KEY POINTS:
Fiscal recklessness is in the air, created by the dangerous combination of financial crisis and electoral politics.
At every turn we are presented with proposals that deliver short-term benefits at long-term cost.
The financial crisis of the past few weeks has delivered us a resoundingly clear message: We
need to consume less and invest more.
We need to fund a whole lot more of that investment ourselves instead of relying on being able to import other people's savings.
And we need to focus the investment much more in the productive sectors of the economy and much less in real estate.
The prospect of a global recession has killed off any hopes of a swift export-led recovery from the recession we are already in.
Instead of a comparatively mild recession which resembles a lower-case "v" we now face a great big capital "U" - for Unpleasant.
Both globally and here at home the response to the crisis has been to bring the strength of government balance sheets to bear and transfer risk from the private sector to the taxpayer.
The danger in this is grave, especially when it coincides with the exigencies of electoral politics.
The danger is that we end up with measures which address a short-term problem or provide some palliative relief from what, it is now clear, will be a fairly grim recession, but which entrench the economy's structural problems instead of addressing them.
A Government guarantee for bank deposits probably became inevitable when the Australians went for one. The polite term is "regulatory arbitrage", the less polite description is a "beggar-thy-neighbour race to the bottom."
Inevitably the guarantee creates problems at the boundaries - for example the inclusion of retail deposits but the exclusion of wholesale funding - and a big moral hazard within the boundaries.
Surely the collapse of a string of finance companies tells us the last thing we need on an ongoing basis is to entrench a disconnect between risk and reward in that sector.
Having extended this protection to depositors it will be very difficult to take it back in two years as scheduled.
Short-term benefit, long-term cost.
National, meanwhile, is offering tax cuts concentrated in the vote-rich middle of the income distribution.
But they are funded by making KiwiSaver less attractive, scrapping R&D tax credits only months after they were introduced, and scaling back infrastructure plans.
And in what looks like tribal politics at its worst, National plans to scrap the $1 billion scheme to insulate homes. Who cares if people shiver and get sick or spend their hard-earned money heating the air outside? They don't vote for us anyway.
Labour looks just as bad on that issue, having been in power for nine years without doing much about it.
Short-term benefit, long-term cost.
Business New Zealand has called for (further) delays to implementing the emissions trading scheme.
But if emitters pay less, taxpayers pay more.
The financial crisis will make it even more difficult to agree a new climate change treaty in Copenhagen next year. It has not changed the laws of nature, however, and the longer we delay embarking on the transition to a low-emissions future, the more costly that adjustment will be.
Short-term benefit, long-term cost.
In this unedifying environment of myopia and opportunism, the draft strategy - "for coming out of the crisis stronger" - offered by NZX and the New Zealand Institute is a breath of fresh air.
They call for a coherent, investment-focused approach, as opposed to one that is reactive, opportunistic and solely about boosting consumption.
"This is not a short-term cyclical slowdown, with a return to historical course and speed to follow," they say.
Well-run firms which have relied on imported capital to fund operations and growth will be hit hard.
"In this context any policy that cuts the domestic savings pool and therefore increases our reliance on foreign capital is hard to understand as a long-run strategy."
Instead of raiding KiwiSaver, they would like to see a commitment to making it compulsory over time.
The Crown's balance sheet is not only large but arguably lazy.
"The focus tends to be on the liabilities side, but the assets side includes some $25 billion in equity in the State-owned enterprises and over $30 billion in financial assets [held by the New Zealand Superannuation Fund, ACC and the Earthquake Commission]," NZ Institute director David Skilling says.
He and NZX chief executive Mark Weldon propose folding the "commercial" SOEs - Meridian, Mighty River Power, Genesis, Solid Energy and New Zealand Post - into a holding company modelled on Singapore's Temasek.
The idea is that it would raise $4 billion or $5 billion of fresh equity (limited by the political imperative of not over-diluting State ownership) to grow those companies or others which might be added to the portfolio.
The existing governance structure of shareholding ministers and the Crown Company Monitoring Advisory Unit has not proved conducive to leveraging off the SOEs' balance sheets, Skilling says.
Their other suggestion - directing the financial institutions, especially the NZ Super Fund, to place a specified proportion of their funds in New Zealand investments - has found a receptive audience.
Labour on Tuesday said it would consult with the Guardians of New Zealand Superannuation, and KiwiSaver providers, about what would facilitate increased investment by them in New Zealand.
Yesterday National upped the ante by saying it would legislate a target of investing 40 per cent of the Cullen fund in New Zealand and a ministerial power to direct the Guardians.
Encouraging a bit of home bias in these hard times is one thing, institutionalising it through legislation is another.
There were reasons for the fund's arm's-length governance arrangements. Tampering with them now sets the fund up for dancing cossacks-style attack down the track.
Short-term benefit, long-term cost.
Skilling and Weldon also call for the removal of biases in the tax system which favour property investment. The recent select committee inquiry into the monetary policy framework shrank from touching this third rail.
Clearly when house prices are falling is not a good time to implement changes in this contentious area. But the market will find its footing, and that is likely to be followed by a few years when prices go sideways.
That would be a good time to signal, with decent notice, that the tax privileges of housing investment are to be curtailed. But that would require a level of statesmanship which right now appears to be in short supply.
