The winds of change... bringing cold showers

If you are hoping for change as New Zealand heads for the polling booths, be careful. You are going to get it – whoever wins

Campaign ’08 has been a curious affair. So little seemed to have been changed during its course, but so much will change when it ends.

Both major political leaders have ploughed curiously parallel courses on the main issue – recession-proofing the economy – and bickered bitterly on everything else.

The major parties are at one on the need for government guarantees to secure confidence of New Zealand savers and off-shore fund providers in our banks and the better-regulated operators in the non-bank finance sector.

They both have recession-relief programmes to bring forward government investments to upgrade road, rail and broadband networks. Those programmes will also expand unemployment support for displaced workers so that they can acquire new skills or overcome temporary financial difficulty.

Both promise moderate tax cuts. Both stress the value of improvements in health and education. Both roll out promises to spend more money without telling us where it will come from. Both struggle to possess the centre ground where most of the uncommitted voters live.

The major impediment to Jon Johansson’s highly optimistic notion that they might form a Grand Coalition to steer the nation through a time of turmoil is their very apparent disdain for each other.

Helen Clark has campaigned solidly on the basis she can provide strong and proven leadership suited to a time when the security of “our people” is under threat. She slams her opponent as an untrustworthy dissembler, a former money market manipulator with a secret agenda to shrink the state for private gain; a man who will slash and wreck everything her people hold dear.

John Key has countered by pointing to his relevant international financial experience and successful record of business leadership and by pledging to deliver a fresh approach to the politics of "building a brighter future". By implication, he brands his opponent as a prisoner of the politics of yesterday, fixated on holding power at any price, and incapable of coping with the complex problems of the global credit-lock that could turn into the Mother of all Depressions.

Clark cannot mask her contempt for Key. He will wreck KiwiSaver and Working for Families, sell Kiwibank, loot the Superannuation Fund, undermine ACC, gut public services in health and education to advance private sector options, and slash State pending to fund deeper tax cuts. The resurrection of Ruthanasia is coming.

Key affects indifference as he ticks through his commitments for the next three years: Sustaining State spending at current levels, no State asset sales, continuance of Working for Families, a modification of KiwiSaver to lower costs and broaden access, increased New Zealand investment of the Super Fund, protection for the frontline deliverers of public service but trimming the backroom bureaucracy, and a progressive reduction of the tax burden.

The big problem for both of them is that their ability to deliver anything close to the expectations they are creating depends on events that are beyond their control.

The Clark-led coalition has emptied the till.

Labour’s prudent accumulation of surpluses over one of the most prolonged periods of steady growth in our economy was abandoned to promote Helen Clark’s prospects for a fourth term. The State coffers were empty before the global credit-lock and share market meltdown rolled out of the United States and across Europe and Asia.

This week, the Treasury produced a red ink update on the state of Government finances for the first quarter of the current Budget year.

The impact of the slowdown in the broader economy has yet to bite into the Government’s tax revenue. The tax take ran pretty much to the forecast track in the first quarter. The big problem was a $1.8 billion decline in the value of the investment portfolios of Crown financial institutions – a clear signal that the worst is still to come. Result: the forecast operating surplus of $943 million for the first quarter is now an operating deficit of $757 million.

This first quarter report simply deals with the state of the Government’s finances, not the broader economy.

Nevertheless, it is a significant indicator of trouble ahead and stark confirmation that the economy will be tracking down faster than the predictions provided in the Treasury’s pre-election economic forecast update released at the beginning of last month.

Whoever gains the Treasury benches after the election is going to have to do some very nasty things after they get the post-election economic forecast update next week.

Helen Clark is in a better position than John Key to know just how unpleasant that will be. She knows that the 2008/09 Budget and the new spending commitments she has rolled out to attract voters since then are simply not sustainable. She will have a rough idea of what will need to be postponed or dropped – but she is not conditioning the expectations of voters to the scale of the adjustments that will be required.

Key can only suspect how much worse things are going to be – but at least he has produced a fiscal policy statement that gives an indicator of where he would find the money for the additional spending commitments National has made.

As we head for the polls, Clark promises a post-election mini-budget before Christmas while Key promises 100 days of broad-ranging action, including a line-by-line expenditure review.

Either way – despite all the careful spin, the silly sideshows, and devious shenanigans of the campaign – we will have change. Like a long, cold shower.