there is a chance it might should Christchurch really take off this year) the Reserve Bank will need to hike rates from their historic lows.

Rising interest rates could actually be a sign of the better times ahead.

However the country's mortgage holders are unlikely to see it that way and could easily blame the Government for their weekly payments taking a jump.

Mr Key knows rates will have to rise eventually.

However his beef (and many others' for that matter) will be if they do so while unemployment is still high and wage growth slow.

It would be hard for any government not to comment publicly should the rate go up in those circumstances.

All the more reason I would have thought to ensure that the Reserve Bank is given new tools to prevent unnecessarily painful hikes in the OCR that might be needed to tackle rampant house price inflation in Auckland.

Read more by Corin Dann