Kiwiblog

I suspect Bill English enjoyed yesterday. It is always a bad sign for an Opposition when Governments are looking forward to question time and complaining it is only three days a week. From Hansard:

Hon BILL ENGLISH: The Prime Minister has a great deal more confidence in the Minister than a certain Charles Chauvel had in a former Minister when, as president of the Labour Youth Council in 1988, he told the then employment Minister, Phil Goff, to “take action or resign”. Charles Chauvel is probably feeling the same way today.

Some Researcher or staffer earned his pay yesterday.

Chris Tremain: Has the Prime Minister seen any reports of an employment Minister dealing with rising unemployment during a recession?

Hon BILL ENGLISH: Yes, he has seen a report that states: “It takes more than hot air, more than rhetoric, and more than using the backs of unemployed people to make political points. … I despair at the gamesmanship of politicians trying to get votes from the problem of unemployment”. That was said by Annette King in this House.

This is the problem you have when both the Leader and Deputy Leader were Ministers in not just the last Government, but also the one a decade before that.

Moana Mackey: How can the Prime Minister have confidence in a Minister responsible for cutting the training incentive allowance, and does he agree with Christine of Gisborne, a solo mother of four who now cannot do the nursing qualification that would enable her to move off the domestic purposes benefit and into paid work, when she says: “The Government has been sitting there telling us to upskill, get into jobs, not run up debt, to ride out the recession, and then they go and take away the assistance that some people need to enable this to happen.”?

Hon BILL ENGLISH: What we have learnt from the activities of the Labour Party over the last month is that we have to be pretty careful about believing whether Christine of Gisborne even exists, and also whether she is on the domestic purposes benefit, whether she owns three investment houses, and whether all the information she has given to the Labour Party about her situation has been truthfully represented here.

Once bitten, twice shy. Everyone is going to be very wary of any “example” put forward by Labour.

National had it’s Northern Regional Conference at the weekend. The Northern Region is the current powerhouse of the National Party. A few years ago there was only a handful of Auckland MPs, and few were seen as heavyweights.

Today no less than 12 Ministers come from the Northern Region, plus the Speaker (who had people non stop congratulating him on having made Question Time more meaningful – which is interesting as it is National Ministers he is forcing to answer questions). It has probably been a long time since Auckland was so forcefully represented in a National Government

As expected people were in good spirits, being the first conference in Government since 1999. The Richard Worth scandal wasn’t distracting people from the business, even though it was a source of considerable black humour from some people.

The main speech was of course from John Key. No big revelations in it, but there were two things I found significant. He talked about hard drugs, and especially P, quite passionately and said that it was arguably the most corrosive thing in NZ. I think there is going to be a very significant all of Government focus on P, led by him.

The other item of significance was he basically said that community bards in the Super City will be bulk funded and have their own budgets to spend. Also John Carter said that their powers will not be left to the new Auckland Council but be defined in statute, so it sounds like they are going to be quite souped up.

John got a lot of laughs when he revealed he had paid $20 for a raffle ticket with the prize being lunch with Bill English. He said that if he won, he would give Bill a season pass for the new cycleway.

John and Bill have a very effective double act, where rather than pretend there has not been a disagreement between them at some stage, they openly acknowledge they were saying different things, and then joke about it at every opportunity. It is a very very effective way of taking the sting out of it, and also sending a strong message that while they may disagree at times, they have a strong personal rapport and are comfortable hassling each other in a very Kiwi sense of humour way.

NZPA has a story (not onlne yet) quoting Bill English taking questions at a post budget speech.

He is talking about how he wants to make it easier for graduates, especially overseas, to pay off their loan. His exact words:

For example, he said it was extremely difficult for students to get information about and repay loans, especially when they were overseas.

He said graduates were computer literate and handled banking on-line so should be able to make payments to their loans the same way.

“If you are overseas with a student loan it’s very hard to even find the IRD’s phone number anywhere,” Mr English said.

“For any other service you just go on your laptop and they’ve got their pirated movies, and they’ve got their music downloads and they’ve got their email from mum.

“It’s all there — so why aren’t their student loans there? Then they’d repay them.”

So Bill is saying it should be as easy to pay off your student loan, as it is to pirate music and movies

There was a good crowd at the Backbencher last night for the unveilign of the new puppets. John and Bill were cast as the Blue Baron and Snoopy. Was very disturbing as John kept ticking Bill’s stomach (the puppet that is).

Also had Pita Sharples in a waka, and Roger Douglas as Rodney Hide’s puppet master.

John Key joked that he could have done with the machine gun in the plane at around 8 am yesterday. Bill joked about wanting to know about which National MPs had been seen in the Backbencher after Boycie revealed this is where Clark, Wilson and co plotted against Mike Moore.

And as the Dom Post reports, Rodney said:

“The great thing about having Roger Douglas in our caucus is that you get plenty of advice,” Mr Hide said last night.

“The advice is never contradictory because it hasn’t changed in 20 years.”

Afterwards around 60 of us went upstairs to hear about Obama’s first 100 days from a visiting US expert. Thanks to the US Embassy and State Department for helping make it happen. People seemed to enjoy it, and we had a good turnout of MPs.

After that we had Backbenches which was fun also. A good Wednesday night.

First of all kudos to Bill English and Treasury for getting rid of the old rolling embargo that was in place for previous budgets. This meant you could not blog a specific item until the Minister of Finance read it out in his speech. It made blogging and reporting very hard as it was not always clear whether the part you wanted to cover was even in the budget speech, let alone when.

So now it just a simple 2 pm embargo which means I can just hit publish at 2 pm, which I have done.

Deficits and Debt

The fiscal parameters inherited by Labour meant gross debt was tracking to reach 48% of GDP by 2013, and 70% of GDP, or $227 billion by 2023 – equal to $180,000 of debt for every household of four. There was a very significant structural deficit. This is because the economy will have $50 billion less output over next three years than forecast in the 2008 budget.

The status quo would have meant future generations would face either massively higher taxes, or cuts in health and welfare spending as more and more money would be spent on debt servicing. Debt servicing would have increased to $14 billion a year – more than current Vote Health.

The measures outlined in the 2009 budget are forecast to have gross debt peak at 43% of GDP in 2016/17 and then decline to 37% by 2023 – almost half the 70% on existing parameters.

The projected deficit for this upcoming year is still a very large $7.7 billion and next year looks to be $9.3 billion, before gradually reducing. So the Government is borrowing a lot of money to help keep people’s incomes and jobs steady.

Labour budgeted for $1.75 billion a year of new spending initiatives. National is reducing this to $1.45 billion for this year and $1.1 billion in out years. This is pretty reasonable – in the late 1990s it was only $600 million a year. However it will pose some real challenges in around 2011/12. For the next two years expectations will be lowered due to the global recession. People are accepting zero wage increases etc, and lobby groups know now is not the time to ask for lots more money.

But in two to three years, with the recession behind us, there may be a lot of pressure for new spending beyond the $1.1 billion. Inflation and population growth alone can take up a fair bit of that. We will still be running large deficits, but the economy will be growing and the Government will come under real pressure.

Spending Initiatives (generally all over four years)

• $323 million for home insulation – grants of up to $1,800 for most households and up to $3,000 for community service card holders
• $3 billion for Vote Health, being $2.1b for DHB services, $70 million for 800 more health professionals, $130 million for maternity services and $245 million for 20 new elective surgery theatres
• $1 billion in new spending including $523 million on new schools and school upgrades
• $900 million for Justice including 600 more police for $183 million, 246 more probation officers at $256 million and 1,000 more prison beds at $385 million

There is lots of little stuff also, but the Government has targeted most of the extra spending in a few key areas.

Jobs

Unemployment is forecast to peak at 8% in September 2010. I hope so, but suspect it may push 10% as I think the US and Europe are more stuffed than people realise.

The Government has committed $7.5 billion of infrastructure investment over the next five years through toad building, state house building and refurbishments, new and improved schools and broadband rollout. On top of that 600 more police, 246 more probation workers and 800 new training placing for health professionals.

Labour’s planned infrastructure/capital spend was $900 million a year – it has increased to $1.5 billion a year. Labour will claim more should be done for jobs, but in reality National is spending more on infrastructure projects than Labour would have. And the long term solution to jobs is having a competitive robust economy.

Reprioritisations

The line by line reviews have identified $2 billion of savings (around $500 million a year) that is being reinvested in frontline services. This means that that the $1.45 billion increase in operating spending will fund $1.9 billion of new initiatives.

As an example the Government has cut funding for adult community education hobby courses by $54 million, and increased special education funding by $51 million. Sounds like a good reprioritisation to me.

Also reducing support function expenditure at the Ministry of Education by $18 million to help fund a $36 million literacy and numeracy initiative.

Tax Cuts

Yes they are gone. The official Government line is deferred, but to no particular date, so I say they are cancelled. When tax cuts are budgeted again in the future, it will be a new package I suspect, not just reinstate the planned 2010 and 2011 tax cuts.

English said that it is highly unlikely tax cuts would be reinstated before the next election. He was asked if he would deliver tax cuts before the books were back into surplus (which is not until 2017), and he said the main thing they would look at is if the economy was growing strongly enough.

The deficits for the next two years, even without the tax cuts, is a combined $17 billion. They are a victim of timing partly. I did ask the Minister what their rationale was for deciding to break a tax cut promise rather than a spending promise such as interest free student loans, especially as he originally opposed interest free student loans but always campaigned for tax cuts. English responded that people feel insecure in a recession, and they made a decision not to cut any current entitlements to help confidence and security.

Several from the “right” congratulated me on my question, as no one else really pushed back much on the tax cuts vs spending issue. I was however amused to be berated by Miss Ten, who was attending as an analyst, for trying to get interest put back on her rather large student loan.

The $900 annual cost of the future tax cuts is around 20% of the total tax cut package. The Oct 2008 and April 2009 tax cuts are worth around $4 billion a year of foregone revenue and were very well timed in terms of fiscal stimulus. So at least we got $4 billion of the $5 billion!

In my words the main reason why they are gone is that they had not yet occurred. It is far less painful to cancel future spending or tax cuts, than to cancel existing spending or hike existing tax rates. Yes people get annoyed when they don’t get something promised, but they get more annoyed if you actually take away something they already have.

National did “pay” for the 2010 and 2011 tax cuts by reducing KiwiSaver subsidies by over $1 billion to compensate. The problem is that the fiscal position has changed so much since PREFU that anything not yet nailed down had to be sacrificed.

The problem for the Government is that while fiscally cancelling the tax cuts was the right thing to do, it makes their long-term closing the gap with Australia objective much harder. A low tax economy (with less tax churn) will generally grow faster than a higher tax economy (there is 40 years of OECD data to back this up).

The Government says it has a medium-term goal of a top company, trust and personal tax rate of 30%. I asked the Minister if he could define the medium-term and he said they were having problem even defining the short-term!

NZ Super Fund

As everyone expected, and as Dr Cullen himself said would be sensible when he set the Fund up, the automatic contributions are being suspended until there are surpluses again. The fund was explicitly set up to be funded out of surpluses. It was never intended to borrow for the contributions. So when you hear Goff and Cunliffe squeal about this, remember they are wrong.

The automatic contributions are likely to be suspended for 11 years, and this will prevent $19.5 billion of extra debt (plus interest). Once automatic contributions resume, they will be higher due to the Fund’s formula – $2.5 billion instead of $2.2 billion.

The Government is still going to make a voluntary contribution of $250 million this year. They seem to be tagging it for investment within NZ and to supplement the supply of capital to local businesses. This is very smart politically, but very dumb in an economic sense. However it was an election policy so no surprise.

Summary

There’s not much one can argue should be done differently. I would almost say the budget wrote itself, as the structural deficit and debt projections had to be dealt to. This budget knocks $100 billion off the long-term debt projection.

It is quite a canny mixture of ingredients:

• An increase in infrastructure spending
• Focusing new spending on core areas of health, education & law & order
• Plowing savings back into new frontline spending, so one is not cutting overall spending in a recession.
• Reducing future spending and future tax cuts to bring the deficit into surplus and cap debt.
• Suspending Super Fund contributions so you don’t borrow $20 billion to “save”

It is pretty orthodox, and as I said probably almost wrote itself. It isn’t a budget for closing the gap with Australia, or seriously rejigging the economy. It’s the budget you have to have first, before you can get to grips with some of the other stuff. I can over-state how much of a disaster it would be I financing costs on debt were allowed to grow to greater than current Vote Health.

The politics around the Budget will be interesting. You could almost see the Greens abstain on it – after all it cancels tax cuts and gives a huge amount to home insulations etc. Labour will not be able to propose a constructive alternative (they will of course scare monger). The consensus amongst most media in the lockup seems to be that there wasn’t much else the Government could have done.

It also sets up an interesting election in 2011. The books will still be significantly in deficit, and National will not be offering tax cuts in all probability. So what will Labour promise to do differently? If they promise extra spending, then they can be branded as irresponsible and increasing debt. If they promise tax increases, then that won’t be very popular either.

Labour’s entire 2008 election campaign was based on how you can’t trust John Key, that he is not a centrist – but secretly a hard line right winger (like me who wants to sell everything and slash spending and taxes. Their worst nightmare continues to play out – that John Key is exactly what he campaigned on – a centrist.

Claire Trevett takes the piss, even so slightly.

Even I was laughing yesterday as Annette King was reading out some frank observations from Grey Power on initial Ministerial meetings, wth Bill English trying to sugarcoat them. Claire Trevett reports:

The post-mortem by president Les Howard on the March visit has handed King a wonderful arsenal.

She first reads out his rendition of bumping into ACC Minister Nick Smith, who had not responded to their requests to meet.

“His face reddened, and with his head down the moment the lift arrived at the ground floor he took to his heels and was last seen hurrying away in the distance.”

Heh, and even better:

King, obligingly, shares their verdict of that hard-won meeting as one that “left a sour taste in our mouths as we felt we had received the old-fashioned ‘brush-off’.”

It went on, saying Bennett needed to “shape up to her obligations”, before ending, “It appears she thinks a loud laugh will solve all questions put to her and this meeting was a complete waste of her time. Well, it certainly was a waste of ours.”

Ouch.

However Claire goes on to report on teh quotes that Annette did not read out:

Had English read the full report, he would have had a happier time. Grey Power described him as “very pleasant”, and Senior Citizens Minister John Carter as “one who can be trusted to get things done, rather than just talk about what needs to be done”.

Nice.

But the real killer English needed to take the wind out of King’s sails came in their verdict of the PM: “I found John Key much easier to talk to than the previous Prime Minister”.

Heh that would have been a wonderful rejoinder, if Bill had it at the time.

I had to laugh at this story in the Herald that has, of all people, Grant Robertson and Chris Hipkins complaining about Ministerial purchase advisors.

Grant and Chris were both highly partisan ministerial staffers for a number of Labour Ministers, including the PM. Now nothing wrong with that – I was once upon a time also. But not the people I would then choose to act outraged over Ministerial purchase advisors.

The purchase advisors are not even that political. And they are not new – I recall some in the 1990s. What they are about, is every year the Minister signs a huge purchase agreement with their Department. The Departments authors and writes it. It is a bloody good idea for the Minister to have an independent advisor who can look for feather bedding etc. These people probably save the taxpayer huge amounts of money. They are not generally full-time staffers (like Robertson and Hipkins were) but they are contracted to do a specific job. They don’t even have an office in the Beehive.

Bill explains well the good these people do:

Mr English said the purchase advisers were experienced in the public sector and been most helpful to new ministers in showing them how the system worked – “which levers to pull, what the tricks are, and what the bureaucratic jargon means”.

“We did need some objective advice because the public service had been used to getting whatever it wanted and big increases in spending every year,” he said. “The benefits would be shown through in the Budget where he had been able to make significant savings. We have had to make a pretty sudden change to respond to the economic conditions and the ministers and the purchase advisers have done a very good job.”

I suspect each advisor pays for his or her salary 20 times over. Of course Labour would hate that – they are finding and cutting the waste they left behind.

NewstalkZB reports:

Mr Goff says the person who should be most grateful for the legacy left by Michael Cullen is the current Finance Minister Bill English.

Oh yes, Bill gets up every morning I am sure and says to Mary “Boy am I glad Michael Cullen left me a structural $10 billion a year deficit”.

He gets in to work and tells his staff “Think how boring our job would be if Dr Cullen had not increased spending by $4.5 billion a year in his last budget”.

At Cabinet every week Bill reminds his colleagues of how good a legacy Dr Cullen left them, as he screws them departmental budgets down.

Goff should do stand up comedy if he really said that with a straight face.

Bill English has sent out his strongest signal that the future tax cuts will not be implemented. I’m going to cover the details of this at a later stage – for now want to look at the overall fiscal situation.

The Herald reports:

Mr English said without a change to the present spending track, preliminary Budget forecasts showed recurring operating deficits of more than $10 billion a year indefinitely.

“Most worrying of all, debt would continue climbing, with no sign of levelling off.”

At the predicted 2023 level, Crown gross debt would equate to about $30,000 for every New Zealander and it would force the Government to pay an extra $8 billion a year in interest costs than forecast in the October pre-election update, Mr English said.

This simply can not be allowed to happen. Every dollar extra in interest costs is a dollar less for health, education, Police etc.

Mr English said his Budget would allow for more spending than Labour’s last year.

But the rate of growth of Government spending in recent years could not be sustained, he said in a speech to business executives in Auckland yesterday.

Core Crown expenditure this year was expected to be $63.5 billion – up $21.6 billion or 51 per cent in the past five years.

He contrasted that to estimates that the economy had grown by just 23 per cent in the same time, and tax revenue by 24 per cent.

Cullen massively increased spending on the assumption that the economy would never falter. They intrdouced interest free student loans, KiwiSaver, Working for Families – and now there is not enough money to pay for them.

The responsible thing to do with a growing economy, is to have every year modest incraeses in spending, modest tax cuts and significant surpluses. Peter Costello did this. But for nine years we had massive increases in spending.

Labour leader Phil Goff said last night that Mr English was “softening the public up” to breach the basic promise National made in the election campaign last year – that people would be better off through tax cuts.

He said National had misled the electorate.

Labour would by now have not only cancelled their tax cuts (I will touch on this at a later stage) but would be copying UK Labour and actually hiking taxes in a recession with a new top tax rate of 50%.

The Herald reports:

The views of Finance Minister Bill English and Prime Minister John Key on when New Zealand will emerge from the recession are in stark contrast.

Mr English said yesterday that he thought New Zealand was “unlikely to aggressively grow out of it”.

But Mr Key says that by this time next year New Zealand would be starting to come out of it “reasonably aggressively”.

Mr Key made his comment on March 22 on TVNZ’s Q & A; Mr English made his comments on the same programme yesterday.

Asked about the difference, Mr English said Mr Key “has always had a very positive view about New Zealand. I certainly wouldn’t want to say he is wrong but he is setting a high hurdle here and it’s our job as a Government to meet those expectations – that’s a feature of John Key’s leadership.”

To some degree the differences are not surprising, as there is a calculated division of roles where the PM is more aspirational and the Finance Minister more pessimistic, as he has to try and get back to a balanced budget over time.

But having said that, it is not helpful to have those different roles expressed quite so bluntly. The Government should have some set lines that all Ministers adhere to on the recession and eventual recovery – such as always talking about a range of scenarios. Now you may have the PM focus more on the more optimistic scenario and the Finance Minister more on the more pessimistic scenario – but you want them sounding like they are talking about the same country!

Bill English warns:

Finance Minister Bill English has a blunt message about Government spending as he prepares his first Budget.

“Restraint is permanent,” he says.

That is what he wants New Zealanders to realise, and it is what he told a group of department heads last week.

“For the rest of their careers, there isn’t going to be more money or more people,” he said.

National has been left a decade of deficits. Every dollar in extra spending we are having to borrow, leaving the debt to future taxpayers. Restraint is indeed permament.

“What we know is there will be further deterioration,” Mr English said.

“And it is going to be larger in scale than any move we can make in the short term on savings.”

That was why he was having a “containable, quick” round of Budget planning before going on to a more thorough long-term look at how to deliver better and “smarter” services through innovation.

That shift in thinking would have to come from Government departments themselves.

Rather than the Treasury working out where to cut spending, he wants the departments to change the way they think.

“We will get them doing it. They are going to have to own this,” he said.

Bill is talking about a fundamental change of culture.

Mr English rejected any suggestion that taxes would be increased to ease the spending pressure.

Just as well, otherwise I’d have to be placed on the Diplomatic Protection Squad Watch List

We found out today how bad is Labour’s economic legacy. In 1999 National left Labour with a strongly growing economy, falling unemployment, low interest rates, and low inflation.

Today’s DEFU tells us what Labour has left National. And my God it is bad:

• Unemployment to hit 6.4% (and maybe 7.2%) within 15 months
• Gross debt to increase from under 20% to a massive 33.1% (and maybe 38.6%) by 2013
• OBEGAL deficits of $23 billion over next four years
• Cash deficits of $48 billion over five years

This is appalling.  Even the “upside” scenario sees a massive increase id debt, deficits and unemployment.

Deficits of up to $6 billion are just unacceptable. If we do not improve from the lgeacy Labour left us, we will be leaving the next generation with a mountain of extra debt.

It gets even worse over the ten year horizon:

• The costs of all the borrowing basically fuck the economy. We end up with a permament structural deficit with the books Labour have left us.
• Even after 2019, the crown will be running an permanent OBEGAL deficit of 2% of GDP, or $4 billion a year. Even the “upside” scenario sees an ongoing deficit of 0.7% of GDP. So Labour have left us with an economy that is stuffed, even under the more optimistic scenario. We just can not run a decade of deficits.
• Gross debt is now projected to hit 57% of GDP in 2023. Do you remember Helen and Michael telling us that hitting 22% of GDP would be reckless. Well they have left us with a debt on track to hit 57% of GDP!!!
• Even net debt, which had reached zero, is projected to rocket up to 47% of GDP

This is a set of books, every bit as bad as those left behind by Labour in 1990. They are horrible. Bill English has the toughest job in NZ for the next few years.

The task for the National-led Government is to improve on this. DEFU is basically what would happen if you continue with Labour’s policy settings. The tax cuts were fiscally neutral so don’t affect things. Over the next few years we should always refer back to this DEFU as what we would achieve under Labour. National has to deliver smaller deficits and less debt than DEFU is projecting. That is their challenge.

Dunedin remains happily red. Labour beats National in the party vote by 16% in Dunedin North and 12% in Dunedin South. This is a lot better than 2005 though when the margins were 29% and 28% respectively.

Pete Hodgson had his 7,900 majority drop to 6,700, which won’t lose him sleep. David Benson-Pope had a 10,100 majority and new gal Clare Curran traded that for a still healthy 6,000.

In Clutha-Southland National gets 60% party vote to 30% for Labour. Bill English trades up his 11,500 majority for a 14,300 one.

Finally in Invercargill, National wins the party vote by 10%, after losing it by 1% in 2005. And Eric Roy’s 4,000 majority is turbo charged into a 6,100 one.

That’s the end of the series. All graphics taken from the NZ Herald. When final results come in, I’ll provide a lot more data.

As I predicted this morning, Mr Keystone Kop released another tape.

It isn’t much. Bill English saying that Europe sometimes doesn’t sort out its own backyards and suggesting that Obama is too moralistic on international relations as sometimes you have to pull the trigger.

Helen is claiming this proves the National Party is militaristic. You would think she hadn’t sent the SAS into Afghanistan.

I attended the Mood of the Boardroom Breakfast in Auckland organised by APN. The results of a survey of CEOs was presented, and then we had speeches from and questions to Dr Cullen and Bill English.

Now some may say why survey CEOs only? Well a CEO can and does have a massive impact on the sucess of a business. Just like a great principal can turn a school around, so can a great CEO. CEOs are where the buck stops. And the CEOs of our top businesses probably have more impact on our country’s economic prosperity than most Ministers.

The Herald reports from the survey (all scores are on a 1 – 5 scale so 3 is average):

• Key 3.5 vs Clark 3.0 on overall campaign performance (Clark did better than Brash last election in the same survey  so CEOs tend to be quite fair while reflecting their backgrounds)
• Clark leadership is 3.9 to 3.6 for Key
• Vision and strategy has Key 4.0 to 2.5 for Clark
• On trustworthiness Clark is 2.6 and Key 4.0
• Put’s NZ interests over party has Key 3.8 to Clark 2.3
• On experience Clark 4.4 vs Key 2.9
• Economic management Clark 2.5 to 4.2 for Key
• Overall 90% prefer Key to Clark (last time it was 72% Brash to 28% Clark)

Cullen spoke first and got a great laugh when he said “Welcome to both of my supporters in the audience, even if I had to pay your airfares to be here.”

He then spoke about the three Is and three Ss that he says are crucial:

1. Innovation
2. Infrastructure
3. International Connections
4. Skills
5. Savings
6. Sustainability

On the deposit guarantee scheme he said he doesn’t like doing it, in fact that it was the second worst option. But the worst option was to do nothing. He is worried about the moral hazard it creates.

Mentioned (ever so casually) that US Secretary of State Condi Rice would be calling him later that day to brief him on what is planned for the G20 meeting. The US incidentally is playing a real leadership role – even the US Federal Reserve is doing a $15 billion cash-swap facility with the NZ Reserve Bank – something not covered in much detail in the media considering how extraordinary it is. Uncle Dubya is helping Helen out

Cullen did have a little snipe at some of the business leaders telling them that it was no time for the “top end of town” to be lecturing Government, when the Gordon Browns are bailing out the Gordon Geckos. Went on to say they need to work together, and wants to sit down with business groups after the election re the planned December mini-budget.

English started off with a scathing attack on Labour saying look at the front page of Herald as to whether Government is qualified to lead. That instead of focusing of helping economy they are working on smearing the Leader of Opposition by innuendo and influence. Said it was a disgrace and why Labour are not qualified, despite Dr Cullen’s best efforts.

Bill also asked what sort of strategy is it to say trust us and after the election we will tell you what we will do.

He said that National trusts business to innovate and to get through recession as they have previous ones.

He gave Cullen credit for include the Opposition in briefings on financial stabilisation and shares Cullen’s misgivings. He said the Australian guarantee is unravelling a bit and they should learn from that.

He said a National Government is not going to whip out rug from under people as we go into recession – people need security. Also that it was important not to over-react to fiscal outlook. The key is to get through the recession and lift long term prospects for economy.

He said the combined tax cuts would be the largest fiscal stimulus in 15 years.

Highlighted how Clark has said National’s borrowing for infrastructure was reckless, dangerous and gambling with future and then two weeks ago announced similar policy to National’s.

English said changes in attitude as important as policy and that having Key as PM will be important. Said he is the most relentlessly optimistic person Bill has ever met and that is why hundreds turned up in Invercargill to meet him (Winston got 50).

Bill concluded “That is why I’m voting National.” Cullen offered response and quipped “Well I’m not voting National.”. Was very funny.

Bill also called Cullen only economically literate member of the Labour Party.

Someone asked for a grand coalition and Dr Cullen said a recession is no reason not have give people a choice, and it is one of a moderate centre-left or a moderate centre-right Government. Nice to have him confirm National as moderate centre-right.

Herald Economic Editor Brian Fallow asked a great question to English on why this recession is different from previous recessions that one needs to intervene for people who have ignored all the warnings about inflated house prices, and don’t take on a mortgage you can’t afford. His column yesterday makes the same point.

He also asked what is the point of ghettoizing the Cullen Fund? I thought Bill was rather unconvincing in his reply to both points – probably because he somewhat agrees with Fallow privately – but in politics you never get the luxury of agreeing with 100% of your party’s policies – not even the Leader. Holyoake once said he only agreed with 80% of what his Government did. Mind you with Muldoon it might have been 100%

Cullen said that once you break that line of non involvement in the Super Fund, you have no defence to further involvements. Highlighted how the Greens support National’s policy on the Super Fund and they would like to invest it in many pet projects – none of which probably have much of a rate of return.

English did well though on Fast Forward and he had even Cullen nodding as he said the private sector is yet to commit a dollar for fast forward. English said the fast forward fund is borrowing money to then reinvest it in bonds. The structure is stupid. He supports actual research and National will put more money into fast forward projects, but not through the structure of a dedicated fund.

Overall both did very well I though. Both knew their stuff, agreed with each other on a bit but also exposed the weaknesses on both sides.

Voting is now open in the 2008 Kiwiblog Awards. They close at 3 pm Friday 3 October. You can vote in the sidebar.

The most popular nominations in each category are:

MP of the Year

• Rodney Hide – not even a finalist last year but a popular nominee for his campaign to expose Peters, amongst other things
• Bill English – a repeat nominee – his year of picking apart the EFA was often cited
• Pita Sharples – has become the Maori MP, Pakeha love to love, and helped position the Maori Party as Kingmakers.
• Phil Goff – a China FTA plus a possible United States FTA endears Goff to many readers

Labour MP of the Year

• Phil Goff was nominated by many but disqualified as the 2007 winner
• Michael Cullen cited by many for his mastery of the House
• David Cunliffe also impressed several with his determination to improve the Health sector
• Winston Peters was nominated multiple times in this category, so who are we to stand in the way of the public!

National MP of the Year

• Simon Power had the most nominations, having impressed with his constant highlighting of law & order problems, and also superb Chairmanship of the Privileges Committee.
• John Key is still the country’s Preferred PM
• Bill English was disqualified having won this category last year
• Gerry Brownlee also often nominated for his take no prisoners methods in the House

Minor Party MP of the Year

• Rodney Hide a popular nominee for many
• Pita Sharples had 12 nominations in this category – will it be Minister Sharples in a few weeks?
• Sue Bradford has had a quieter year than 2007 when she was runner up, but still gained some nominations
• Hone Harawira also gained multiple nominations – the once reviled radical has been impressing a few people

Press Gallery of the Journalist

• Audrey Young – Winston still has not apologised to her, but she was a favourite nominee amongst Kiwiblog readers
• Duncan Garner – his “straight talking” doesn’t always win friends in Parliament, but has proven popular with some readers
• Guyon Espiner – cool, clam and collected – the most viewed gallery reporter has some fans
• Colin Espiner – the blogging journalist has many online fans

Public Servant of the Year

• Grant Liddell – the SFO Director was a multiple nominee for doing what was right, regardless of what the Government wanted.
• Owen Glenn – okay not technically a public servant, but many nominated him for having performed a public service.
• Helena Catt – the Electoral Commission CEO wins the sympathy and nominations of many for having to try and work out what the Electoral Finance Act actually means, and for her willingness to criticise the law she has to enforce.

Enjoy voting.

Bill English has raised the issue of whether Michael Cullen will, if re-elected, cancel the 2010 and 2011 tax cuts.

This is far from impossible. Consider the evidence:

1. Michael Cullen promised tax cuts in 2005 and then cancelled them after the election on the basis of economic conditions.
2. He has said that the level of debt has now passed his comfort zone
3. His party is promising extra spending such as a pay jolt in education, a move to universal student allowances and longer period of paid parental leave, at a time when the economy is shrinking.

They probably won’t cancel them, but one could imagine if Dr Cullen delivers the 2009 budget, him announcing the 2010 tax cuts have had to be delayed due to the weak economy – probably until 2012 – after the next election again.

Steve Braunias hands out his awards for 2008 viewing on Parliament TV. Some of them are:

1. Biggest Wretch: Winston Peters
2. Biggest Flirts: Margaret Wilson & Rodney Hide
3. Best Valedictory Speech: Katherine Rich
4. Best Smile: Sue Bradford
5. Best Impersonation of Eternal Youth: David Parker
6. Cruellest Wit: Michael Cullen
7. Best Debater: Michael Cullen
8. Most Acute Ears: Bill English
9. Best Reply: Tau Henare

That reminds me I must start the traditional Kiwiblog poll for Best MP shortly.

Fran O’Sullivan takes a look at who is driving the campaign strategy in each party.

But at the tactical level, some decisions are backfiring. Clark says the election is about “trust”. She reinforces that message by using “dog whistle” tactics which could have come from the Crosby Textor campaign textbook she usually decries.

Yep.

In the past she has deputed senior politicians such as Trevor Mallard or Phil Goff to be the party’s attack dogs and rark up her opponents, but this time she is getting into the gutter.

Leading the descent downwards.

National does not have an uber-fuhrer as strategist. What it has is a strategy team which has been meeting on a daily basis “for months now”.

Strategy by committee – hmmmn.

Party insiders expect author Nicky Hager, who wrote The Hollow Men, to try to drive a public wedge between English and Key by dropping more damaging emails during the election campaign.

No doubt.

Some clued up National MPs are even using digital tape-recorders to record their public utterances so they have a log of what has been said in case they are subject to a re-run of the secret recordings at their own annual conference.

A very good idea.

Maori MP Hone Harawira is the party’s campaign manager and also in charge of fund-raising.

A smart choice – lots of street smarts.

We have five Finance Spokespersons after Winston pulled out. They are:

1. Bill English, National
2. Dr Michael Cullen, Labour
3. Russel Norman, Greens
4. Peter Dunne, United Future
5. Sir Roger Douglas, ACT

Each was asked three questions:

1. Will you cut company and personal tax and by how much and when?
2. Will you have a cap on government spending as a percentage of GDP?
3. Will you include labour and environmental restrictions in free trade agreements

Bill English

1. Yes we will lower tax rates. Details soon. Important to do so to put cash in pockets, but more importantly incentives to work, save and invest. Also want a more efficient tax system.
2. No as GDP goes up and down. Focus on quality of spending not a set target. Expect PREFU will show Crown is in deficit. So period of restraint needed. Govt spending excluding welfare growing at 8% per annum. Can’t carry on at that rate so will slow growth down, but will still grow in absolute terms.
3. Not desired, but US Congress turning protectionist and they may demand them so we may need to be flexible. Generally supportive of Govt work on FTAs.
4. Generally comment: no more cheap credit – growth will come from earning it and need to lift productivity.

Personally I think a target for expenditure as a percentage of GDP would be a very good thing.

Sir Roger Douglas

1. Could reduce personal and corporate tax to under 20%, maybe even 16%. Also could lower GST to 10%.
2. Need to say yes to this, so one can say yes to Q1 (he answered in reverse order). Says Govt expenditure should be held at rate of inflation of 2.5% and population growth of 1%. So an annual 3.6% increase only. Sounds good to me!! Any increase over 3.6% should be met with savings elsewhere. If we hold expenditure to 3.6%, each household will pay $13,000 less in annual taxes in 10 years time. Govt expenditure has increased under Labour by $17 billion, after taking inflation and population growth into account. That is $220 a week per household. What did you get for that $220 a week? Could you have spent it better yourself? No equity or fairness without efficiency in expenditure. Thinks expenditure of 25% of GDP is a good target.
3. Support free trade agreements without these restrictions

I have to say Sir Roger was brillant. He may get some very serious support for ACT if enough people hear him. Very smart to not talk about slashing expenditure but just propose keep spending to inflation and population growth. Families can relate to that.

Peter Dunne

1. Would cut personal taxes on April 2010 to 10% for income to $12K, 20% to $38K, above $38K at 30%. Supports income splitting. And align business and trust rates at 30%. Should do regular tax reviews, rather than wait 12 years between tax cuts (hear hear).
2. No set cap. GDP not sole measure of wealth of economy. Does have concern over current level of spending but more concerned about quality and direction of spending. Proposes merging some DHB functions centrally such as equipment purchasing. A spending cut may lead to a service cut – $50 million into IRD so it can answer phones quicker as an example.
3. Supports FTAs. Don’t need specific standards on environment and labour, as they are dealt with in the wider business environment. We are most trade dependent nation in the world.

Dunne did well also. Some nice specifics.

Dr Russel Norman

1. Wants a transition to a sustainable economy. More ecological taxes and reduce taxes on income. Incentive then to reduce scarce resource use and pollution. Wants incentives to use less water. Supports ring fencing of losses on investment propoerties. Not supporting a decrease in overall tax – just how it is made up.
2. Does not have a policy for a cap on spending. It is about efficiency.
3. Does support standards, but notes usually just involves consultative committees.
4. General comment on need to prepare economy for higher oil prices. No other party has policy around this.

Dr Michael Cullen

1. Lowered company rate to 30% and legislated for three rounds of personal tax cuts. Also increased depreciation rates and R&D tax credits.
2. No. Spending at he moment same as 99/00 as percentage of GDP. Goes up and down. A cap is artificial.
3. Yes will try and include these standards as agrees with Bill needed for US Congress
4. General comment on the need to lift exports from 30% of GDP. New tertiary funding policy is essential. Backed Clark up on how our bottom 30% of school leavers are very poor. Middle and top are both very good. More rail needed plus more roads. Also roll-out of broadband is important. Higher savings needed and our capital markets are very weak. Sustainability also important.

All five spoke well and knew their stuff. I do have to say I think Sir Roger was by far the best – both his level of detail, his forceful arguments and the actual policy. I would put Peter Dunne second best.

I don’t think Bill English came across that well. Not due to him (Bill was very much on top of the arguments), but because he could not give any details of the tax policy yet (which I think would have been popular). Would have been good though if National had decided to release some sort of business policy today, so there is something new. Maybe that will come in a later session?

Regulatory Responsibility Act

A question on whether they would support a Regulatory responsibility Act.

English says there is support for defining the principles of good regulation, and using the bureaucracy to fight the bureaucracy so regulations can not proceed without ticking all the boxes which justify the regulation. Also said very keen to reform RMA. Bottom line is would support some sort of RRA.

Douglas supports a Minister of Regulatory Reform and an RRA.

Dunne says ironic to use legislation to fight against legislative regulations. Thinsk local govt sector is more of a problem.

Missed what Norman said.

Cullen says will make process too bureaucratic.

Company Tax Rate

EMA Northern advocated cut company tax rate to 20% as lead to more investment and eventually more tax paid over ten years.  Cullen attacks dodgy modeling of EMA. Says we have had lower company tax rate for most of last 20 years than Australia.  English says 20% rate would be fantastic but priority for now is reducing personal tax rates. If we drop company tax rate to 20% without personl rates going down, many more people will alter their tax affairs to take advantage.

EMA’s Thompson replied that when company tax rate has been cut in the past, the level of company tax has still risen.

Infrastructure

Cullen made good point that not all infrastructure contributes to economic growth – new planes for Air Force for example. But roads do.

Dunne strong support of PPPs and infrastructure bonds.

English – planning debt 2% of GDP higher than Labour but still one of lowest in developed world. Govt is running cash deficits also. National’s infrastructure plan is a prudent investment. Also thinks Govt manages assets badly, and there is room for improvement. PPPs not just about money, but about getting private sector skills around risk and management. Bill much better on this stuff. Lots of people commented at the tea break that they thought not enough detail on the earlier stuff, but very strong on infrastructure.

Matt McCarten labels the last week as a great week for Labour, and is hoping for many more.

The SST tries its best to talk up the nonsense about Bill English plotting a coup against John Key, but English is 100% unequivocal:

English told the Sunday Star-Times he was happy to flag the possibility of being leader for the rest of his political career and he would never challenge Key for the job: “No ifs, no buts, no maybes.”

But the SST continues to attempt to cause problems for National, with Hager and Hubbard reporting on rumours that Don Brash could be appointed High Commissioner to London if National wins.

Key discussed giving Brash the top job in either London or Washington when he replaced him as party leader in 2006. Since then this has firmed into Key planning, if elected, to offer Brash a three-year posting as high commissioner to London, a position that costs the taxpayer about $600,000 a year.

Here is where you can tell the SST is trying to make the story as negative as possible for National. Instead of reporting on the salary for the job which is $130 to $170k they report on the total cost of having a High Commissioner in London, as $600,000 sounds better than under $130,000.

Only later on, do they report the salary. The $600,000 is a meaningless figure unless the SST thinks NZ should do away with having a High Commissioner. There is a difference between salary and work related costs.

As for the substance of the story, I refer people to my previous post on Government appointments of politically connected persons. It is all about quality and quantity.

There is a great deal of interest in the person who made the secret tape recordings. They claim to be not a member of a political party, but they are obviously an extremely dedicated anti-National activist to have done the following:

1. Trespassed at a private function
2. Lied about being a party member to MPs (he claimed he had joined Young Nationals)
3. Lied about his beliefs (claimed to support nuclear ships etc)
4. Asked leading questions to MPs with the deliberate intention of getting them to say something he could use against them
5. Used the fact he was pretending to be a party member to try and entrap MPs, knowing they will give more sympathetic responses to a viewpoint from someone who is a volunteer for a party, than if they were a random member of the public
6. Had wired himself up with a hidden tape recorder
7. Knew enough about the media to then know who best to give them to

They incidentially am almost certainly a reader of this blog, because in the transcript with Bill talking about WFF, he refers to Lockwood’s spreadsheets. Now I recently blogged about how five years ago or so I worked with Lockwood on some tax and benefit modelling, and that is the only mention in recent times of those – so they are obviously an avid reader who remembers such minor details.

As I said, I am not entirely surprised that someone would do this one day – in fact had been predicting this. Somewhat sad though. I have had many candid conversations with Labour MPs, Greens MP, other activists over the years and could cause all sorts of nastiness if I was the sort to tape them. I do hope this does not start a trend.

Garth George pulls no punches:

Politics in New Zealand, despicable as it has been for decades, has reached a new low with the secret taping of private conversations at last weekend’s National Party conference.

And what I want to know is what sort of scumbag would do such a thing, then spill his or her guts to the media.

The Herald editorial also weighs in:

Whoever has released recorded conversations with unwitting National MPs at the cocktail function at their party’s annual conference last weekend probably believes the ruse serves a public interest. The country now knows, if it did not before, that National has compromised some of its policy desires for the sake of its electoral prospects.

Oh yes this is a well kept secret – known only to three million people. Never before has a political party compromised on policy desires. I mean we didn’t see a Labour Cabinet pass a resolution to steal over a million dollars a year from the taxpayer in state funding of their party operations, and then weeks later rescind it as it looked to damage their electoral prospects.

As revelations go, these are rather less remarkable than the method by which they were obtained. Discreet recording is done but not commonly published by ethical news organisations for two reasons.

First, it is not fair to release a reporter’s tape or transcript unless the subject denies something plainly said or the recording could serve a public interest somewhat more compelling than partisan politics. Second, the publication would damage the gathering of further information. Once bitten, a public figure is twice shy.

Nothing revealed from National’s conference sneak so far offers insights to its intentions that could not have been obtained by a journalist trusted to use a private conversation responsibly.

When you consider the nature of the setup – an imposter pretending to be a right wing party member trying to get National MPs to agree with him, it is remarkable nothing more damaging was said. MPs get bombarded at conferences with policy ideas from members, and often say stuff like “Yeah that is not a bad idea, and we can look at that one day, but not immediately”. You don’t tend to tell someone you think is a hard working volunteer for your party that their ideas are whacko and they should eff off.

If National’s conference mole was working for the Labour Party, as National supposes, it is a new dimension to desperate politics in this country, and readily copied. All parties will know how easily opponents could plant an observer in their conferences capable of circulating at the tea break and engaging leading figures in candid discussion of sensitive issues.

I am sure Helen Clark did not tell anyone to go out and do this. That is ludicrous of course. But whoever did it, was motivated by a desire to help Labour retain power, and it will be very interestign if the identity emerges to see what links are there.

The Labour Party appears convinced Mr Key has more drastic economic policies in mind than he will admit before the election. Would that it were so. The more safely Mr Key is playing the game at present, the more genuine his caution seems. And Mr English is even less daring. He led National back to centrist conservatism after the defeat of the Shipley Government and he would keep it there for the time being.

Anyone who thinks a Key/English leadership is going to suddenly in office sell everything in sight, is basically barking. As the Herald notes, some of us do wish they would be a bit bolder in some areas!

In my mind, I have been imagining what the response to the secret taped conversation would have been if Bill English had been Winston. I guess something like:

1. Deny the tape exists
2. Deny it is you on the tape
3. Claim that tape is a forgery
4. Angrily call on Duncan Garner to apologise and be sacked from his job for broadcasting it
5. Hold a press conference, and call everyone morons and scumbags
6. Suggest Duncan personally fabricated the tape
7. When proof comes out your voice is on it, claim that your lawyer never told you what the question was
8. Demand Duncan be sacked again
9. Upon questioning, deny you have a policy on Working for Families
10. Then later on claim you do have a policy, and it is the same policy as written in 1993 and only lying wankers would claim otherwise
11. Then as focus turns to comments on Kiwibank, deny all knowledge of Kiwibank. Say you have never even been inside a branch, and if you have never been inside Kiwibank how could you possibly have a policy on whether to sell it. Stress anyone who is not a moron could work that out.
12. Go into the House and attack press gallery as rodents
13. The following day claim you have proof that 15 years ago an MP from another party did the same thing. Produce no proof of this.
14. Demand Duncan be sacked again

I suspected, reading the Bill English transcript, that this was not some conversation picked up accidentially between a delgate and Bill. It seemed to me the person he was talking to was most likely to have been the one doing the recording – ie someone fraudulently posing as a National Party delegate asked him questions, while secretly taping him.

This was confirmed with the release of recordings with Lockwood Smith. So my suspicions were correct. I am not terribly shocked – in fact I had predicted such tactics in presentations I have done to the Chamber of Commerce etc. We have seen similar in the US.

This will to some degree set off a race to the bottom as secret tape recordings become a standard tactic in politics.

Anyway let us go to what Lockwood said, according to NZ Herald:

There’s some bloody dead fish you have to swallow … to get into Government to do the kinds of things you want to do … and you have to balance up what really matters.

Heh the term is dead rats. This part is just the obvious. You drop unpopular policies in the areas that do not matter so much so you get to do work in the areas that matter most. This is for example why Labour finally gacve in on tax cuts – to get a fourth term.

If you try to do everything differently you’ll scare the horses and under MMP it’s very hard to win.

Again nothing unusual there.

Once we have gained the confidence of the people, we’ve got more chance of doing more things.

This is in fact the exact opposite of having a secret agenda. I have said much the same on this blog – you gain confidence by keeping your promises, not breaking them, and establishing good faith with the electorate. If National, for examples, serves a first term without selling any state assets, then it means if they campaign in 2011 to consider selling (for example) 25% of Solid Energy, people will trust National that they would only sell those assets it says it will, and not sell everything. You do not gain confidence to break it – you gain it, to keep faith with it. Otherwise you get thrown out.

We may be able to do some things we believe we need to do, perhaps go through a discussion document process … you wouldn’t be able to do them straight off … I’m hoping that we’ll do some useful things that way that may not be policy right now.

And again here he is talking good faith again – talking about having a public discussion process on proposed policies.

Labour are desperate to work up the fear of broken promises and secret agendas, because once National is in office – and does keep its promises, they will never have that weapon again. Anyone who thinks John Key is going to break his election commitments does not know the man well. My prediction is he will have a big wall chart of all the election commitments and have monthly progress reports on how things are going towards implementing them. There will in fact be a zealousness about making sure that in 2011, no-one can seriously claim National broke its word.