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The Labour Party has trimmed its new spending plans by about $300 million a year to take account of weaker economic forecasts and smaller Budget surpluses presented in last week's Pre-Election Economic and Fiscal Update, published by the Treasury.
The main casualties of the policy, assuming a Labour-led government was elected and that its policy platform survived intact through coalition negotiations, would be the elderly, who would have to wait an extra six months to April 1, 2017, to be eligible for free doctors' visits and prescriptions. The six-month delay wipes some $140 million off the 2015/16 financial year's spending total.
Some seven smaller policies have also been canned, for possible development later, leaving Labour only one major new spending announcement worth around $100 million a year still to be unveiled before the election on Sept 20.
Labour leader David Cunliffe insisted there would be "a number of things that aren't fiscal announcements" to entice voters and Labour was determined to demonstrate it would run the government's books conservatively.
"We will run a surplus every year unless there an unforeseen crisis," said Cunliffe.
The reworked fiscal plans for the next six years show a slightly lower government debt track than the forecasts produced in June, meaning Labour expects to reduce net government debt, including the assets of the New Zealand Superannuation fund, more quickly than National's forecasts, with net debt reaching 3 percent of Gross Domestic Product in 2020/21.
The 3 per cent was "symbolically important" because that was the level of debt prevailing when Labour left office in 2008. It rose under National because of the economic recession, tax cuts, and the one-off costs of the Canterbury earthquakes, although National expects debt under its fiscal policy to fall to 4.9 percent of GDP by 2020/21.
Labour's plan also assumes $100 million a year of additional new spending for its partners in government, most likely the Green Party, with whom Labour is aligned on several policies.
The Labour plan is heavily predicated on raising substantially more tax than the National-led government's forecasts assume, with the top personal income tax rate rising to 36 percent, backed up by raising the tax rate applying to income from trusts, a capital gains raising $1 billion by 2020/21, and new revenue from more aggressively targeting tax avoidance, especially by multi-national companies, and ring-fencing losses to prevent losses in one company being easily applied to the activities of another. The latter initiatives are expected to raise $335 million by 2020/21.
The revised plan updates the fiscal projections first published in June and are a key plank in Labour's claim to be fiscally responsible, forecasting a lower spending track and faster debt reduction than the forecast under the National-led government's forecasts.
It also includes two major new capital spending items worth $2.1 billion a year, to resume contributions to the New Zealand Superannuation Fund, which National suspended after the global financial crisis in 2008, and a revolving fund to pay for its KiwiBuild plan to construct and sell 10,000 affordable homes a year.