Editorial: Fiscal sense lost in push for support

There has been an air of unreality about politics since the election and even some time before it. The campaign was a bidding war with public money, and the devil-may-care attitude has only worsened since parties got down to the post-election wheeling and dealing that decides how the country will be governed now.

Not before time yesterday, the Reserve Bank governor has raised a resounding alarm. The economy, he reminds all concerned, is riding for a fall. Households are overspending, encouraged by property values that will lead the fall. Both the current account deficit and the exchange rate are unsustainable. Activity will decline. Inflation will exceed tolerable limits as oil prices feed through the rest of the economy. Interest rates will have to rise even higher to contain the inflationary surge.

This story has been told in recent Treasury and Reserve Bank reports, but it has been forgotten in the excitement of the election. With multi-billion dollar policies being bargained like bridal confetti around the back rooms of the Beehive, Governor Alan Bollard has spoken out just in time, he hopes, to forestall a fiscal disaster.

No matter how well disposed we may be to MMP, it is hard to watch the horse-trading that happens at a time such as this. Labour, by all accounts, is on the verge of announcing it will form a Government relying on the support of Winston Peters' party and the Greens. The indications are that Mr Peters will exact a considerable price for promising his party's support. He wants to raise the level of public superannuation, remove GST from petrol and recruit another 5000 police. All or any of these would be significant steps in public policy. None should be made in this way.

Superannuation is the single greatest cost on the government books. Any increase should be carefully considered against all other social needs. GST is a simple, efficient tax because it is levied across the board. Remove it from petrol, and those benefits begin to unravel. The number New Zealand First would add to the police is about half the entire present muster. There is no reason to enlarge the force on that scale even if the police were able to find and train enough suitable recruits.

These are all policies Mr Peters has plucked out of his head. There are no studies to support them, no reliable research on their practicality or value and no pressing need for them. Nor is there likely to be any proper assessment of them if they are the price of seven votes in Parliament that Labour will sometimes need. They will be granted to NZ First as "trophies" they can present to a supposedly grateful electorate, just 5.7 per cent of whom voted for Mr Peters' party when these extravagances were offered at the election.

Labour's election promises were no more properly considered. The abolition of interest on student loans was a needless and blatant bribe to upstage National's promise of tax cuts. Interest-free money is irresistible and will add much more to the taxpayers' bill than Labour has reckoned for. Labour presented its "working for families" package as tax "relief", an alternative to National's cuts. But it is not a tax reduction at all. It is an expansion of welfare that will be a permanent new charge on taxpayers without children.

Finance Minister Michael Cullen has held a tight fiscal line for five years but soon after this year's Budget he lost control. The desperate election promises his party made, and the concessions it appears to be making to prospective partners now, could blow out the Budget by $3 billion to $4 billion next year as the economy goes into a dip. If inflation was low that fiscal stimulus could be timely, but inflation will not be low. The Reserve Bank will be applying the monetary brake, and a fiscal splurge will force Mr Bollard to lean even harder on the economy. Let us hope starry-eyed people at Parliament are listening.