Poll Dancer by Keith Ng

One quote captured election night. Sitting in front of the TV at National's Wellington Central party, a young lad of about 7 or 8 dressed in a mini-tux with a puzzled look on his face asked: "It's all gone down somewhere, where has it all gone?"

--

Earlier in the evening...

19:10 - 3 pens, a pad, 2 cameras and 8 spare AA batteries in my bag, noodles in my belly and iPAQ bookmarked to www.electionresults.govt.nz holstered on my hip, I made my way to the ACT party. Strolling down Lambton Quay, I considered how to write this opener. Last Ball on the Titanic? Or perhaps a short dialogue: "Hi, I'm the Grim Reaper. Is the ACT party in? I believe we have an appointment tonight."

19:28 - I arrived at Dog and Bone just as a group of ACT campaigners were being turned away by the bouncer. As I was being sized up by the bouncer, I heard cheers - cheers? - coming from inside. First result has come in from Epsom - Hide is ahead by just over 100 votes. His supporters are pleased, but not at all surprised. Hur?

"We knew it all along," said Michael Collins. Their polling showed it. That Roy Morgan poll showed it. Though only 11% of the votes were counted, they didn't need to see any more to know that Hide had won and to start the "We Told You So". Hell, they didn't even need to see that 11% - they *knew* that Hide had won before the election began. Things looked promising for Hide, but I certainly wasn't going to count that fried chicken before it hatched.

At 58, then 59 seats, National nearly had enough to govern alone. But the first results come from small, rural voting booths, so they always show a Right bias. Sensibly, not many people took it seriously, though it made for good tough-talking material. NZ First was at 5.8ish% and Greens were at 4.8%; Clarkson was in the lead in Tauranga. As the night rolled on, I thought, the Greens were bound get a kick over that threshold, whereas NZ First will no doubt take a hit as the urbanites weighed in. (I still don't understand why NZ First never dropped below 5.8%, though seeing Peters lose Tauranga was a good consolation prize.)

United Future was dropping from 3% to 2.8%, so I rushed off to the Backbencher to see how they were doing.

20:35 - They were doing okay. Very sensible, middle of the road of them. I left.

20:58 - Arrived at the Labour camp at the Loaded Hog (a bit of irony?). By the time I got there, the big two-digit gap had closed to 3-4%. Saw Jordan Carter furiously number-crunching or somesuch in the back. Everyone knew that the numbers meant little at that stage, though there's still a tension in the air, as everyone stayed glued to the TV.

21:05 - Blumsky called to say he'll be coming to concede.

21:07 - The numbers moved. Crowd cheers. It's now 41.6% vs 38.8%.

21:12 - It's 41.5% vs 39%. Cheers again. The numbers matter now.

21:25 - Blumsky, accompanied by atoning campaign manager David Farrar, conceded to Marian, hope they can work together in the future, etc. Lots of friendly BS. Marian told David Farrar to do less blogging, more jogging.

21:28 - 41.3% vs 39.3%. Crowd goes wild. I make my way to the National party to try to get there before the lead changes hands...

21:53 - National was a bit sedated by the time I got there. Apparently they were quite down since Blumsky lost - even when National was stratospherically high in the early polling. The way National's gap disappeared certainly put a damper on things, but their minds were focused on their humiliating defeat in Wellington - Hobbs beat Blumsky by 5,000 votes. It's a massive margin, and it was even bigger than the margin by which Hekia Parata (who?) lost by last time, while they're in an election with a massive swing towards National and with a high-profile candidate like Blumsky. Recriminations were already being quietly circulated, blaming a poorly run campaign - with campaign manager David Farrar himself coping the bulk of the back-stabbing. The now-hairless Farrar blamed the civil servant votes falling out from under them, which was a fair call.

22:11 - I was getting a beer at the bar, when I turned to the TV to see National and Labour even. Then Labour ahead. My inner-voice was screaming "Woah!! Did anyone else see that?". I looked around, and nothing. Nobody twitched. A few people were watching the TV, obviously seeing the numbers, but nothing. No boos, no "ouuuu, ahhhhh". Its inevitability just sunk in that little bit more. It was at this point that the little kid (the one on the right) said what nobody else wanted to: "It's all gone down somewhere, where has it all gone?"

22:40 - Blumsky gave his thank-you-for-your-hard-work-speech. He was applauded onto the podium, and he asked the crowd to stop clapping: "No, no - *I* should be the one to give *you* the clap." Snickering ensues.

22:55 - Back to the Labour camp. They're up ahead by 1% at this stage. They're showing it. This was a real victory party. My questions about the coalition numbers (which looked pretty much like they do now: Ugly) didn't get much attention. Nobody cared about the coalition - as far as they were concerned, they won! What about *governing* for the next three years? Who cares? It was all about the third term. A two-month third term is still a historic third term for Helen.

The bar sales are skyrocketing. They had a good laugh at Don Brash's non-concession speech - the numbers at this stage made it nigh on impossible for him to form a government. One Labour man tells me that he never lost his nerve, despite that gigantic margin.

The widespread atmosphere of alcoholic relief spoke for everyone else.

00:20 - Back to ACT. The rowdiest of the lot had left for town, in a reasonably festive mood. At the pub, Heather Roy was reasonably pleased with herself. The most striking thing was that nobody gave a toss about National. They were all glad that ACT was going to be back in, but... it was almost as if they were quietly pleased that National couldn't form a government, because then they would have to work with the prats who left them for dead!

There was a "we've lost an arm and a leg, but we've survived" feeling in the air. They were very reservedly and grimly pleased - and acted as if this was exactly what they expected (which it probably was).

I think they deserved a "More Faith than Destiny" props here: while everyone else completely discounted ACT (and I mean *everyone*), they've held steady as a rock this election. I'll be interested to see how many people in the Scoop sweepstakes predicted the return of ACT.

To all those who failed to be elected, look on the bright side: Look at how much weight Jenny Shipley lost! (Ah, if only Donna had waited this long.)

[Full set of my election photos can be found at the ASPA photo archive.]

Will the real costing of Labour's interest-free student loan policy affect my vote? Well, I guess it shouldn't, since this merely confirms my analysis from July/August. (In fact, the $16.5b debt by 2015 falls handsomely within my $15-20b estimate.)

But it does.

Although the original costing from 22 June (the one everyone has been talking about) blows a hole through Labour's public costing, the second costing - ordered by the government - from 27 June is even more remarkable and damning. The opening paragraph:

You have asked us to provide a costing of providing an interest free student loans scheme, using altered assumptions... this changed estimate assumes that voluntary repayments will continue at the rate at which they occur under the current scheme, the percentage of the $150 [weekly] entitlement for living costs drawn [down] does not increase, and draw down rates increase in the following manner: [a <1% change in fees borrowing over 4 years, ~10% increases for living and course costs]"

This second costing had the cost of the scheme hovering around $300m a year until 2012. This is the costing that Labour went public with, and the assumptions are downright dishonest.

No change in voluntary repayments? 1% (!?!) increase in fees borrowing over four years?

They are such unreasonable assumptions that I can only imagine that they were designed to be so. They don't make any attempts to go half-way to meet the Treasury assumptions. In fact, it's only marginally above the lowest possible set of costing assumptions. In short, it's been rigged to make the scheme look as cheap as possible, and Cullen specifically asked for it to be like that.

I'm trying to convince myself that the Good Doctor Cullen had a gun to his head when he asked for that second costing. I'll tell you whether I succeed on Saturday.

[Update 1: Salient writer Graeme Edgeler cites this line from Question Time on 2 August:

Dr Don Brash: Has the Prime Minister asked Treasury to forecast the long-term fiscal impact of her Government’s proposed interest-free student loan policy; if not, how can she assure this House and New Zealanders that her gift to students in this election year will not be a noose around the neck of hard-working taxpayers for years to come?

Rt Hon HELEN CLARK: No, this is a Labour Party policy, not a Government one. Even the most expensive and ill-founded estimates of its cost are significantly less than what Dr Brash thinks he could spend on tax cuts.

[Update 2: No, assumptions don't make an ass of you and me. It makes an ass of u and mptions.]

Woah there - the Treasury costing does not "conclude" or "predict" that student loan uptake will increase to 95% by 2008/09, it *assumes* student loan uptake by full-time students will rise to 95% by 2008/2009.

Treasury made their calculations based on those assumptions, which are just educated working estimates. They're not necessarily wrong and certainly not ill-informed - but they're just assumptions.

And those assumptions are most certainly debatable - while Treasury has models (fallible, but detailed and earnest models) to predict things like fees and student numbers, they don't have any statistical model or supernatural powers to predict how people will change their borrowing behaviour in reaction to the policy.

All they know is that if you gave them an interest-free loan, they'd take it. Me too. I would be more than happy to put money on Treasury's assumptions over Labour's assumptions, but I just want to make absolutely clear that assumptions and conclusions are two incredibly different things.

Having said that, I think it was particularly telling that Michael Cullen has been trying to argue that uptake won't dramatically decrease, when the real ripper in the costing is the assumption that voluntary repayments will cease altogether.

The loan debt was always going to go up, but it was expected to reach $13.5b by 2015 (my data here has been superseded, but the principle still stands), and stick around that point once it got there. But if voluntary repayments stopped, then the total student debt would rise faster for longer, and the point at which it stabilised would be much higher - meaning that the long-term cost of the no-interest policy would also be much higher.

(47% of all repayments are made directly by borrowers, most of this would be from voluntary repayments, though IRD doesn't have a figure.)

The cessation of voluntary repayments is the real boogeyman in the scheme, and it makes me greatly suspicious that Cullen doesn't take it head-on.

As for government debt part of the costing, it's been *way* overplayed. The government takes on debt to lend to student, but that debt is instantly offset by the debt that the student owes to the government (i.e. The government gains an asset). However, because it's interest-free, and because not all students pay back all of their loans, the real value decreases over time, which has a real impact on government's net worth, but only at a portion (~20%) of the face value of the debt. (Simplified: Just divide what National says by 5.)

In short, Treasury is only offering an opinion. A definitive opinion, but an opinion nonetheless. It's also an opinion that I agree with.

This election has brought me into a mild epistemological crisis. What has really shocked me, after seeing into the hivemind of our polity, is that nobody really knows what's going on. It's not that anyone is particularly incompetent, it's just that there are severe natural limitations on what we know and what we can know, and the confidence with which politicians and the media declare what is "true" is for our benefit - so that we can sleep at night knowing that somebody "up there" has everything under control.

Not that I have a better idea of what's going on, but as an agent of chaos I feel obligated to present my contribution to the public discourse this election - some unequivocally qualified answers and absolute uncertainties on the biggest iceberg that's floating through the fog of this election: Macroeconomics.

[Note: It's in Q&A format - or, more precisely, Things You Always Wanted to Know About Macroeconomics But Were Afraid to Ask format - because I can't figure out how to do it all in any structured form.]

Tax Cuts

Are National's tax cuts affordable?
Yes. There is money in the coffers now, and there'll be more if spending on public service is cut and the numbers are jiggled a bit.

Public services cut? It's just all of them bloody penpushers, right?
Well, their "baseline review" business is actually relatively modest - $300m for the first year, an extra $100m for the second and third year. That's a lot of penpushers to send to the gulags, but they intend to save three times as much from reducing the amount allocated for new spending.

The reason the focus has been on the former, not the latter, is probably because penpushing bureaucrats are so easy to hate (uh... except for the ones who read Public Address, of course). But the numbers are pretty clear - the present "wastage" in the public sector is secondary to capping its growth in the future.

It's possible that much of that future growth would have gone to PC bullshit anyway, and so the cut won't make much difference. It's also possible that it will.

The trouble is that I don't think even the public service knows. Such is the nature of these megalithic organisations - they grow according to the rules and environment that they themselves create, and there's no "Architect" sitting in a control room who understands the whole machine.

Short answer: Nobody knows, including National and Labour.

What numbers will be jiggled?
Capital spending that is currently paid out of cash can be paid for by borrowing instead. Think of it as making weekly payments on that $100 TV instead of paying cash for it, and all of a sudden you have a $100 more than you would otherwise have - which you can then spend on other things.

Does it mean more debt?
Yes. National's projection puts government debt at $3.2b higher that it would under Labour by 2009.

That's bad, right?
Not necessarily. Government have debts, just like households have debt. New Zealand has a pretty low debt level, so having more isn't really such a big deal.

So debt's good, then?
Well, no, it still costs money to service debt.

Er, so it's bad, then?
The increased borrowing doesn't matter a whole lot in the short-term, but we don't know how it'll pan out over the long-term. The problem is that once taxes are lowered, it's very difficult, politically, to raise them again. So, even if we assume that we can afford them over the next 3-6 years, it still might not be a good idea, because if a future government can't afford them (and we don't know either way) and they can't get rid of them, it might result in even more debt or spending cuts.

The other argument is that with the aging population, we'll be less able to afford to service the debt in the future.

Why does National hate us so?
I'm glad you asked that question, me-pretending-to-be-Lynne-Pillay.

Actually, debt is not an inherently bad thing - the question is whether we're getting a return on the debt. In this case, National insists that the borrowing is not to fund the tax cuts, it's to fund capital expenditure. (e.g. They've borrowed $100 to buy the TV, and then use the $100 they had sitting around to buy pot, but say that the $100 they borrowed was for the TV, not the er... crockery.)

Anyway, ignoring that crappy argument, let's just say that they are borrowing to fund part of the tax cut. The question then becomes: what is that tax cut going to get us? The pure right-wing answer is growth - more money will mean more spending, which will stimulate the economy and make more money.

Tax cuts = growth?
Michael Cullen says that's what the theory says, but Clinton raised tax, and then actually saw a golden era of growth, so nhhh! He says that pumping money into an overheated economy will cause inflation instead.

Roger Kerr says that that's what Cullen's theory says, but Reagan cut taxes, and that actually inflation go down. So double-nhhh!

They both agree on one thing, though: The other guy is wrong.

Working for Families

Is WFF inflationary?
If the tax cuts are inflationary, then WFF would be inflationary too. It would be less so because it's smaller, but dollar for dollar, it would have more impact because it's targeted to slightly poorer people, who (in all their poor-people silliness) go out and spend their extra money rather than put it into their nest egg.

Whether it's inflationary also depends on the state of the economy. If there's already a lot of activity in the economy, then pumping more money in with something like WFF or tax cuts would stimulate inflation. The trick to counter-cyclical fiscal management is to wait until it's just starting to cool down, then pump money in, so that the economy gets going again.

Counter-cyclical what now?
It's the idea that the government should save when it has a lot of money, then spend it when it's poor, because the spending will stimulate growth. It's like, you know, making hay while the sun is... you know... and eating hay when the sun goes... bah, I don't really know much about making hay. But you get the idea. Hay. That's what it's all about.

Uh, okay. So WFF might be bad?
Fiscally, it really is just like a tax cut. Pretty much all the bad things that can be said about tax cuts can be said about WFF. The major difference between the two is that WFF is targeted at a specific group of people, whereas the tax cuts are dispersed over the whole workforce.

Was it a last minute bribe?
Yes and no. Cullen really didn't know what was in the Pre-Election Fiscal Update until he saw it. Dodgy Treasury forecasts underestimated the strength of the economy, which meant that the government had more money than Treasury said they would. As far as problems go, having more money than they realised doesn't seem so bad, but it does have consequences.

Earlier this year, I reported that the government stuffed up big-time on giving out student allowances. The government had earmarked the money, made policies to give it out, but nothing happened - because faulty Treasury forecasts meant that the policies didn't work, because people were better off than they were supposed to be. Well, boohoo - but it does demonstrate that Treasury's repeated misunderestimation of the economy is not a stand-alone occurrence and can be problematic to the functioning of government

So it wasn't a deception on Cullen's part to hide the money - it was just a matter of Treasury stuffing up - and it was really extra money, on top of what Cullen deemed prudent to save, so it was only natural that he spent it.

But hey - a bribe from good money is still a bribe!

--

Originally, it was a question of fiscal management. Do you save now, or do you spend in the hope that it'll create growth for the future? Saving is safer, but spending now has a longer-term pay-off (if it translates into sustained growth). With Labour blowing the books wide open, the difference between the two parties has closed, but the question is still relevant.

On balance, I'm leaning towards Cullen, as the safe option. The tax cuts and the public service reviews are certainly interesting, and I'd like them if they worked (more growth, more efficiency - why not?), but they're all terribly speculative. The risks of a tax cut that would be locked in for a decade, chalking up debt but delivering few benefits to the economy as a whole, or even damaging it by fueling inflation is quite a big risk, not to mention the mayhem that would become our public service (which would be unavoidable in the short-term, at least)... these are all big risks. Scrooging money away? No great evil can come of that.

Still, I guess I've always had a soft spot for Scrooge McCullen. I would have a great deal more faith in his fiscal management if he'd stop throwing money at me, though.

Things are looking a bit dire for Wellington Central candidate Mark Blumsky at the moment. First he was beaten up before the campaign really even got started; his campaign HQ, which he got through some connection or other, got taken back two weeks ago (at least his apartment is nice. Lots of stairs, though.); then I hear from people deserting from his core campaign team that there's a lot of frustration in the ranks (fingers were pointed at one David Farrar, actually); and *then* the DomPost came out with a poll showing incumbent Marian Hobbs 16-points ahead. Ouch.

As if all of that isn't bad enough, the gossip/speculation about his assault early in the campaign has reached saturation point among Wellington's chattering class. Journalists have been on to it for a while now, so the fact that nothing's been published could mean that the gossip was unsubstantiated or at least unsubstantiatable (or they're waiting until later in the week), but at the current rate, it doesn't need to be published - the majority of voters in Wellington would have heard about it before the week is out!

But Blumsky was just a segway, actually, into United Future. Sure, they're just on 2%, so who cares? But it was nonetheless interesting to hear Blumsky - a former president of UF - talk about their membership base. This is from an interview I did with Blumsky last Tuesday - just before Brash got with Dunne:

I just want to ask a few questions about the time you spent as the President of the United Future party last year. Did you consider yourself socially liberal then?

Very. At no stage was I ever actually asked my opinion on civil unions, at no stage did I vote, at no stage did we develop policies. I was only there for 6 months, the whole point was to get the board and the party organised for an election coming up. Don't forget I was only there for 6 months.

Peter Dunne asked me [to be the president] - he's a very good friend - [and] philosophically, they're not that far [a] fit from the Nats, so I was happy to do Peter a favour. But I realised I just didn't fit, at the end of the day, so I was happy to move on.

Hang on, if you didn't fit with United Future, and United Future is philosophically close to the Nats...

No, it's the people. Not so much the close people, because I knew Peter very well, and he hasn't changed his stripes at all. I suppose I was surprised, when I got to the outer regions, [that] the mix of people in the party was different to the mix I had met in Wellington. They had very strong feelings on... how do I put it... I got a lot of emails that were quoting various scriptures or looking for... I mean... and these are the wider... and it's just not my space.

Are you concerned that the same socially conservative element exists in the National Party?

It wasn't the social conservatism that scared me about United Future, it was the... some of them are very fanatical in how they see religion and politics tied up. So that's why I [said] that I get scriptures or [bible] quotes sent through, and [they thought that] these should be driving, divining reasons for me to be doing things, because it was quoted in this Book of Jeremiah or whatever.

When I travelled the country with United Future, I realised just how many of these people were involved in the party. And they weren't slow in letting me know their feelings. I realised if I was to stand tall as the President of United Future, I had to be more all-encompassing to the wider United Future group than just the Wellington team. So it was nothing to do with social conservatism, it was all to do with how they saw their religion in helping decide how they live their life.

--

So there you have it, the secret is out: United Future is actually a bunch of fundies.

Remember - you heard it here first.

Seriously, though, the role of religion in New Zealand politics is interesting. It is... menacing, really. Maybe it's just us godless Wellingtonian inclusive heathens who think this way, but it seems like any party with a religious undertone is seen as one destined towards theocracy. Why else would UF try so hard to hide their religiosity?

Even Destiny tries (albeit, very very badly) to distance themselves from religion. Their Wellington candidate, speaking at Vic, exclaimed that Destiny Party is completely distinct from Destiny Church, and said that the connection between the two is as loose as the Labour Party and the International Labour Organisation.

All this makes me wonder how big a part our... er... "god-fearing" play in the Exclusive Brethren thing (I hope they haven't named a "-gate" after it and forgot to tell me. My vote is for Heavensgate). Anyway, as with these things, the response has become the story, so I guess the funny church people will be returned to the box from whence they came...

Actually, I'm not so sure about that, either. The Greens have come out with yet another coup - they've found that the pamphlets the Brethrens were distributing are variants of ones used in Tasmania last year. Maybe Exclusive Brethrens don't believe in this whole copyright thing (well, if everything is created by God, then what's property, anyway?).

And the busy bees over at Frogblog also dug up this gem from Brash's "Baloney" speech, in response to Brash calling all the attacks on his credibility a "distraction":

Today, I want you to know that the credibility of Helen Clark, the ability of our Prime Minister to tell the truth, the ability of her Ministers to tell the truth and to give honest answers in our Parliament, is firmly on the agenda as an issue for the 2005 general election. I make no apology for that.

New Zealanders have had enough of the culture of evasion, deceit and half-truth which characterises not just this Prime Minister but her Cabinet, and in a few weeks' time they will have the opportunity to do something about it.

If nothing else, I think the Greens have won the investigative-thriller votes.

[Tom Scott has been delayed until possibly after the election.]