KEY POINTS:
Although Labour is doing its utmost to appear unfazed by John Key's depiction of a growing "underclass" in New Zealand society, the governing party is somewhat unnerved by it.
It is not so much Key's assertion of a burgeoning underclass prone to escalating lawlessness and violence that is troubling Labour.
The party is confident it has the track record backed up by statistical evidence, plus the correct programmes, to argue the contrary - that any underclass is diminishing, not growing.
One statistic stands out like a beacon. The number of people on the unemployment benefit for more than two years has dropped from more than 27,000 when Labour came to power in 1999 to just over 8000 last year.
Moreover, those who remain will soon be required to do far more to make themselves work-ready.
Labour is also starting to impose some work-ready expectations on the category it does not like to highlight - those on the sickness benefit, who increased in number from nearly 33,000 to more than 48,000 between 1999 and 2006. They will soon face sanctions, such as benefit reductions, if they do not comply.
But it is perceptions which count in politics. Labour must worry that National's new leader has caught a wave of rising public agitation that behaviour in some dysfunctional families has become so callous and brutal that new solutions are needed. Once established, such a perception is hard to shake.
By walking "mean streets" like Auckland's McGehan Close in Owairaka, Key is subtly playing to the politics of fear - that such neighbourhoods will not only become no-go areas, but their inhabitants threaten the safety of those living nearby.
That aside, what is different about Key is that he is not indulging in the standard beneficiary-bashing or postulating the punitive solutions usually mooted by the right. His talk of giving the seriously deprived a "fair go" amounts to a raid deep into what Labour would consider to be strictly its territory.
Labour is not used to being "hugged" by National, as one minister put it. Another Labour activist writing on his blogsite noted Key had adopted the language of the left. Key is not out to flatter, however.
He is telling women voters and urban liberals - the target audience for Tuesday's state of the nation address - that National can be as caring as it can be strict.
Key is also confronting Labour with its failure to make a significant difference for some of those at the very bottom of the heap despite being in power for more than seven years.
It sticks in Labour's gullet to see Key make political mileage out of inter-generational deprivation when National bears responsibility for creating hardship during the 1990s.
Labour insiders also note Key himself was the successful product of a welfare state at its zenith. It was the ripping away of protections by the likes of Ruth Richardson which brought an end to egalitarianism and created an underclass.
But Labour is now discovering Key's big advantage in not being tainted by the politics of the Richardson era.
That is one reason, in its public statements, Labour has avoided playing the man, preferring to undermine Key's credibility by trying to demolish his arguments.
Given Tuesday's speech was designed to be agenda-setting and image-building, Labour mounted a retaliatory offensive fronted by Steve Maharey, as the senior minister in charge of co-ordinating social policy, rather than Social Development Minister David Benson-Pope.
However, Maharey throttled back after media coverage and reaction to Key's speech tailed off rapidly the following day.
By then, Labour had issued a welter of figures on falling child poverty rates, reductions in long-term unemployed, rising incomes for Maori and falls in recorded crime as evidence of the Prime Minister's assertion that the underclass was diminishing.
In response, Key seized on a Ministry of Social Development report which shows that between 2000 and 2004 the proportion of those in the bottom category of "severe hardship" increased from 5 per cent to 8 per cent.
The report suggests that might be explained by people getting into more debt, while family support payments had not kept pace with inflation during that period.
Labour was quick to point out that the measure of "severe hardship" is based on a survey and respondents' own rating of their standard of living and the adequacy of their incomes to meet day-to-day needs. Of crucial note, the survey was taken before Working for Families' payments kicked in.
However, the next survey will not be conducted until next year. Key may not be right about a growing underclass, but in the meantime Labour has no definitive measure to prove he is wrong.
Whether or not the underclass is growing, the next question is whether social agencies are making a difference.
Key argues the "mish-mash" of policies is not working and new and imaginative thinking is required.
However, the Government has responded, notably with its Vulnerable Families programme which was set up following the death of the Kahui twins and concerns about beneficiaries "clustering" their incomes in one household to fuel a lifestyle based on alcohol and drugs.
Some 41 "at risk" families have since been getting extensive "wrap around" services after being identified as needing intensive support.
The move reflects the increasing trend in Labour's welfare policy - more intensive, no-nonsense intervention in beneficiary households to ensure they get what they need, be it to find a job, get out of debt, decent housing or whatever.
Key's speech proffered few solutions. It is too soon for National to be releasing detailed policy.
However, if National's solutions are to be more centrist - rather than just standard centre-right responses like work-for-the-dole - the challenge is to come up with ones Labour has not already thought of.
Key did not sound convincing on that score.
One of his ideas is to provide food for kids in low-decile schools who miss out on breakfast. However, Labour already has a "Fruit in Schools" programme.
And although Key says children should not be punished for the sins of their parents, such a policy cuts right across National's "enduring principle" of individual and parental responsibility.
Key also did the big sell on the delivery of social services by private organisations, rather than the state. However, Labour already pours around $1 billion in funding into the non-government sector.
In coming months, Key will execute more leaps across the centre-ground to unsettle Labour. Ultimately, he will not be judged on the quality of the gymnastics. He will be judged on the quality of the policies that follow.
