National gets 4/10 for economy handling - Cunliffe

David Cunliffe. Photo / Paul Estcourt

Labour's finance spokesman, David Cunliffe, uses an analogy most New Zealanders would understand when talking about Finance Minister Bill English's handling of the economy.

"He's a little bit like a fullback taking a high ball and he's frozen to the spot rather than making a decision whether to kick it, pass it or run it, and the forward pack is coming at him. The flankers are there already. That's the global financial crisis."

The recent half-year economic and fiscal update shows the crisis has indeed stiff-armed the Government's finances.

With $2.5 billion of extra debt just since the Budget, net debt set to double to a peak of 28.5 per cent of GDP, and the Government now facing the prospect of having to borrow an additional $8.5 billion to fund future deficits, "it's an extraordinarily rapid deterioration".

Mr Cunliffe says the Government has unimaginatively tried to "cut its way out" of the problem by reducing spending, shrinking the size of government and "so the neoliberal theory goes ... the private sector bursts forth and makes up the difference".

"The problem with that, of course, is in the short term you shrink demand and make more people unemployed and end up paying more unemployment benefit."

Labour wouldn't do that, "nor does the country need to do that because it's not in the same situation as an Ireland or a Greece or even the UK in terms of our fiscal balance".

Labour favours trying to "basically grow our way out", with the Government taking a more active or even "activist" approach to economic development, particularly in the export sector.

"It's got to be a judicious combination of Crown investment in growth promoting activity, sufficient short-term stimulus to rebuild confidence in the economy, but enough discipline over Government finances to avoid a blowout of debt over the longer term."

Mr Cunliffe gives the National Government a four out of 10 for its handling of the economy so far and says it was banking on an aggressive recovery which had not eventuated partly because of its own policies.

He also condemns National's "tax switch" of cuts to income tax and an increase in GST.

"They must now see the folly of slashing revenue as much as they have done because it has beggared the Government's books. It's the principle cause of the deterioration other than the earthquake."

But he suggests the Government may have partly engineered, rather than entirely blundered into, the mounting debt situation.

"It's what the theorists call a strategic deficit, the deficit that you create as a pretext to then reduce spending or even the balance sheet. It's a classic conservative strategy."

Mr English has already announced "a further razor-gang review in the new year".

Even without more spending cuts, National's previously announced limits on new spending in the next Budget are effectively a rigid spending cap, says Mr Cunliffe.

"That will necessarily mean deep and painful, maybe even savage, cuts to social spending."

Mr Cunliffe accepts the Government now has a very difficult balancing act given its tight situation, "but their absence of new ideas in the area of growth, employment skills, innovation investment and economic development is a crucial gap that Labour would fill very rapidly".

The first key event on Labour's economic policy agenda this year is leader Phil Goff's state of the nation speech on January 25, followed by "some substantive policy statements around savings" later in the first quarter.

Hard on the heels of those will be Labour's economic development framework.

"You'll see a much more activist role for government in partnership with the private sector from us," says Mr Cunliffe.

"As a follow-up to that there will be important stuff around innovation and clean technology."

In the meantime, Labour will be continuing its work around "fair tax" but the timing of actual policy release will depend on when the election is called.

"But we've already signalled that we think personal responsibility means everybody pays their fair share, so there will be a significant emphasis on anti-avoidance and tax relief for hard-working families."

Meanwhile, the Government will be laying out its own policies and will be considering advice from the Treasury around ownership of state assets.

It has repeatedly said it will go to the country before this year's election campaign with a clear statement on the issue.

"I will eat my hat if they do not open the door to some form of privatisation or equity dilution," says Mr Cunliffe.

That, on top of constraints on social spending, will give voters pause for thought, he says. "New Zealanders will see laid bare at that point where the agenda of this Government is taking them.

"The only thing that is yet to be seen is whether it occurs and people recognise it in time for [this year's election] - and it's our job to convince them what's happening - or whether it will take a little longer.

"But it's as inevitable as God made green apples that when New Zealanders understand what is being done to them they will not put up with it."