KEY POINTS:
Prime Minister John Key should postpone the upcoming April 1 tax cuts and instead redirect the already budgeted funds to provide a fillip to our most cash-strapped consumers.
He should also forge a peace pact with Labour leader Phil Goff - if only temporarily - and get Goff's support to drive through some policies that would really get the economy moving, such as scuttling the resource consent process for any urgent infrastructure projects deemed in the national interest.
If the Prime Minister widens the economic debate and invites other players - including opposition politicians - to join the brain-storming on the policy responses that will be critical to our future, I'm sure all New Zealanders would feel a bit more confident. This is not business as usual and simply following US President Barack Obama's statist prescriptions won't do the trick here.
It is an absurdity that top-earning Kiwis should expect a pay boost given the massive deepening of the international recession and the rampant resurgence of protectionism. The net result of the April 1 tax cuts is that there will be even less Government cash available to help the 50,000 Kiwis who stand to lose their jobs this year without running the risk of blowing out New Zealand's official Government debt to unsustainable proportions.
Far better to follow the International Monetary Fund's warning against "across the board" tax cuts and instead divert the funds to boost unemployment benefits, increase tax credits for households that have become credit-constrained and expand social safety networks by boosting benefits for superannuitants who are fast losing out on other income as interest rates fall.
The IMF has also noted that some countries should consider supporting homeowners facing bank foreclosures.
All of these prescriptions are far more likely to underpin vital consumption within New Zealand than proceeding at this stage with tax cuts, especially for high earners who the IMF notes are simply likely to bank them rather than spend them.
Key will inevitably say his Government can't park the cuts because they were a central element of National's election policies. But such a response would be short-sighted.
Since National was elected the Treasury's economic forecasts have worsened, Standard and Poor's is breathing down the Government's neck with threats of a credit-rating downgrade, and the Reserve Bank has slashed interest rates.
Under these circumstances it would simply be mortgaging New Zealand's future to borrow more offshore to fund tax cuts that will not provide the much-needed short-term economic stimulus.
This week Key will announce a raft of measures to take some pressure of small to medium enterprises. But there is limited room to move given the fiscal constraints.
The IMF has said there is a need for nations to act early and use "over-whelming force" to boost economic growth. But critically, the IMF does not come down in favour of across-the-board tax cuts which it sees as likely to waste Government money while doing little to stimulate the global economy.
My sense is that Goff would not rub Key's nose in the proverbial if he sought an "across Parliament" consensus to change course. Goff is an honourable politician who knows from his own Cabinet experience how difficult it is when unforeseen circumstances (think the 1984 currency crisis) blow the Government's accounts to smithereens.
In the current environment a political ceasefire might help the restoration of confidence.
Unfortunately, there are few signs National is prepared to reach out across Parliament and utilise the goodwill on offer. Instead, the prescriptions being examined tend to fall from Obama's cookie-cutter.
This is a mistake. Right now the US is not in good odour when it comes to economic management.
Reports from the World Economic Forum's annual meeting are providing plenty of sport for watchers of crypto-capitalists.
Ironically it is Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin who are cautioning against too heavy-handed interventionism.
Jiabao sent a not so subtle message to America when he hit out against the profligate habits and lax regulation of "some countries". Putin described the international recession as a "perfect storm" that was totally unexpected in the West but as winter in Russia.
But it was also Putin who said: "During communist times we had an unfounded belief in the power of the state. Temptation to over-manage the economy resulted in the absence of competitiveness of the Russian economy, which no one would want to repeat.
"A future economy should be one of real value. I do not have an answer of how to get there but we should think together. We can build a more just and efficient global economic architecture."
There is an element of malicious enjoyment at another's misfortune here.
Many power players have not forgotten the brutally searing criticism they had to endure from top-flight Americans during the 1997 East Asian crisis when the US loudly condemned "crony capitalism" as a major contributing factor to the collapse of the former East Asian "Tigers".
Putin is right - the Government should not usurp the power of the market. But what the Government can do is change the rules. If Key is smart he will talk to Goff.
