Numbers men offer voters clear options

VERNON SMALL
Last updated 05:00 30/08/2014

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For the first time in decades, voters face a stark choice about the economic direction taken by the next government.

On everything from taxes, to the way the Reserve Bank operates, to regulation in the housing and power markets, Labour Party finance spokesman David Parker has put together a policy platform that would substantially change the moving parts in the economy. He argues something needs to be done to address growing inequality, imbalances in the housing market and the currency, and a slowing economy, tipped to fall from 4 per cent growth this year to about 2 per cent by 2017.

In contrast to Labour's promised "economic upgrade", National's finance supremo Bill English is promising more of the same.

Election 2014 is the first time for many years that the campaign itself has presented such a wide divergence of plans. English's is a steady-as-she-goes approach that leaves most of the existing settings in place, although in some crucial areas, such as the Resource Management Act and industrial relations law, the changes may be more far-reaching than they seem at first glance.

Labour is promising to reverse National's recent changes, including abolishing the 90-day trial period, and to lift the minimum wage quickly by $2 to $16.25.

But more far-reaching changes would be likely after a working group, called by some a "truth and reconciliation" exercise, looks at current practices in the workplace.

In both labour law and resource law, National's planned reforms were thwarted when it failed to get the numbers in the House from its support parties.

The changes are likely to go ahead if National can govern either alone or with the assistance of ACT - although requiring the votes of UnitedFuture, the Maori Party or even NZ First could make those changes difficult in the next Parliament too.

At current - and any likely - polling numbers, Labour faces a much more difficult task building a coalition around its economic policy.

There is reasonable scope for agreement with the Greens and NZ First on issues such as controls on foreign ownership, monetary policy reform and exports. But there are also some notable sticking points, in particular Labour's move to raise the state pension age - anathema to NZ First leader Winston Peters - and on mining and trade with the Greens.

Both major parties are working within the same broad growth outlook and fiscal and surplus track, although both argue they see a faster-growing economy under their settings - what the prime minister calls being on the "cusp" of something special for the country. And it is worth noting both are promising to run surpluses.

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Parker argues the economic changes planned are necessary to move the economy up a gear, especially as the impact of the Christchurch rebuild wanes and in the face of "rampant house-prices inflation" in Auckland and a currency that is squeezing exporters.

"Exports have been going backwards as a share of the economy since 2008, from 33 per cent to 29 per cent now and forecast to go under 26 per cent. The key problem Bill English complained about, he hasn't fixed," Parker said.

The country also faces a potential slowing in China and a volatile outlook for commodity exports, with dairy prices turning down sharply this year. English argues that the changes Labour proposes are "disruptive and in some cases experimental" while the policy mix he has in place is a "known regime" that has set the country on a positive path.

When you line up the main economic policies side by side it can look like an unbalanced ledger.

On one side is Labour's "we will", followed by a list of radical reforms.

On the other is more often than not a single "we won't" from National.

TAX POLICY

Labour has proposed a new 36-cent rate on personal income above $150,000.

(The Greens have campaigned on a 40c rate cutting in at $140,000.)

Labour would also bring the trust rate up to that level and impose a broader capital gains tax, excluding the family home, set at 15 per cent.

On the other side of the ledger, Labour wants tax breaks for research and development, and an accelerated depreciation regime. It argues the changes would boost innovation and exports, and steer investment away from property speculation.

Parker has said he would contemplate tax cuts in a second term of office and argues they would actually be more likely under Labour because it plans to reduce debt at a faster rate.

English says significant tax reform is over for National after the GST-personal tax switch in its last term. It has been holding out the option of small tax cuts in its next term.

Prime Minister John Key has said he "hopes" they can be delivered - but they would likely cost up to about $500 million a year and be aimed at low-to-middle-income earners.

But both Key and English have said the package would not be defined down to the impact on individuals before the election.

In an interview for this article, English said it was unlikely there would be "much more shape to that" before the election and said the numbers - the $500m previously mentioned - "might move around a bit".

English said GST would not be put up again and there was no major tax reform ahead.

ELECTRICITY REFORM

Labour is proposing a single buyer for generation that would then be on-sold to retailers. English said the market was in good shape. "We'll leave it as it is."

HOUSING MARKET

As well as its capital gains tax on investment properties, Labour would restrict overseas owners to buying new houses only and would build 10,000 affordable houses a year for on-selling to first-home buyers.

National has proposed lifting the subsidy for house buyers with KiwiSaver accounts to a maximum of $20,000 and would let savers withdraw all but KiwiSaver "kickstart" for a deposit.

It would also move to free up more land and reduce building restrictions.

MONETARY POLICY

Parker says his monetary policy changes would be "moderate".

Labour believes the single-minded focus on inflation is harming the tradeable sector.

It would broaden the objectives of the Reserve Bank to include the current account balance, and allow it to use existing tools to bring down the value of the dollar.

It would also allow the KiwiSaver savings rate to be increased as an alternative to interest-rates increases.

English says there are always arguments around what he calls "technical processes" of how the bank operates policy but using interest rates as the main tool was reasonably understood. Labour's change would be disruptive and would stall confidence.

TRADE

National is pressing ahead with free-trade deals, including the Trans-Pacific Partnership that includes Japan and the United States.

Labour has been a free-trade party in the past, and signed the free-trade pact with China, but it is reserving judgment on the TPP until it sees the text and it says the Government should be more open about its stance on the talks.

English says National will stay on the same path and it is Labour that has shifted. He says Labour leader David Cunliffe's position is "over-thought" and driven by internal party divisions.

SUPERANNUATION

English says National is committed to "stability". That is something forced on it for now by Key's promise to resign if the age and level of pay for super changes under his watch.

English is seen as more flexible but will not go further than saying a future government may choose to lift the pension age.

Labour would gradually raise the state pension age to 67 by 2032, starting in 2020.

English says adding up Labour's plans, "you're talking in the short term a significant change of direction, then a long process of working out where you have got to".

But Parker says the economy needs his "upgrade", because under current settings exports are going backwards and Auckland housing speculation is going crazy.

And on one thing at least he agrees with English. "What they're offering is more of the same."

- Stuff

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