Forget what the two Johns said over a cup of tea about Don Brash, and forget Winston's supporters dying off. As John Key says €The thing I know that matters to New Zealanders is the issues that really matter.€

Most New Zealanders probably don't think fiscal policy matters, but the average Greek voter is now painfully aware of the devastating consequences of fiscal delinquency in a government. The thing that really matters for New Zealand is taming our gaping deficit, which was close to 10% of GDP in the year ended June 2011, making it roughly the same size as Greece's deficit. As a comparison, Australia's is less than half that, running at 3 €" 4% of GDP.

So what are we actually talking about here? The government has to spend money to run the country and provide the services it's expected to provide. The government gets that money mainly by collecting taxes. It's been spending more per year than it's been earning, so it has a shortfall, or deficit. It needs to borrow money to cover that shortfall, and that creates public debt.

The bigger the deficit, and the longer you have one, the higher public debt becomes €" and the more it costs to service it. The differences between Greece and New Zealand is that Greece's deficit is on-going, whereas ours looks a little more temporary€"made significantly bigger because of the Christchurch earthquakes. And Greece's debt is much much larger than ours. As an analogy, spending $500 more than you earn may not be a problem for a few weeks, but if you have no savings, and a massive mortgage as well, your bank is probably going to get antsy pretty quickly.

Anyway, responsible governments, just like responsible individuals, will be careful how much debt they take on, ensure they can comfortably service their debts and plan for future liabilities such as retirement.

The National Government has committed to an aggressive deficit reduction programme that it expects will return us to surplus by 2014€"all going well. Their programme includes selling down state assets (the four electricity generators and Air New Zealand), as well as ongoing spending restraint. It also relies on solid economic growth of 3% a year between now and 2014.

Less than six months into this deficit reduction programme, there's been some slippage.
Firstly, Treasury recently raised the expected cost of the Christchurch rebuild from $15bn to $20bn.

Secondly, while Treasury has stuck to its forecast of 3% a year growth for the New Zealand economy over the next three years, the deterioration in European and US growth prospects suggests that Treasury's forecasts will prove overly optimistic. Slower economic growth in New Zealand translates into less tax in the government's coffers. At the end of the first quarter (September 2011) of the current fiscal year the tax collected was running at $300M. That's 2.3% behind National's budget-night projections. Tax collection can be volatile, so this trend in revenue could pick up. In fact, it must pick up if we are to return to surplus by 2014.

It's not at all certain that a National led government will be able to balance its books by 2014, especially given the very uncertain global economic outlook and the need for a number of things to turn out favourably for New Zealand.

What about Labour?

If the National Government will struggle to get to surplus by 2014, a Labour-led Government is going to find it possibly more difficult, given some of its proposed policies.

Removing GST from fresh fruit and vegetables means a smaller tax collect. Compulsory KiwiSaver will be an extra cost to the government if the incentives remain. Extending Working for Families to those not in work will also be a cost, as will making the first $5,000 of income tax-free. That all sounds great, but these policies are mostly delayed until after 2014 in order to match National's promise of getting to a budget surplus by then.

Labour's big revenue initiative is a capital gains tax. They are also proposing to increase income tax for high income earners, and increase the age of eligibility for NZ Super to 67. Bold moves, but the fiscal benefits will be a while coming, implying that a budget surplus by 2014 would be a truly heroic achievement.

Given the sensitivity of global financial markets to debt, New Zealand needs to be very conscious of reducing its deficit and debt. As we've seen, both main political parties are aware of this and have clear commitments to getting the budget back into surplus.