The $9 billion bait and switch

National claims its $9 billion stimulus package is one of the largest in the world and will protect New Zealand from the worst of the recession. But much of package is in fact old spending re-announced, including most of the previous government's 2008 Budget and the purchase of KiwiRail that National so vehemently opposed

News sites and radio bulletins today are full of the government's $500 million infrastructure spending plans, as part of its $9 billion stimulus plan for the economy. What they're not telling you how the government is cutting and pasting old numbers under new headlines to make itself look more pro-active than it really is.

The $484 billion promised to "kick-start the economy" includes $217m for education projects including five new schools and $142 for state highways and bridges. The government says it's "the latest in a series of initiatives" to combat recession.

In truth, it's a bunch of already budgeted-for spending plans re-announced and labelled a stimulus package. The Kopu Bridge replacement was already on the books; it's just been brought forward. The five "new" schools? Anne Tolley admits in her press release that the $69m committed will simply "accelerate" the building of schools that were already planned. If you compare the list of schools to be renovated, it bears a remarkable resemblance to the schools the Labour-led government had already promised to retrofit while it was still in government – Cambridge High, Manurewa East, Pt Chevalier, Christchurch South... they were already expecting the builders to turn up. The same can be said for the state housing upgrades.

No-one in either National or Labour seems to be able to say just how much of the infrastructure scheme is new spending and how much is re-heated. "That's proving quite difficult," one Labour staffer told me wryly. But it's not a lot.

All we can say for certain is that after four months of promising the country an infrastructure stimulus that will take the rough edges off the recession, the government is bringing some projects forward, but offering little in new ideas or money. In contrast to the US$800 billion-plus new spending being debated by the US congress, National's plan is neither bold nor swift.

Infrastructure was something National has long criticised previous governments for under-funding. Back in September, less than a week after Lehman Brothers had collapsed, John Key criticised Labour's handling of infrastructure as "complacent" and assured voters that National already had a "carefully considered plan for achieving a step up in New Zealand's infrastructure". He said:

Infrastructure allows us to unleash the skills and talents of our people and our businesses. Fundamentally, it underpins better and stronger growth.

Five months later, the credit crisis has turned into a once-in-a-lifetime recession and the need to stimulate the economy is desperate, and all National can offer is projects already identified by "complacent" Labour? John, where's the plan?

Today's effort is indicative of how the government has been selling its entire $9 billion stimulus package – long on rhetoric, but fudging the facts.

The government has claimed the total package is worth around five percent of our GDP. As John Key said last week:

The combined effect of this infrastructure spending, together with tax reductions, will mean that New Zealand will experience a fiscal stimulus amongst the top five in the developed world, when compared on a relative basis.

For the past few days I've been in touch with Bill English's office, trying to figure out just what's included in this $9 billion and whether the government is being straight when it claims that our stimulus package is, by GDP, amongst the top five in the developed world. As yet I've only had a partial reply.

The top five claim, I'm told, comes from cross-country comparisons of GDP as per the OECD's Economic Outlook from November last year. I can't see the appropriate page without buying the report, but a spokesman for Bill English says it shows New Zealand "having the third highest fiscal stimulus over the years 2008, 2009 and 2010."

I found that hard to believe, but then the comparisons are shifting sands. It's hard to pin down GDP figures, the time over which the money is spent and how much of the spending announced is new.

All we can say with confidence is that most OECD countries have been spending between two and four percent of their GDP on stimulus packages (Canada 2.5 percent, Sweden 3 percent, Germany 4 percent, and so on).

Australia has gone further. If you accept its total stimulus spending as A$78 billion (including all its announcements since September), then it's around 6 percent of its GDP. The Obama package being debated now is around six percent of GDP, and that doesn't include the Bush packages and bailouts. Japan's stimulus plans thus far would take it into double figures. While it's not in the OECD, China's stimulus packages are around 15% or more.

So we may be in the top five – just – if you accept the government's $9 billion figure. But I don't. Why? Because Key and English aren't comparing apples with apples.

Roughly US$544 billion of the Obama package is new spending; the bulk of the Australian package is new spending (though I haven't looked into every line). Ours is not. Not by a long way. While the $9 billion stimulus package has been spun to look like the government's response to the global recession, much of the spending pre-dates those events. It's a political bait and switch.

English's spokesman told me the $9b includes not only National's April 1 tax cuts that it has been promising for several years should it win the election, it includes much of the spending announced in the Labour-led government's last Budget in May 2008. That's right, the spending planned by the previous government and announced nine months ago – five months before the credit crisis exploded – is being counted as part of this government's efforts to "help many businesses and families keep their heads above water".

Perhaps most incredibly, it includes the $690m purchase of Toll New Zealand's rail business, that became KiwiRail. At the time of purchase, then-leader of the Opposition John Key said:

"The reason that the trains were painted red, is so that they can be a constant reminder to the taxpayers of New Zealand, that's the colour of the ink that will be flowing through the books post this purchase."

Just before Christmas, Bill English said there was no money to pay for the extra $120m Labour has promised to invest in KiwiRail. English said:

"A large part of the capital programme promised to KiwiRail...there is no money for it."

Now the pair are claiming that spending as part of their recession rescue plan.

The same smoke and mirrors are being used looking ahead as well. The government has no intention of spending new money on any initiatives that come out of the Employment Summit at the end of the month. They will be paid for out of this existing $9 billion.

So just how much of National and ACT's $9 billion package is new spending? I'm waiting for Bill English to answer that question. I've also asked Labour's people to look into, but it's complicated and I don't have an answer yet. I'll let you know if or when I get one.

The government may be wary of over-stimulating the economy given the interest rate cuts and falling dollar. It will also have one eye on the budget and want to hold some gunpowder in reserve until then. But pretending to simulate the economy when it's not is risky and dishonest.

This government is trying to look pro-active when it has in fact decided to sit on its hands and do as little as possible in the face of the global recession. While other government's are coming up with new recipes in these unprecedented times, our leaders are simply reheating the same old stew. Voters deserve to know why.

The government must explain itself on two fronts. Why has it chosen not to follow the course of other countries and inject new money into the economy at this perilous time? And why is it pretending that it is?