Fran O'Sullivan: First the big lie, now the big bribe

Labour is spending like a drunken sailor as it endeavours to retain its election lead.

Labour began with the big lie: the claim that National's policies are being written in Washington under the say-so of a billionaire US bagman.

Now it's the turn of the big bribe: a $300 million pledge to wipe interest from student loans.

At first blush Education Minister Trevor Mallard's "big lie - big bribe" tactics are a surefire vote winner. Students and their families are under a debt burden.

Already, Labour has reversed National's poll lead.

And there will be more to come now that Finance Minister Michael Cullen - the man who made a virtue out of being a fiscal tightwad - has let it be known Labour can draw on $1.9 billion of "unallocated" Budget expenditure for election policies.

And plenty of cash for Labour to get back into the electoral auction with further carefully targeted policies as National prepares to step up the bidding war by releasing its tax cuts policy.

The tactics are strikingly reminiscent of the $6 billion splurge John Howard embarked on last year to get the Liberal Party re-elected across the Tasman.

Inevitably there will be claim and counter-claim during the six weeks until polling day.

But what is alarming about Labour's tactics is its propensity to dish the dirt not just on political opponents, but also private sector economists who take issue with its uncosted student loan pledge.

First to feel the Government's displeasure was Westpac chief economist Brendan O'Donovan. Last week he urged Labour not to implement the policy, predicting a cost blowout to around $700 million a year - half-way between Labour's cost projection of $300 million and a worst-case scenario he estimated at up to $1.1 billion a year.

Mallard immediately challenged his independence and accused Westpac of releasing its forecast for "very selfish reasons": it stood to lose money. At issue was the bank's graduate package, where it buys out up to $10,000 of student loans at discounted rates to secure future custom. Mallard slagged the "international company" for not declaring its conflict of interest.

Prime Minister Helen Clark has now chimed in, saying the costings were "lurid".

But Westpac is resisting the blatant Muldoonism and standing by the independence of its economic forecasting unit.

The "international" company is among a number of Australian- owned banks which are alleged to have avoided hundreds of millions of dollars in New Zealand taxes through structured finance deals, and has been in the vanguard of moves to harmonise banking prudential regulations across the Tasman.

Realpolitik dictates there are limits to just how far Westpac is prepared to go toe-to-toe with Labour Cabinet Ministers. It is the Government's banker, after all.

But it would be a pity if Mallard's sledging stops O'Donovan from running his ruler over yet-to-come Labour policies. Or forces Westpac to cower to political signals.

The real problem for Labour is that Westpac is not on its own.

The National Bank - another international company (read Australian) - yesterday chimed in with similar warnings.

The National Party has now got into the act with a suggestion that Labour's policy means the asset value of the student loans portfolio will have to be written down by $1.7 billion, from $6.6 billion. This would take place after New Zealand adopts international accounting standards in June 2007.

As a vote-grabber such warnings will sail way over the heads of most voters.

But they are the sorts of issues that would have been canvassed if Labour had submitted its student loans policy to independent economic analysis commissioned through the Treasury. Instead, Labour has relied on smart PR tactics such as issuing a case study featuring a Labour student activist, and a web-based device for students to calculate loan savings.

And resorted (again) to fear-mongering and scare tactics against outside influencers (Australian this time) when questions are raised.

Mallard's problem is that he has wittingly become the public face for Labour's venom.

He is being privately touted as a future Finance Minister once the Clark/Cullen machine departs. But if he wishes to retain credibility with the business sector he needs to get out of the sandpit - the rottweiler image does not appeal.

Cullen rails against the news media's focus on spin in this election. Yet he does not produce independent costings to back Labour's new policies.

The only parties to go down this route so far are United Future, Act and the Green Party, which submitted their tax policies via Treasury for independent verification.

Treasury commissioned the NZ Institute for Economic Research to provide analysis and cost the impact of the various proposals.

But despite having a time limit of August 1 to submit policies to Treasury, neither National nor Labour is playing ball.

The problem seems to be that neither trusts the intermediary - Parliament's Finance and Expenditure Committee - to keep each other's secrets.

A fatal flaw in the process.

In National's case the upshot is that it is now working through the costings of an alternative budget and its upcoming tax policies. It still refuses to put a date on the announcement of either - nor will it reveal the source of its independent verification.

In Labour's case, the policy costings appear to be cobbled together in ministers' offices.

Accurate costings do matter. In Howard's case his election pork-barrelling exercise (remember the baby bonus) had the desired Lazarus effect.

But the ultimate pressure on Australia's fiscal outlook was enormous.

Vote-buying is now de rigueur here.

But whichever party forms the next Government, it needs to take heed of the fact that there is less fiscal headroom here, in a tightening economy.