KEY POINTS:
National claims its tax package will stimulate the economy in the short term and improve incentives and drive growth in the longer term.
The first claim is plausible, the second not so much.
The laws of arithmetic, being the inflexible, unforgiving things they are, require that any more money in people's pockets has to to come from somewhere.
National says its plan will not make much difference to the suddenly much worse forecast track for Budget deficits and public debt which the Treasury released on Monday.
So any extra money in the pocket next April - were National to lead the next Government - would not be at the expense of increased Crown borrowing.
Is it at the expense of Government spending, then?
National says it will live within the $1.75 billion allowance for new operating spending already in the Budget.
It will also be spending more on infrastructure than the present Government - though not as much more as it had planned.
And it is a fair guess that its plans to amend the emissions trading scheme will end up with the taxpayer paying more and emitters less.
That suggests existing departmental budgets will be sweated, if the operating deficit track is to be much the same and there is to be no extra debt above what's already in the Pre-election Economic and Fiscal Update (Prefu).
So where is the extra money in people's pockets to come from?
Mostly from KiwiSaver accounts.
In the short term that gives them more to spend at a time when private consumption is flatlining.
But you can't have your cake and eat it. Our dismal household and national savings rates and the associated build-up of debt show we have been over-fond of eating cake.
"Have another slice, the bakers could do with the business," is the message of this plan.
The success of KiwiSaver, as measured by its uptake, has been an encouraging sign of a long-overdue behaviour shift from borrowing and spending to saving and investing.
And that shift is essential if we are to see the "capital deepening", or increase in capital employed per worker, that is key to lifting productivity and incomes in the longer term.
The other thing that would encourage more capital investment, especially among the vast mass of small and medium businesses which generate most of the employment and which are often unincorporated, would be a drop in the top personal tax rate.
National says its medium term goal is a top rate of 33c in the dollar which kicks in at $50,000.
It is not clear what "medium term" means, but the plan released today only nibbles at the top rate. It would still be 37c in the dollar from April 2011, with a $70,000 threshold.
Other elements of the plan are also disappointing from the standpoint of lifting our long-term growth rate - less of an increase in infrastructure spending, and the scrapping of the research and development tax credit.
John Key says the severity of the international "downturn" has exposed the economy's weaknesses.
We are in the midst, as Federal Reserve chairman Ben Bernanke said yesterday, of a "problem of historic dimensions".
It is not yet clear what it will take to restore confidence and normal functioning to the markets or how much damage to the real economy will be done in the meantime.
Bernanke in his speech flagged another interest rate cut, announced another liquidity-boosting measure - the Fed is to enter the commercial paper market as a buyer - and assured us that "the great majority of financial institutions have sufficient capital and liquidity to return to their critical function of providing new credit for our economy".
But it is a sign of the extraordinary times that as you watched his speech - carried on all the news channels and intended presumably to reassure - you could watch the Dow drop another 150 points.
No real-time "worm" tracking politicians debating is so brutal.
And it leaves you wondering what it would take to turn things around.
The International Monetary Fund has just released a report which estimates the tally of losses on US loans and securitised assets will reach US$1.4 trillion ($2.24 trillion) and that to keep private sector credit growing, even modestly, the major global banks will require around US$700 billion in fresh capital over the next few years.
All of this makes for a kind of instant obsolescence - a that was then, this is now quality - in economic forecasts, including this week's pre-election economic and fiscal update.
The fiscal numbers, while dramatically uglier than at Budget time as one would expect, are predicated on economic forecasts finalised in late August. The outlook has darkened further since then.
But what is clear is that now is the time, if ever there was one, for fiscal policies to be seriously stimulatory.
And the pedal is indeed to the metal. The Treasury estimates the "fiscal impulse" - an estimate of the net boost to demand from the totality of the Government's transactions with the rest of the economy - over the year to June will be a whopping 2.8 per cent of GDP, bigger than we have seen for many years including the Asian crisis. That is based on current policy and is the automatic fiscal stabilisers working.
National says its package will increase the fiscal stimulus the following year, 2009/11 when Labour has not proposed any tax cuts.
The scary thing about the Prefu is how quickly the Crown accounts have deteriorated in what has been (so far) a pretty mild and shallow recession.
From a position of fat surpluses and dropping debt levels we now confront deficits until 2017/18 and a gross debt to GDP ratio which climbs from 17 per cent now to around 30 per cent over the same period.
Even though the Treasury's economic forecasts have economic growth bouncing back above 3 per cent within a couple of years, it takes 10 years for the fiscal projection to return to health (as defined by fiscal surpluses and a falling debt-to-GDP ratio).
The medium to long-term part of its projection, which cover the period five to 10 years out, rests on an assumption that economic growth will average around 2.5 per cent a year, reflecting productivity growth of 1.5 per cent and labour force growth of 1 per cent.
If the growth rate were to be higher, say 3 per cent, the debt track would bend back down sooner. If we can only manage 2 per cent it keeps rising relentlessly.
So even from the standpoint of fiscal prudence, never mind aspirations to higher living standards, the crucial yardstick against which to measure economic policy is whether it will contribute to lifting that productivity number.
National's tax package, which also includes scrapping the R&D tax credit - admittedly only one plank of its economic policy - does not score highly by that measure.
