Armstrong on Labour’s spending

Thank God some media are focusing on the substance of policies and spending promises, rather than merely the style of symbolism.

John Armstrong does a first class analysis:

Increasingly, the story of the 2008 election is a tale of two election campaigns.

The first campaign has everyone pretending nothing has changed and it is business as usual. The other campaign accepts everything has changed in the wake of the global financial crisis.

Stuck fast in the first campaign are most of Parliament’s minor parties. They are becoming increasingly irrelevant to the main action. They are in denial that the party is over.

They continue to promise to spend money on this or that. But they are not going to be able to extract the requisite cash from the two big parties in post-election talks. There simply is not going to be any money spare.

ACT is probably the only minor party happy about this – they want to cut spending. With a decade of deficits there is not enough money for the major parties spending priorities, let alone the minor parties.

The minor parties have not adjusted to that reality. As a result they are finding themselves ignored.

The minors should concentrate on policies that go beyond spending. I know this will be very hard for the Greens, but money does not grow on trees – not even carbon credit generating trees.

It is a different story for the major parties. National accepts the party’s over. Labour knows the party’s over. But it is hoping some voters haven’t noticed.

In the pretend campaign, Labour continues to spend money it does not really have, this week targeting students, their parents, beneficiaries in part-time work and the elderly.

There is no way Labour can deliver on their promises, unless they hike taxes which in a recession is suicidal. Labour knows a fourth term would be their final term anyway, so they don’t care about broken promises, so long as they get that magical fourth term.

The spending was clearly planned before international financial markets went into free-fall and the Treasury produced far gloomier forecasts of the state of the Government accounts.

Despite Budget surpluses turning into ongoing deficits, Labour continues to roll out new spending, using the fig-leaf of a three-to-four year phase-in period for new policies to try to hide its embarrassment from those questioning how this squares with the party’s claim to be fiscally responsible.

And remember PREFU was done before the latest developments in the credit crisis with global credit drying up.

National is justifiably arguing that Labour is asking voters to write it a blank cheque. Without figures or forecasts, voters are flying blind.

Labour is behind in this election, however. It has to go for broke.

National is being far more cautious because it is the one looking more likely to have to clean up the mess. Its stimulus is principally $1.4 billion-worth of tax cuts which it would bring forward to next April, when it believes the economy will most need it.

National is being transparent about how big its stimulus will be. Labour isn’t. Only a week or two ago Labour accused National of being fiscally reckless with its tax cuts. National can now fire that charge straight back.

Labour is going for broke – but it is the country that will be broke. Ten years of deficits is close to the deficit being structural. Add on an extended recession and Labour’s billions of extra spending and you mey get that structural deficit we had in the 70s and 80s – endless borrowing and debt – wiping out the gains of the last two decades.