National and Labour need to look beyond their differences on government taxes and borrowing. The real challenge ahead is how New Zealand avoids a jobless recovery

Phil Goff and Bill English are at it, hammer and tongs, this week. Phil wants tax cuts for the low and middle income earners. Bill wants a realignment that reduces tax rates for the top income earners while he closes loopholes they exploit elsewhere.

Phil thinks the government can afford to borrow and spend more to get the country moving. Bill attacks this as the old “borrow and hope, tax and spend” Labour formula that got the country into trouble in the first place.

Bill signals an increase in GST to make income tax reductions fiscally neutral. Phil argues this will hurt low income earners and families under pressure – but can’t quite bring himself to commit Labour to reversing a GST hike if it happens.

This is a classic piece of political shadow-boxing in the countdown to the unveiling of the Key coalition’s vital mid-term budget later in the month, and it really misses the point of major concern to most New Zealanders.

We are in danger of moving out of recession into a jobless recovery that will blight the lives of a generation of young people reaching working age.

The New Zealand Institute’s recent NZAhead report finds New Zealand ranks 29th out of 30 OECD countries for the proportion of unemployed who are 15 to 19, with 20 per cent of this age bracket unemployed. John Key alluded to the problem in a Job Summit message this past February.

“We are now facing a different sort of challenge than we did a year ago. The loss of existing employment has almost completely halted, but people entering the labour market, particularly young people, are finding it hard to break into a job.”

On The Nation last weekend, Goff started to push the same hot button when he matched unemployment statistics with street level reality for young work-seekers.

“What really worries me is when I know that in my electorate 37% of the Maori and Pacific boys are out of work. That’s a disaster for New Zealand.”

But then he moved on to get himself tangled in the jungle of qualifications he is wrapping around Labour’s tax policy. For a moment, though, he touched a nerve.

Things are not looking up for our major employers – New Zealand’s vital small and medium-sized businesses.

The latest MYOB Business Monitor shows the number of these businesses reporting a revenue decrease over the past 12 months has grown from 26% last November to 35% in April, while their confidence about an improvement in the economy over the next year has declined six percentage points since last November. Business turnaround specialist Terry Thornton is now predicting that the trend by banks in Australia to wind up small businesses that have fallen behind is likely to take off in New Zealand.

"It would seem only a matter of time before banks on this side of the Tasman start to lose patience with companies that have not been able to effectively rehabilitate themselves."

The English plan to increase GST in the budget is another hurdle ahead of small and medium size businesses (SMEs). According to an Accomplish survey of the sector, 60% expect it will reduce their sales, and close to 50% plan to increase prices to claw back the tax while the balance plan to absorb the rate increase. At best, in this environment we can expect the SMEs to focus on improving their productivity, not growing their workforce.

Is there good news for young job seekers in the primary industries? Milk and dairy product prices are trending towards record heights. The forestry sector is stretching to meet a surge in demand from China. Unfortunately, dairy farmers will probably use the money to pay down their heavy debt burdens to get the bankers off their backs and, according to the Timber Industry Federation, New Zealand forestry is becoming a "rape and run" industry chasing a fragile Chinese bubble created by the Russians, who have started taxing their log exports out of the market.

In general, young job-seekers’ prospects in the private sector are not looking up, and they don’t look any better in the public service or local government.

Bill English has found another $1.8 billion of low quality government spending to eliminate or reallocate over the next four years – on top of the $2 billion he discovered last year. He has this cheery advice for public sector job-seekers.

"There was a reduction of about 1500 jobs in the last 12 months and I expect that process is likely to continue.”

His other budget signals have paralysed residential property buyers and builders. According to the Reserve Bank, the number of people who locked in to mortgages during the first quarter of this year was 30 per cent down on 2009, because house sales are stalling and investors are worried about possible tax changes in the budget. Sustainable work prospects for new entrants in the building industry are not bright.

On the local government front, 3,800 nervous employees across the Auckland region are still waiting to hear if their jobs are safe as the Super City amalgamation progresses. Elsewhere councils are not risking a revolution by ramping up their demands on ratepayers and residents as they head to their elections later in the year.

This month’s budget will be the acid test of the Key-English combination’s ability to deliver the relentless focus on paid work that it promises beneficiaries in its Future Focus welfare reform. A jobless recovery offers nothing for young New Zealanders, their parents, or our country.