KEY POINTS:
The election is being fought when the economy, already in recession, is in a kind of Phoney War period bracing itself for the full impact of the global financial crisis, which is yet to come.
The political parties' economic policies therefore have both near-term and longer-term challenges to address: How to moderate the pain of the recession and how to ensure, as far as politicians can, that the economy which emerges from the recession is healthier, more robust and more productive.
By way of a short-term stimulus Labour is promising a mini-Budget before Christmas which would bring forward infrastructure spending on road and rail projects, boost local government spending on water and sewerage, plant forests, expand and upgrade the state-housing stock and build more classrooms.
The stimulus should take the form of measures which boost investment and take up spare capacity in the construction sector, and not just boost consumption, Finance Minister Michael Cullen says.
And the longer-term strategy includes investment in a skilled workforce, in sustainable energy production and in innovation through such measures as research and development tax credits and the primary sector Fast Forward scheme.
The Government has also announced a temporary drop in the interest rate Inland Revenue charges for underpayments of provisional tax. Normally set at a penal level, it may now be about the cheapest credit around.
Cullen expects to announce before the election a scheme for the Government to underwrite banks' wholesale funding.
The banks rely on offshore sources for about a third of their funding and the concern is that in the current environment they will struggle to roll that over without a Government guarantee, when other countries including Australia are offering one.
If it follows the Australian model, banks will have to opt in, and pay a stiff price in terms of fees for access to the guarantee.
National also favours a wholesale guarantee scheme.
It says its planned tax cuts in April next year will ensure that the strong fiscal stimulus in the current year (nearly 3 per cent of GDP by the Treasury's reckoning) doesn't fizzle out just when the economy needs it most.
The tax cuts will also improve incentives to work and invest, National's finance spokesman Bill English says, and so make sense from a longer-term perspective too. It would have liked to do more but was taken aback at the deterioration in the Government accounts revealed in the pre-election opening of the books.
"Bringing forward some infrastructure spending will both provide some stimulus to the economy in the short term and in the long term will help raise productivity - provided it's wisely spent."
The critical issues, he says, are whether there will be profitable investment opportunities in New Zealand and what the source of funds for those investments will be.
"The reason we made a moderate shift with the New Zealand's Superannuation Fund [to require, eventually, 40 per cent to be invested onshore] is to try to beef up the sources. Just focusing on the quantum of savings isn't sufficient. Without profitable investment opportunities you can't use the savings."
For Act leader Rodney Hide, however, the major parties' policy prescriptions are a return to discredited Keynesianism.
"The idea that we can spend ourselves out of this is daft," he says.
The country has a huge current account deficit - $15 billion in the year ended June - and no longer has access to easy credit with which to fund it. "To cover the deficit resources need to flow into the tradeable goods sector - not Government spending," Mr Hide says.
For the Greens the fundamental problem is a failure to face up to the fragility of the environment and the limits of natural resources. They favour a shift in the tax system away from taxing things we want more of, like incomes, to taxing things we want less of, like pollution and waste.
For United Future leader Peter Dunne a flatter tax scale is essential to persuade young people who are voting with their feet that there is a future for them here. Tax reform is also critical to encouraging innovation and lifting productivity, he says.
Progressive leader Jim Anderton and New Zealand First leader Winston Peters both favour a broadening of the objectives the Reserve Bank Act sets down for monetary policy, citing the damage a high dollar has done to the export sector.
