Labour's power policy sends National a jolt

In the week or so since it revealed its hugely controversial plan to slash power prices, Labour has bared its teeth in venomous fashion at anyone questioning the wisdom of breaking up the wholesale electricity market just as it is showing signs of functioning as intended.

Labour has not deviated one iota from its line that domestic consumers get a fair go and price gouging by the five big power generators must end. The party has been unflinching in the face of criticism that in doing so it is turning back the regulatory clock to an era of unrestrained state intervention which created crippling distortions in the economy.

Labour has been equally unrepentant about the policy's impact on the float of shares in Mighty River Power. The party has stuck religiously to its script that people have a choice as to whether they buy shares, but they do not have a choice as to whether to buy electricity.

In short, Labour has been delivering two-fingered salutes all round - especially to the string of broking houses queuing up to rubbish the policy seemingly oblivious to the fact that they are heavily conflicted in doing so.

Labour has ample reason for adopting such an aggressive and uncompromising stance. For the party to win next year's election, it must pick up a substantial chunk of votes both on its right and left flanks.

It must jolt those on low incomes and welfare benefits in South Auckland out of non-voting apathy, as well as engineering a switch in support away from John Key and National in the metropolis's mortgage belt and middle class suburbs. The electricity policy is capable of doing both things.

The policy presents a clear alternative. Labour will lose if it takes the kind of insipid policies into the 2014 campaign with which it fought the 2011 election.

Labour must be bold. It will get nowhere being a pale echo of National. Hence its plan to build 100,000 houses over 10 years. Hence the release of its single-buyer proposal to rein in the generating giants and force down prices to the benefit of up to $330 a year in savings for households. Hence the stout defence of that policy. Issued in conjunction with an almost identical version produced by the Greens, the policy blunts the ability of the latter party to siphon off votes on Labour's left.

When it comes to making inroads on the middle ground, Labour is taking much more of a gamble.

National can talk all it likes about Labour taking both a massive step to the left and a huge leap backwards to a New Zealand of the past. National can quote all the statistics it likes about the actual rate of price rises.

The public perception, right or wrong, is that National's power reforms of the 1990s have failed to deliver. National could be comfortable about that for as long as Labour remained committed to the regulated market model. Labour's abandoning of that model has suddenly left National isolated on a crucial hip-pocket issue.

The question is whether public unhappiness with ever-rising power bills runs deep enough to offset the secondary impact of the policy - namely the wiping of hundreds of millions of dollars in value off the ''gentailers'' and the associated spiking of the partial share float.

Nearly two million New Zealanders are now signed up to KiwiSaver. Those nearing retirement whose funds have invested heavily in Contact Energy will not take kindly to Labour effectively slashing the value of their holding.

Labour's new policy has also undermined the Mighty River Power float. A share price drop after the stock has listed would be a disaster for National, potentially crippling the subsequent planned floats of Meridian Energy and Genesis Energy, and wrecking the centrepiece policy of National's second term. While Labour would be delighted by any delay forced by the potential implementation of its policy, the party risks incurring blame from the very segment of voters it is seeking to capture.

However, Labour has a significant advantage in the debate on its policy's merits. It cannot prove the policy will cut prices. But National likewise cannot prove the policy will not work.

That is because it is just about impossible to explain the workings of the electricity market in a manner easily digested by the public.

National has resorted to simple sloganeering, accusing Labour variously of ''North Korean school of economics'', being guilty of a return to ''Soviet-style central planning and nationalisation'', or just being ''barking mad''.

The language is designed to ghettoise Labour in a long-dead era when interventionist policies came close to wrecking the economy.

In order to further marginalise Labour, Mr Key seized on his opponents' electricity plan to define the election as as contest between the ''centre-right and the far left''.

Labour's message to middle New Zealanders, however, is that they are laboratory mice trapped in a seriously flawed and never ending far right experiment, but, at last, help is on its way.

• John Armstrong is the political correspondent of The New Zealand Herald.

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