KEY POINTS:
The central issue of this year's election campaign became a little clearer at the weekend when the National Party outlined for its annual conference its new approach to the economy. First, finance spokesman Bill English indicated that long-promised tax cuts would not be derailed by the fact that the Budget surplus had disappeared. Nor would the cuts be financed entirelyby savings in public expenditure. National, he said, wouldbe comfortable running deficits until the economyimproved.
The next day, leader John Key proposed to increase public debt with a borrowing programme to put an extra $5 billion into the country's "infrastructure". Some of this money would be raised domestically with a special class of Government bonds, and it could be augmented by private investment in "public-private partnerships".
Deficits apart, none of these ideas is new to anyone who has listened to Mr Key's inclinations since he took over the National leadership. But by declaring his intentions a little more clearly at the weekend, he has given the Government the first grist to its mill. The Prime Minister was quick to label the proposals reckless and "horribly Muldoonist". Raising the debt level could, she said, put the country's credit rating at risk.
Voters under the age of 40 - probably half the electorate - will have little idea what she is talking about. They would have been no older than their mid-teens when the Treasury took stock of the economy's declining performance in 1984 and the country changed its mode of investment. Thereafter, Governments tried to neutralise their influence on business investment decisions to ensure that economic resources flowed into activities that offered the best returns in competitive markets.
Mr Key is not proposing to return to the whole panoply of planned economies. He is not talking about the restrictive licensing, border protection, production subsidies and selective taxation that used to be as influential as direct state investment in directing economic resources to uncompetitive ends. But nor should the implications of his proposals be under-stated.
A $5 billion additional borrowing programme over six years would represent a substantial proportion of national investment in projects of his government's choosing. Their influence on the pattern of investment would be enlarged by the issuance of gilt-edged "infrastructure bonds" that would draw savings from the private sector.
And public-private partnerships should also come with a caution. Business is often very keen to share any profits of public projects, less keen to share any losses. But unless private investment stands to lose should the projectnot produce the expected returns, the economic value of private participation is diminished. That value is not so much the money that private partners contribute but the evaluation they make of the project's risk. The most reliable evaluations are made by those who will pay for a miscalculation.
National has yet to specify infrastructural improvements beyond a $1.5 billion investment in fast broadband cable. "Infrastructure" is a label that can be pinned on any physical amenity that might add value to an economy without being profitable in itself. But without profit the claim to value becomes subjective.
National says it intends to raise public debt for infrastructure, not tax cuts. But a Budget deficit makes that distinction meaningless. There should be no taxcuts unless the Budget can be balanced. National's commitment to cut tax regardless could be the economy's undoing.
