Former U.S. Rep. Neil Abercrombie and Lt. Gov. James "Duke" Aiona have fundamentally different philosophies on the role of government.

Abercrombie, the Democratic candidate for governor, believes in an activist government that guides social and economic policy and helps solve problems. He wants the state to more aggressively compete for federal money that could steady state government during the economic recovery.

"Government can and should work to spark the private economy, particularly during tough economic times. This has always been the case," he said in a statement. "Reflecting the will of the people, government can invest in things like infrastructure so that businesses can expand and operate more cost-effectively — consider how boat tour businesses are adversely affected by the current neglect to our harbors. Government can invest in higher education to spark research and development by entrepreneurs that have commercial applications. Government can streamline regulations so that small businesses can expand. All of this takes smart use of government resources.

"In Duke Aiona’s world every individual family and every business is on their own. My view is that we are all in this together and the people rightfully expect government to work."

Aiona, the Republican candidate, believes in a smaller and less intrusive government that cultivates but does not interfere with a business-friendly environment.

"Government does not create jobs. We’re not job creators," he said. "It’s the private sector, as we know, that creates jobs. It’s the small businesses that create jobs."

Aiona believes government can prod job growth through initiatives such as the federal stimulus package, state capital improvement projects and tax incentives for businesses. But he argues that Abercrombie has exaggerated the potential for new federal dollars to help the state through the recovery.

"That’s why I have asked him to show me. Show me where he gets all this federal money," he said. "And he hasn’t because he can’t."

Despite their philosophical differences, the candidates have indicated they would take similar approaches to the two-year state budget they would have to help draft if elected.

The state Council on Revenues has projected 10 percent revenue growth in fiscal year 2012 and 6 percent growth in fiscal year 2013, so if the state’s economy continues to recover and the predictions hold, the state would be looking at surpluses instead of the deficits of the past few years. But the governor and state lawmakers will have to account for the impact of new contracts with public-sector labor unions, rising costs for public worker health care, an expected shortfall in Medicaid and the expiration of federal stimulus money.

Abercrombie and Aiona have both said they would like to keep state spending at existing levels — about $10 billion a year, with about half in general-fund spending, over which the governor and lawmakers have the most discretion. The candidates have vowed not to raise the state’s general excise tax — the largest source of tax revenue — or scoop hotel room tax revenue from the counties to stabilize the budget.

But they disagree on whether furloughs or pay cuts for public workers should continue when labor contracts expire at the end of June.

Abercrombie said he would not pursue furloughs or pay cuts.

"Of course, if economic conditions change, then everything must go back on the bargaining table," he said. "But right now, ineffective leadership has hamstrung government. We need to accelerate the slow economic recovery predicted by the Lingle-Aiona administration, get dollars churning in the economy, get state revenues back in order and get government working for the people again."

The six-year financial plan Gov. Linda Lingle presented to lawmakers last March presumes continued labor savings from public workers and reduced benefits for some in QUEST, the state’s version of the federal Medicaid program for the poor.

Aiona said furloughs and pay cuts would be part of his negotiations with unions.

"At this point in time, I’ve got to stay with furloughs," he said. "The revenues have not come back to the point where we can take furloughs off the table."

Abercrombie has called for the creation of a new state Department of Early Childhood and a new Hawaii Energy Authority along with the restoration of state spending on Healthy Start, a child abuse prevention program, and for agricultural inspectors. But the former congressman has said that his initiatives would not involve substantially more state spending in the short term because he would re-prioritize existing spending. He has said that some of his new programs would not be fully launched until after the economy recovers.

Abercrombie said he does not worry that he has unnecessarily limited his options by taking a GET increase or hotel room taxes from the counties off the table.

"Not at all," he said. "Government has been poorly managed, and too much time has been wasted on unnecessary, politically motivated conflicts. If we get back to sound leadership that listens to all parties and works toward solutions, I am certain that we can get much more productivity out of our existing tax dollars."

Aiona would propose several tax credits to help encourage economic growth. He would offer a tax credit equal to the amount of withholding taxes paid by new hires at local firms, a tax break for private construction and renovation projects, and a tax credit to help middle-class families afford preschool. He also wants to eliminate or reduce some corporate and individual income tax rates.

The lieutenant governor would generate revenue to finance his new tax ideas by closing tax loopholes, pursuing back or underreported taxes, cracking down on the cash economy and re-evaluating existing tax credits and GET exemptions.

"It’s not going to be new spending. It will be offsets," he said. "What I want is a fair and equitable tax structure."

Aiona acknowledged that vowing he will not increase taxes or take hotel room taxes from counties ties his hands in a way.

"It does," he said. "That puts a tremendous amount of pressure on me to make sure that I find another way of doing it. And I think there is enough out there. I really believe that there is enough out there."

Aiona said he believes he is more realistic about the state’s budget than Abercrombie.

"I’ve come out and I’ve said it: Furloughs are on the table," he said. "We’re not going to bring back a lot of the programs that you guys will want to come back."

State House and Senate leaders, who will help shape the state budget next session, have taken a conservative approach to the growth estimates from the Council on Revenues. Even if predictions for surpluses hold, lawmakers say they expect that the debates on the two-year budget will be over public worker salaries and health care costs, Medicaid cuts and the question of restoring some of the state spending on social services that was reduced to balance the budget over the past few years.

The new state programs envisioned by Abercrombie or the tax credits favored by Aiona will have to compete with those priorities.

State Rep. Marcus Oshiro (D, Wahiawa), chairman of the House Finance Committee, said it is natural for candidates to be optimistic while on the campaign trail. But he believes the state has yet to measure the full impact of the budget cuts of the past few years, particularly on social services.

"I think both candidates need to be square with the electorate and let them know that there are going to be some hard choices, there are going to be some trade-offs and, unlike our current governor, you cannot have it all," Oshiro said.

State Sen. Donna Mercado Kim (D, Halawa-Moanalua-Kamehameha Heights), chairwoman of the Senate Ways and Means Committee, questioned why the candidates would fetter themselves on issues such as a GET increase or taking hotel room tax revenue from the counties even before taking office.

She has resisted a GET increase, describing it as a last resort, and she backed away from taking hotel room taxes from the counties last session, but she does not believe such options should be casually discarded with the economic recovery so fragile.

"Until they can see what we saw and the realities of it, to say, ‘No, no, no’ — then what are you going to do?" Kim said. "Everything has been cut to bare bones."