Nats will bare red spending teeth

Forget Winston Peters and his silly talk of neutron bombs.

The really explosive stuff will come at this weekend's National Party conference.

It will have nothing to do with Peters and his shenanigans. It is far more important than that.

Choosing his words carefully, Bill English will strike at the very heart of Labour's re-election strategy.

His speech will seek to spike Labour's plans to run another successful scare campaign of the likes that plagued National in the 2005 election.

That campaign warned of swingeing cuts to public services should Don Brash become Prime Minister.

It worked.

Labour is pinning its hopes on it working again this year.

National is already under mounting pressure to explain how it will pay for further tax cuts along with its plans for extra Government spending without slashing public services or borrowing billions more.

Just how National will fund its promises has become even more pertinent as the economy plunges deeper into recession and tax revenue correspondingly declines.

National has avoided these questions, but it cannot hide at its own conference.

It has to offer something by way of clarification this weekend.

Even so, Mr English, as National's finance spokesman, will not say much about National's plans.

But he will say enough to make it clear National is not going to be spooked by a bit of red ink, as he describes it.

It is understood he will indicate that National is relaxed about bigger deficits and is not going to be panicked into mounting some slash-and-burn exercise on Government spending just to balance the books.

It remains to be seen whether he will say so specifically, but the clear implication is National is willing to run bigger deficits than Labour.

It can do so because it is relaxed about the impact on Government debt levels.

It will do so because Mr English believes the economy will be in dire need of expansionary policies, not belt-tightening.

It will do so because Mr English believes the economy is fundamentally sufficiently robust to bounce back from a cyclical downturn and that will see a return to Budget surpluses.

Labour is framing the fiscal argument around "affordability".

Labour will say National's plans are not affordable and that they will necessitate savage cuts in public services.

It will run an unmitigated fear campaign to scare middle-ground voters witless.

Labour's "Don't Put It All At Risk" advertisements, which ran in the week prior to polling day in 2005 and which intimated state education, public hospitals and other social services would all be stripped back by Mr Brash, are widely credited with depriving National of victory.

National has not forgotten.

No matter what the polls are showing, National will not feel comfortable until it closes off that avenue of attack.

Mr English's conference speech is unlikely to contain any figures to indicate how red he will let the ink get.

The priority is to get across the message that National is comfortable about running bigger deficits and will therefore not have to cut Government spending overall.

National may have different priorities on how it spends the money.

The important thing is that it does not mean overall budgets for big-ticket items like health and education will be slashed.

A seeming willingness to go deeper into the red than Michael Cullen is an audacious move.

It is not just more of National's "me too" cuddling up to Labour's policies.

It is a case of being more Labour than Labour.

Mr Cullen believed he had left National no room to move in the Budget.

He has watched National say it will maintain more and more of Labour's schemes, the latest backtrack coming on the extension to the Working for Families programme which leaves National having to factor another $200 million into its reckonings.

At the same time, Mr Cullen has taken an almost perverse delight in watching tax revenue forecasts fall.

It was Mr Cullen himself who this week revealed the Treasury now expects that cash deficits over the next four years will increase on levels forecast in the Budget which he delivered barely two months ago.

If Mr Cullen thought National had been painted into a corner, however, Mr English is poised to knock down the wall and expand the room.

He will do so by adjusting how much National borrows for capital projects.

National has major plans for boosting the country's infrastructure, but would fund projects by borrowing rather than out of revenue streams.

The argument is that projects which have a long life should be paid for progressively over decades rather than out of tax revenue immediately to hand.

The less National borrows for capital spending, the more room it has to borrow to cover a higher cash deficit.

Mr Cullen's response to Mr English's speech will be fast and furious.

Mr Cullen will accuse English of being fiscally reckless and making it even harder to contain inflation while pushing public debt up to unacceptable levels.

Mr English will counter that the way the economy is heading, the Reserve Bank will have no difficulty cutting interest rates regardless of additional inflationary pressures.

The crucial thing for National is to shift the argument away from what happens to Government spending.

If Mr Cullen wants to talk about debt levels, then fine.

National argues those levels are very low.

It does not feel obliged to stick to ones which Mr Cullen has imposed on himself.

Mr English's initiative is not risk-free - not least in how the Reserve Bank and the financial markets respond.

But National is willing to take any questioning of its commitment to fiscal rectitude on the chin if voters are reassured that it will not be using recession as an excuse for cutting back the role of the State.

Labour will claim that many in National will privately squirm at the direction in which Messrs Key and English are taking the party.

But that ignores one very important thing.

National has been out of power for nine years - its longest period in Opposition since the 1940s.

Right now, getting back into power is all that matters to the party.

To ensure victory it will do - to quote one of Mr Key's pet sayings - whatever it takes.

John Armstrong is the New Zealand Herald's political correspondent.


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