National’s muddled message on economy could help Labour

….but only if they can sort out their own muddled messages.

John Key’s promise not to promise anything in his pre-budget speech last week revealed some serious muddle in National’s thinking. The tried and tested rule is that governments spend in the bad times to stimulate the economy when no-one else can, and save in the good times. So either they think this is as good as its going to get, and its time to smother any new growth, which is a big risk in election year; Tough luck if you haven’t had jam yet, apparently the recovery has peaked.

Or they’ve got the economic cycle round the wrong way, and are saving in the tough times and preparing to spend when the hay is in, which is bad news for anyone hoping for a long term recovery.

The countries that are recovering from the Global Financial Crisis today followed the rule; in tough times when demand dropped government acted as the purchaser of last resort and spent in the right places to keep the economy going. 

That meant building stuff, keeping services going and increasing wages. 

Ironically, the National Government’s intervention in the Christchurch rebuild, which it had no choice but to do, has helped the country recover. Against his conservative instinct Bill English subsidised house-building, fixed rents and produced a 5-year plan for the look and feel of a new Christchurch. The rebuild goes a long way to explaining why they have a surplus at all. 

John Key’s speech last week marks a return to form for National; government’s job is to do very little and get out of the way of the market. 

What’s really muddled, is that five years ago Bill English was railing against the Labour government for not spending its surpluses.

Michael Cullen ran nine years of surpluses. He kept spending down in the good times, despite the taunting from Bill English who waved his fist in the air and asked why Labour wasn’t spending its surpluses in the form of tax cuts. Then in the last term of government, Labour embarked on a classic Keynesian redistribution of wealth to working New Zealanders, in the form of Working for Families and interest-free student loans. Bill English hated that too. He wanted the spend to be in the form of tax cuts to the top 10 per cent.

Now  he appears to have changed his mind completely. Surpluses should be ferreted away and tax cuts delayed. That’s a big ideological u-turn for a party built around the promise of tax cuts and small govenrment. Or is it ideologically consistent with the right’s belief in low spending, small government?

It’s all a big fat muddle. If voters start to pick up on this and sense that National aren’t going to do much to make an economic recovery stick, it could look like weakness and push some over to Labour.

But Labour needs a much clearer story to tell on the economy and why interest rates are going up, if it's to make the most of this opportunity. 

Labour must decide if the message is to save more and pay off government debt nearly as fast as National. Or spend in the right places to stimulate the economy and make a recovery stick.

It must decide if National is ruining the country by building more roads and drilling for oil, or ruining the country by failing to have a vision.

Labour needs to avoid sounding like a different NGO each week; save the children and lift the Rena off the reef one week, save the internet with a bill of rights the next. 

Instead, they should be making a strong case for the redistribution of the fruits of recovery to the many not just the few. They should be showing us how they will make that recovery last decades, not just the length of a natural upturn in the business cycle, brought about because we had to rebuild a city and replace our old washing machines.

The Great Depression of the 1930s was followed by the Great Prosperity (1940s-1970s)  because government policy made it so. These prosperous decades were also our most equal. So let’s hear Labour’s ‘New Deal’ versus Nation’s muddle.