John Armstrong: Labour grabs initiative with risky voter choices

Labour's Phil Goff (L) and David Cunliffe. Photo / Mark Mitchell

Borrow and hope; tax and spend. For months, that has been Bill English's pithy, double-phrased encapsulation of how Labour would run the economy.

The Finance Minister's jibe now rings somewhat hollow. National may still claim to be the party which is seen by voters as the most reliable manager of the economy. But holding on to that title through the election campaign is not going to be quite the doddle National thought it would be.

For starters, Labour's luck has changed for the better. The downgrades of New Zealand's credit rating plus the Treasury's gloomy outlook in this week's pre-election fiscal update have supplied Labour with the kind of lethal ammunition it has lacked for so long.

However, Labour has also done a power of work on its economic and monetary policies. The framework of that policy - a far more hands-on style in promoting economic development - was unveiled at the party's conference last year. Since then, Labour has put substantial meat on those bones, culminating in this week's triple-whammy savings policy which would see compulsory contributions by all workers to a KiwiSaver scheme, the immediate resumption of contributions to the New Zealand Superannuation Fund and, most radical of all, the gradual raising of the age of eligibility for state-funded super from 65 to 67.

Coupled with the party's capital gains tax, research and development tax credits, and a monetary policy designed to take pressure off the dollar, Labour has not only bitten the bullet, it has swallowed it whole in terms of policies that would boost investment in productive enterprises and - ultimately - deliver jobs.

Labour's problem is that components of the package are distinctly unappealing politically. The rise in the retirement age is Phil Goff's baby. He has pushed that initiative through the Labour caucus, which had a lengthy discussion about the savings policy the day before its release.

There is no guarantee that Goff's decision to waltz through several political minefields in one election campaign will not turn out to be one of the great political miscalculations of all time.

Goff literally now stands and falls on the success or otherwise of such a huge gamble. Come election night, however, neither he nor his colleagues are going to die wondering whether they could have done more to avert defeat.

What is not in question is that Labour has a plan for the economy. National is starting to look like it doesn't.

National seems to be putting an awful lot of eggs in its return-to-surplus by 2014-15 basket. National has determined that balancing the financial books and cutting debt is the is the best thing a government can do.

Indeed, given the fiscal shocks of the last three years, such caution might well be justified.

National is not just talking fiscal responsibility, however. It is talking austerity to back up its claim that in tough times it is the party best trusted with controlling the economic levers.

The political beauty of all this is that National will not be called to account this side of election day. The target date for a return to surplus is four years away, not four weeks away.

Labour's answer to National aligning itself with a public mood that prefers precaution to profligacy is to stress it too would hit that target date.

National claims that is impossible given that controlling spending is difficult enough without the additional burden of promises of extra spending.

Labour argues that it can easily afford new spending once its capital gains tax really kicks in.

National, however, says that in the interim, Labour's spending promises would mean it borrowing close to an extra $17 billion over the next four years.

Labour is avoiding rising to this bait. It is frustrating National by keeping detail of its fiscal projections to a minimum for as long as it credibly can do so. Pressed yesterday, however, Labour finance spokesman David Cunliffe rejected National's figure, saying any borrowing would be closer to $5 billion.

Needless to say, Labour wants to shift the debate away from the fixation on deficits and surpluses in the short term to longer-term headaches to balancing the Budget.

In tackling the burgeoning cost of superannuation, Labour is unquestionably showing real leadership. It has thrown the ball right into National's court.

National argues that New Zealand Super can be sustained at current entitlements. But its cutbacks to KiwiSaver and block on the resumption of contributions to the super fund will not inspire confidence that National has provided sufficient insurance should it be wrong.

The other prong of Labour's offensive has been to sow doubt about whether National's economic record is all it is cracked up to be.

Labour is pointing to the deterioration of some important economic indicators, such as unemployment and the fiscal position, since National came to power in 2008.

After Tuesday's fiscal update, Phil Goff claimed that had it not been for Labour's previous "careful management" of the books, New Zealand might now be in the same precarious position as Greece, Europe's economic basket case.

The facts are somewhat different. Having spent taxpayers' money like a drunken sailor to stay in power, Labour left office in 2008 with surplus having turned to deficit through the combination of a domestic downturn and the global financial downturn.

National had barely got its feet under the Cabinet table before the Treasury further revised its forecasts and projected deficits of $6 billion-plus.

So much for "careful management". Labour is relying on short memories to rewrite history, however. It won't fool everybody. But in the heat of an election campaign, it is easy to spout fiction and difficult to establish fact.

Labour cannot be excused such distortions and mistruths. But it is in a desperate and parlous position. It is taking the fight right to National's door.

Labour will take no prisoners. The question is whether National has quite woken up to that reality yet.