The fourth Labour Government, dogmatically right-wing with respect to monetary policy (ie monetarist), was, despite their spin, spendthrift on fiscal policy. The fifth Labour government is very different.

Helen Clark's government is more than content to let Don Brash run monetary policy in a pragmatic way that only an experienced central banker can. Yesterday's monetary policy statement was cautious, containing no surprises. It hints that, whatever it is contracted by government to achieve, the Reserve Bank will not again snatch defeat from the jaws of economic recovery. It will not seek to wage any more costly ideological wars against inflation.

The ideological battleground is now fiscal policy; the government's budget and the use of its powers to spend and tax to maintain wider economic objectives such as full employment, stable prices and sustainable economic growth.

The doctrine of the balanced budget which led us into so much grief in the first half of the 20th century is embodied into law, care of Ruth Richardson's 1994 Fiscal Responsibility Act. But, just as Labour and National were equally doctrinaire on monetary policy 12 years ago, they have shown equal commitment to budgetary anorexia as an end in itself and not as a means to some more worthwhile economic purpose.

This government would be fiscally conservative if Ruth Richardson had never existed. This should be a surprise, given that much of the Labour-Alliance constituency is the low-middle income households that might most benefit from additional public spending. But then the centre-left always did have a puritan streak.

Labour's purity is most apparent in its unwillingness to raise the thresholds for benefit abatement, community services cards, family tax credits and the like. If we were to follow the principle that beneficiaries and other low income recipients should maintain their relativity with the rest of the community, both benefit amounts and abatement thresholds would be rising more (not less) rapidly than the inflation rate. These payments should be keeping up with the growth of the economy, not the price level.

The kerfuffle about frigates and skyhawks has the same basis. Whatever the government's views on defence issues are, it is their budgetary puritanism that actually set that agenda. The army, for example, is only allowed to get an increase in their resources if someone else gets less. So the air force gets less. The reasons given, which may or may not be valid, are rationalisations rather than reasons.

The stalling on paid parental leave is just another example of false economising.

I would hate to think what this government would be like were it facing some of the circumstances that, for example, the Muldoon government faced. Or worse, how might this government react to a genuine depression? I fear that they would aggravate that depression, pursuing balance budget policies of fiscal retrenchment. If she ever has to face a 1930s' type of downward economic spiral, will Helen Clark be able to follow her advice to Phillida Bunkle: "if you are in a hole, stop digging"?

We may not have unemployment at anything like the levels of a decade ago. But we still have levels of joblessness that would have been a scandal in the 1960s or 1970s. There are many people and communities in New Zealand who could benefit from a substantial injection of government spending. We could be demanding many more goods and services from our many educated and creative persons, many of whom are underemployed. Such persons include highly trained pilots and aircraft engineers, discouraged immigrants, or New Zealanders who would like to return from overseas.

Extra government spending creates 'downstream' jobs (often in the regions with high levels of structural joblessness), new income, and a lot of new income tax. One paradox in economics is that governments can spend themselves into surplus; and, conversely, governments can starve themselves into deficit. Frequently, outcomes do not match intentions. Being penny-wise can be pound- foolish. What goes around, comes around. Or, put another way, you have to spend a buck to make a buck. These popular homilies suggest that people, if not puritan governments, have an innate understanding of the power of paradox.

Next week's budget is the opportune time for this government to show some leadership, some vision, a commitment to a fiscal policy of long-term renewal. If it so wishes, the government can spend more money without raising more taxes. I'm not holding my breath though. Helen Clark is dryer than Donald Brash.

Deaf Ears: Speaker On Support For Mojo Mathers

Scoop Audio: In a press conference this afternoon Speaker Lockwood Smith defended his handling of requests for support for profoundly deaf MP Mojo Mathers' participation in Parliament, and said he was "deeply concerned" by the way the issue had been portrayed.

Earlier today the Greens said they had been told they would have to fund support Mathers requires out of their own budget. More>>