John Armstrong: An issue of affordability

It is a safe bet that the conversation during Helen Clark's private dinner on Wednesday night with Alastair Campbell - Tony Blair's former press secretary turned British Lions spin merchant - canvassed the subject of territorial possession. But not the rugby kind.

The success of Blair's NewLabour and Clark's New Zealand Labour is based on capturing the centre ground of politics and holding it regardless - even if that breaches the comfort levels of party loyalists.

At times, Clark has overcompensated and pushed further to the right than she has needed to.

But having watched two previous Labour Governments being killed off before their time, she is guided by a fundamental rule: always assume the voters are far more conservative than you think, and always assume the electorate will lean more naturally to National than Labour.

That is why she and Michael Cullen have been ultra-cautious in managing the Government's accounts.

It is why New Zealand troops are operating alongside the Americans in Afghanistan.

It is why Clark has always been prepared to back down when something becomes too hot to handle - Jim Sutton's deferral of legislation guaranteeing public access to farm waterways being the latest example.

It is why Clark dumped "Closing the Gaps" with barely a second thought. It is why she responded to Don Brash's Orewa treatise on race by implementing most of it.

But somewhere along the line, Labour has got seriously out of sync with the electorate.

Much has been made of this year's bungles, blunders and disastrous Budget as tipping voters over the edge and provoking the slump in Labour's poll rating.

Even now, though, some polls show more people think the country is on the right track than on the wrong one.

That suggests Labour may be being temporarily punished for a chapter of errors before voters swing back in behind when confronted with the ballot box.

But there is also evidence the electorate has undergone a sea-change after five years of relative satisfaction that the Labour-led Government was standing firmly in the mainstream - to borrow National's preferred term for middle New Zealand.

Brash's Orewa speech last year was the warning sign. The backlash on race suggested the electorate had become more conservative than Labour had thought. It got the message on race - but failed to back-pedal on other policies, notably the Civil Union Bill.

Labour thought that as long as it kept the economy in order, voters would tolerate a few pieces of liberal legislation. And if they wouldn't, John Tamihere could always be relied on to speak for those who were not happy.

When Brash returned to Orewa this year, he talked tough on welfare. But the muted public reaction may have lulled Labour into thinking the electorate was not as far to the right as Orewa One had indicated and National thought it was.

National had long ago selected the five core policies that would differentiate it from Labour: tax cuts, ending special treatment for Maori, prodding beneficiaries into jobs, stopping repeat offenders getting parole, and schools doing the basics better.

But although this agenda helped to rebuild National's core vote, the party was not getting the kind of traction from promising tax cuts to seriously worry Labour.

That may have deluded Labour into not taking out electoral insurance and matching National with some reasonable tax cuts of its own in the May Budget.

It either did not think it needed to do so, or Clark ignored her instincts. Or she was unable to sway Cullen.

The lingering public resentment at Labour's handling of other issues subsequently found a lightning rod in Labour's failure to cut taxes. Labour could ignore a revolt on civil unions; it could not be so blase about a revolt on tax.

The big question now is whether the electorate's embracing of tax cuts is an indication that middle-ground voters have shifted several steps to the right - and into the arms of National.

If there has been a fundamental shift in voter sentiment, then Labour has serious problems. No matter how vigorous its fightback, voters will be on a different wavelength and not listening.

The failure of Cullen's huge offensive to convince the public that National's tax cuts are unaffordable suggests voters have switched off.

Neither are they likely to switch on to Labour's "bouncing baby" billboards extolling the party's family-friendly record, which are being unveiled this weekend.

Those advertisements have the look of something conceived when Labour was ahead of National - not behind.

But there are signs of a tactical rethink, with Steve Maharey put up as Labour's representative on TVNZ's Great Tax Debate on Thursday, rather than Cullen.

Officially, that was done to get more recognition of Labour's own version of tax cuts - its Working for Families package of targeted assistance.

Unofficially, there is a feeling within Labour that Cullen has become too shrill and Clark, to whom voters respond more warmly, will have to come over the top of him. In the interim, the mess over tax has taken the pressure off Brash.

Although Clark is warning that a vote for Brash will mean a lurch back to the "nastiness" of the 1990s, National believes this is a dead-end as voters do not see Brash in quite such ideological terms.

They instead see an experienced economic manager and an inexperienced politician to whom they are willing to give some leeway.

Going after Brash will backfire on Clark as she will be swimming against the mainstream's wish for tax cuts, which Brash personifies. She must find another way to inveigle Labour back into the hearts of mainstream New Zealand.

Cullen is right. The issue is affordability - the cost of living. If Labour is going to rake in so much tax, it must spend the money in a way that makes people feel it is going back into their pockets, not into the bureaucracy.

Tackling the mountain of student debt may yet be the obvious starting point.

Labour needs fresh policies to deliver big political bangs for its bucks. And it needs them soon. At least the foul-up over tax has given the Prime Minister carte blanche to be utterly pragmatic when it comes to selecting them.