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Labour’s fiscal plan: How much allocated for coalition partners?

The party says it can manage New Zealand's finances while rebuilding the country's housing, health and education sectors.

Jason Walls
Wed, 19 Jul 2017

LATEST: National’s campaign chairman Steven Joyce says Labour's fiscal policy reveals Labour want to borrow $7.2 billion more than the government intends over the next four years while still cancelling tax threshold changes for low and middle-income earners.

He says this is a “classic Labour tax and spend approach.”

“All they've really done is add up a bunch of additional spending that governments add to the budget every year to core public services and said, hey, here's a lot of money.”

It’s a very underwhelming proposal, he says.

“More debt, higher taxes for low and middle income New Zealanders, and no more spending on health. I don't know how they managed it but they simply seem to be proposing to waste more money and get very little to show for it."

UPDATE: Labour is promising to spend billions more than was forecast in Budget 2017 on health, education and Kiwi families but has left less than $1 billion to implement potential coalition partners' policies.

The party unveiled its fiscal plan this morning at a health clinic in Wellington.

It outlines how it plans to pay for all the party’s election promises, as well as an extra $8 billion spending in health, $4 billion in education and $5 billion more for Kiwis through Working for Families, than National forecast in Budget 2017.

Speaking to media this morning, finance spokesman Grant Robertson reiterated that his party’s plans were fully costed and Labour had even hired the services of economists at BERL to give it their seal of approval, which they did.

In March, Labour and the Greens outlined their budget responsibility rules, which included maintaining an operating surplus, reducing net Crown debt to 20% of GDP and restarting contributions to the NZ Superannuation Fund (see video below).

In a nutshell, Labour will use expected government surpluses to pay for its spending as well as extra revenue generated by reversing National's tax cuts, bright line and negative gearing changes and funds from multinational taxation.

As well as this, its debt reduction targets is slower than National's, meaning it will have more money to spend – Mr Robertson says that works out to be roughly $4 billion.

But the fiscal plan is likely to look different after the election because, if Labour were to form a government after September 23, it would need the help of the Greens and, based on current polling, New Zealand First as well, which both have their own election policies.

The Greens have already outlined some major election policies, including increasing benefit payments by 20% which will cost $1.4 billion.

NZ First has also unveiled a range of policies that will come with a sizable price tag.

Asked how big Labour’s contingency is to fund some of this big spending from their potential coalition partners, Mr Robertson says the party has earmarked $878 million in the first year that would “be available for managing and dealing with coalition partner commitments.”

That figure, marked as "Labour spending allowances for unannounced policies" in its fiscal plan for Labour's first year, jumps to $1.8 billion in 2019/20, $3.2 billion the next year and $4.1 billion the year after that.

He says if more is needed, the party will need to reprioritise some of its spending. But he would not go into detail, only saying that conversation would happen after the election.

He does say, however, that he would be “very surprised” if Labour would have to reduce its planned spending on health, education or housing.

Mr Robertson says Labour also has $5.5 billion in unallocated capital expenditure which has yet to be allocated – a figure he says the party is “looking at.”

In just over a month's time, the Treasury releases its pre-election economic and fiscal update.

Mr Robertson says Labour will “make some revisions” to its plan after that has been released.

The reaction
Meanwhile, ACT is tearing strips of Labour’s superannuation plans, announced last night.

Labour has promised that restarting contributions to NZ Super would be the first thing it did if it were able to form a government after the election.

Labour says it would contribute $2.5 billion to the fund between the 2017/18 financial year and 2021/22 and would keep the age of entitlement at 65.

But ACT leader David Seymour says Labour is pretending it can keep the age at 65 and ignoring ballooning costs caused by an ageing population is “a joke.”

“It means billions taken out of taxpayers’ pockets to indulge the delusion of superannuation at 65, which would cost us 7.9% of GDP in 2060, compared to 4.8% today,” he says.

EARLIER: Labour is promising to invest $8 billion more in health, $4 billion more in education and $5 billion more for Kiwis through Working for Families than Budget 2017 projections over the same forecast period.

And it insists it will be able to pay for it all too, outlining how it will pay for its election promises, while keeping to its budget responsibility rules, in its fiscal plan document released this morning.

The party says it can manage New Zealand’s finances while rebuilding the country’s housing, health and education sectors.

Labour leader Andrew Little says his party plans to deliver “big investments in the services we all need and care about” as well as investing in New Zealand’s future and doing it all in a “prudent and effective way.”

“Labour’s fiscal plan prioritises new investment in housing, health, education, and infrastructure. Our plan will boost the incomes of low and middle-income families, create opportunities for our young people, and improve the lives of all,” he says.

Last night, Labour revealed restarting contributions to the NZ Super Fund would be the first thing it did if it forms a government in September.

It would contribute $2.5 billion to the fund between the 2017/18 financial year and 2021/22.

The party has also outlined its plans for a family package, which it said would use roughly $900 million of the $1.5 billion it would save from scrapping National’s tax cuts.

Labour says its plans have been vetted by economists at BERL, who found the party’s policy plans and costings are “consistent with the stated budget responsibility rules” it outlined in March (see video below.)

BERL benchmarked Labour’s plans against the May 2017 Budget Economic and Fiscal Update (BEFU) and associated fiscal strategy model (FSU).

As well as using expected government surpluses to pay for its spending, Labour says extra revenue generated by reversing National's tax cuts, bright line and negative gearing changes and multinational taxation is used.


Source: Labour's fiscal plan document

“Labour’s Fiscal Plan meets all of our budget responsibility rules: It projects continued surpluses, debt down to 20% of GDP within five years of taking office, resumed contributions to the NZ Superannuation Fund, stable spending as a share of the economy, and a fairer tax system including a crackdown on multinational tax avoidance.”

Jason Walls
Wed, 19 Jul 2017
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Labour’s fiscal plan: How much allocated for coalition partners?
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