Fran O'Sullivan: Straight talking on economy back in vogue

National's John Key is not about to throw his toys out of the cot just because leader Don Brash has delivered a call to arms on the economy.

When, like Key, you were once one of the legendary big swinging dicks of international foreign exchange, it takes more than a strut across your territory to throw you off your political stride.

But he jests: If one of National's white middle-aged men did throw a hissy fit it might be good for gender balance within caucus.

He's referring to Brash's lamentable failure to shore up support from his key (no pun intended) spokespeople before delivering incendiary speeches on race relations and welfare at two previous appearances at the Orewa Rotary Club commonly, but mistakenly, known as Orewa I and Orewa II.

Yesterday, Brash accused the Government of resting on its laurels while New Zealand inexorably teetered towards recession. The Clark Government had squandered six years of golden economic weather and the chickens were now coming home to roost.

The dollar was not about to fall, despite the Government's attempts to bad mouth the economy to foreign savers. Financial markets could see interest rates remain high for some time, underpinning the dollar's value (a factor Brash knows only too well from his own unsuccessful attempts to manage a swinging currency while Reserve Bank Governor).

The upshot was that firms would fail, exporters would cut back, jobs would be lost and, if business confidence was not increased, full-on recession was only a matter of time.

On top of that the brain drain to Australia would increase as young and not-so-young people left home for better opportunities and pay packets.

Overwhelmingly, there was now a danger that a tipping point - where economic decline moved towards economic freefall - would emerge.

That was the context on which Brash built his plan for action, basically setting out a framework for where his 45-strong caucus would put its efforts this parliamentary term.

The major question is whether, or for how long, the Government will allow National to occupy this gaping economic territory before announcing new policies.

There's been plenty of Beehive spin about a new economic agenda - emanating from Prime Minister Helen Clark's inner circle - which sounds suspiciously like yet another Labour carbon copy of British Prime Minister Tony Blair's political agenda. More correctly, it's Blair rhetoric but without the action.

But there's been no detail yet on just what's on the table in the brain-storming sessions between Clark's inner circle of ministers and senior state CEOs.

Nor has there been any sign that Labour is prepared to adopt frank and fearless advice without slamming its authors as ideological if the suggestions run counter to their Scandinavian-style social-democratic nostrums.

Brash twigged the Government on this yesterday by rehearsing the litany of areas where Labour had pretended to adopt policies to cover glaring holes - race issues, welfare benefit abuse, law and order and education - but had, in fact, delivered sweet all.

He ramped up National's plans to act as an attack squad in uncovering corruption and exposing waste.

Mercifully, there was precious little on the usual business mantra of employment laws, Holidays Act and red tape.

But there were some useful political equations, such as the money that would be available for women to get the breast cancer drug Herceptin, if only it had not been squandered by the wananga.

But he also, and this is perhaps one of the most salient points of the speech, offered the Government his party's support in effecting policy changes necessary to avert reaching the tipping point. This is important, for instance, if the economy is subject to a major external shock or if some of the major strategic risks identified by the Reserve Bank come about.

This is my interpretation - Brash's words are still a bit too other-worldly to get the required precision on this point.

That's where Key, the former money-markets man, comes into play.

The Don took intensive soundings last week from some well-connected players before deciding to make the economy centre-stage.

Key was not privy to all the machinations, nor did he take part in writing the speech - but he was certainly consulted.

But unlike Georgina te Heu Heu (Maori Affairs) and Katherine Rich (Social Welfare), who were dropped from their roles because they believed their leader's Orewa speeches went too far, Key believes National has much further to go to achieve the platform Brash laid out yesterday.

Which is just as well, because the central point of their own pre-Orewa talks was Key's role in developing the substantive policies to underpin National's future economic agenda.

His task is to deliver five or six major speeches before the end of this year, which will put flesh on the bones of National's economic agenda.

There are two aspects to this:

* Key needs to show he is more than a one-trick pony. National's tax-cutting agenda was hugely popular with voters in last year's election, but subsequent analysis showed a considerable number, particularly women, were worried that the necessary Government spending cuts would affect their families.

* Key's stated ambition is to be National Treasurer. But if the party leadership mantle is to fall his way should Brash falter, he needs to paint a broader brush.

The issues he will tackle this year include just how New Zealand can grow productivity; increasing private savings; increasing export penetration; the move to form a single economic market with Australia; and further development of tax policies and asset-based welfare.

This is bog standard stuff. Key's challenge will be to ensure the policies are sufficiently bold and enticing to persuade voters to comprehensively go with National next time around. This will not be easy.

Take the story of the under-25s - motivated and easily able to seek a brighter future in Australia as a result of that country's proximity, open migration (for Kiwis) and better pay rates - which is frequently glossed over by this Government.

Believe me, it is a real and present danger, made worse by the glaring intransigence at Cabinet level where ministers, particularly Finance Minister Michael Cullen, have been too quick to dismiss as an ideological burp advice from Treasury officials to cut taxes to fuel economic growth.

Yesterday, Brash reprised an anecdote he'd used on the election trail about a Napier woman whose four adult daughters have moved offshore, three to Australia.

Last week, he was still privately perplexed that journalists had chosen to focus on Tauranga MP Bob Clarkson's testicles (the issue du jour) rather than his real-life illustration.

Key is more easily able to paint the risk and devise policies on this score. But he must be wary of advancing too loudly proposals such as adopting the Irish low-tax model without having a plan in place.

Key is working on generating ideas with press secretary Kevin Taylor (a former Herald journalist) and Rodney Jones, a former ex-pat who still consults for George Soros from his Dunedin base, along with a few other returning Kiwis who are part of his unofficial brains trust.

The ubiquitous David Skilling, the chief executive of the New Zealand Institute who has been delving into this country's woeful export performance, is also being tapped, which should not imply any party preference on Skilling's behalf, as Labour is also much taken by his work.

There are weaknesses in Orewa IV. Brash skirted over tax cuts, which were the central point of National's economic policy at the last election and would clearly have also posed a risk to monetary policy if implemented without countervailing cuts to government spending.

Brash could also have, but chose not to, panned over the substantive strategic risks to the economy outlined by Reserve Bank Governor Alan Bollard last week, which could affect the pricing of goods and services.

To my mind, National will need to think hard and outside the square if it is to develop policies that deal with the substantive developments Bollard has isolated.

These include:

* The integration into the global economy of China and other emerging market economies with large reserves of labour (this clearly depresses world labour prices).

* An increased "premium" placed on security, arising from geopolitical and biosecurity considerations, global warming and acts of nature (this could, for instance, see our trading routes affected).

* A housing boom in some OECD countries (this carries with it the risk of market collapse and a resultant economic tsunami).

These are issues for not just National to ponder.

The Government's Growth and Innovation Advisory Board, which risks being seen as a mere cheerleader, needs to put more focus on the real environment. So, too, the business lobbies, which risk being duchessed by the politicians they lobby in businesses interests.

If the Brash speech did anything, it made obvious the need for an environment in which straight-talking about economic risks is again acceptable.

Roll on the debate and the actions.