National's Neros fiddling on tax and infrastructure

Almost a full economic quarter has passed since the election, and still we're waiting for government action on the worst recession since World War II. Tax cuts are still two months away and National is cutting back on infrastructure

At the core of any successful business – indeed any successful project – is a coherent strategy. Decisions are made early and clearly so that everyone knows their role and the end goal. Tactics support a long-term outcome. So can anyone tell me what the strategy is for the 'carry New Zealand through recession' project?

We're now into the second month of the year, nearly a full economic quarter on from the election, and still political and business leaders are showing all the vision and urgency of cow picking at grass as she wanders towards the freezing works. The government is talking and planning and enacting next to nothing. Business can't seem to find any solutions except lay-offs. The only real fiscal stimulus we've seen has come from the Reserve Bank's interest rate cuts.

It's as if we're led by an impotent bunch of Neros who can do nothing but fiddle and sing about summits and future spending while the world burns around us.

Take a quick look at the problems facing all of us who are involved in this recession-surviving project. In the short-term we need to stimulate business activity and protect people's jobs. In the long-term we need to cut private debt and develop the country's poor infrastructure.

What do we know of the government's intentions? John 'ambitious' Key has repeatedly said that his administration prime motivation is economic growth. To get us through the recession and to the point of growth, he has repeatedly talked up two ideas: tax cuts and infrastructure spending.

Those solutions seem like a reasonable start as a response to the problems we've identified. So how does the action match the rhetoric? The answer: pretty poorly. And are the policy priorities chosen going to make a difference? Answer: that's questionable, at best.

In line with National party ideology, we will be getting personal tax cuts come April. These will put more money into the pocket of middle and upper income New Zealanders. Sure, they're being dressed up as a recession-battling policy, but the truth is National would have cut taxes rain or shine. What we also know is that tax cuts – especially those aimed at the rich – have a limited impact on spending. As conservative Washington Post columnist Martin Feldstein writes:

That's not a good way to increase consumer spending. Experience shows that the money from such temporary, lump-sum tax cuts is largely saved or used to pay down debt. Only about 15 percent of last year's tax rebates led to additional spending.

Tax cuts don't create many jobs either. Still, that's not to say tax cuts are a bad idea per se. Just not these tax cuts. Feldstein, writing about America and Obama's $US800 billion stimulus package, has some interesting ideas.

Instead, the tax changes should focus on providing incentives to households and businesses to increase current spending. Why not a temporary refundable tax credit to households that purchase cars or other major consumer durables, analogous to the investment tax credit for businesses? Or a temporary tax credit for home improvements? In that way, the same total tax reduction could produce much more spending and employment.

Or, the government could relax provisional tax regulations to allow business to keep some cash flowing. Media "suggestions" – presumably otherwise known as controlled leaks – indicate a welcome move by the government in that direction.

Even better, if the government was non-ideologically committed to getting more cash into cash registers, they'd raise the minimum wage. National long used comparisons with Australia as a stick with which to beat the previous government. Well, the minimum wage across the ditch is around NZ$18, compared to just $12 here. Later today we will hear the results of a ministerial review into the issue. If the government's strategy is coherent, we can expect a rise. If they don't put it up, Key's reputation as a sensible centrist should take a hit.

What about the second idea, infrastructure spend? Here the work is woefully at odds with the words. For all the talk by National, the only solid decisions they've made on infrastructure so far are to abandon the Greens-driven $1 billion home insulation programme (while President Obama plans to "retrofit America"), stop the development of the Whenuapai airbase into an airport, and a "review" the Waterview tunnel that would complete Auckland's western ring road.

While the Whenuapai decision is reasonable and well-signalled, the other two are at 180 degrees to their promises of an infrastructure stimulus programme. The Waterview decision is also based on lies and nonsense by new transport minister Stephen Joyce, according to Brian Rudman in this morning's New Zealand Herald.

On top of that, the Herald also splashes news across its front page that "more than $1 billion of Auckland civic developments are under threat", including core issues of rail electrification and integrated public transport ticketing.

So while central government talks of stimulus spending, local government plans spending cuts. If, as the government rightly says, infrastructure spending is essential to a recovery, why are councils running away from it? Are central and local governments even in the same book, let alone on the same page?

It's a mess, with no sense of urgency. So let's say this slowly – public spending will save jobs if it's targeted at the sectors that are hurting most. Infrastructure spending is a slow ball to get rolling, so losing three months now risks costing us three months worth of jobs down the track. Yet for all the hot air, there's been no cold cash.

Business is waiting to know where the government will spend, while wage-earners are waiting for tax cuts and more interest rate cuts. So what is the government waiting for?

With coherent strategy so sadly lacking, you've got to question this government's transition to power. These policies should just be the start of a full-court press against the global recession, yet it doesn't seem to be able to get even those policies up and running. I'm left wondering whether the Beehive is functioning properly, or whether the new government is struggling to adapt to the duties of governance.

Whatever the reason for this inertia, these Neros can't go on fiddling. The fire is getting closer.