By Alex Tarrant and David Hargreaves
The gloves have well and truly come off, and National has launched a broadside on Labour’s economic policies, claiming to have found a $11.7 billion “hole” in Labour’s fiscal numbers.
In response, Labour has launched a scathing attack on National Party finance spokesman Steven Joyce over his seemingly scathing attack over his opponents’ spending plans.
Joyce on Monday claimed Labour’s numbers were out of step by about $11 billion – mostly due to a failure by Labour to accumulate extra operating spending commitments for each year.
But Labour finance spokesman Grant Robertson says Joyce has misunderstood Labour’s fiscal document and that Labour is being more transparent than National by actually including out-years’ spending commitments under specific spending tranches like health and education, rather than just leaving it aside in the operating allowance over the next five years.
Confused? It’s a matter of semantics, Robertson told media Monday afternoon in Parliament buildings.
You can see here on page 14 of Labour’s fiscals, right at the bottom of the page, entries for ‘operating allowance’ of $913 million in 2017/18, then $835m in 2018/19, $879m in 2019/20, $1.472bn in 2020/21 and $3.429bn in 2021/22.
Joyce claimed Labour should be adding each previous years’ spending to future years, as operating allowances should be cumulative – for example an extra $100m spent in 2018/19 on a policy would be expected to also cost at least the same the next year, he argued.
Joyce published what National believes Labour’s table should have shown. Beginning with $913m in 2017/18, then adding 2018/19’s $835m to give required operating allowance of $1,748 in that year, and so on. He produced a table claiming this meant Labour had incorrectly classified budget allowances to the tune of $9.4 billion.
With other criticisms on multinational tax and paid parental leave, Joyce claimed Labour were out by $11.7 billion on what they had indicated in its most recent fiscal plan, released after the pre-election fiscal update last week.
But Labour finance spokesman Grant Robertson quickly hit back. Rather than “hiding” operating spending in the allowance, Labour had placed it under specific items “above the line” like in health spending and education – the extra spending was effectively accumulating within each line, rather than the operating allowance line.
That line on operating allowance referred to cash left over every year after all spending commitments, Robertson said. Asked why Labour had chosen to present its fiscals this way, Robertson said it was to indicate what extra unallocated cash there would be above existing commitments in each of the next five years individually.
Asked whether this was to indicate to potential coalition partners how much might be available for coalition negotiations, he said every government had to set aside funds for a rainy day.
Meanwhile, in response to criticism from Joyce that Labour had banked on multinational tax revenue that was already caught by the pre-election update, Robertson said Labour was relying on calculations in Budget 2017 that for a every extra dollar spent by IRD on tax avoidance, they would gain $7 in extra revenue. Labour had therefore calculated an extra $30 million spent on catching avoidance would net an extra $200m or so.
This is the statement from National’s Finance spokesperson Steven Joyce:
The Labour Party has an $11.7 billion hole in its fiscal plan that blows its debt out and breaks its own budget responsibility pledge, National’s Finance spokesperson Steven Joyce says.
“These are significant errors that raise questions about Labour’s whole spending approach and their fiscal competence,” Mr Joyce says. “Their spending numbers were already high and this makes them a lot worse.
“Labour’s recipe would lead to more debt, higher interest rates and a slower economy – not to mention the host of extra and unexplained taxes they would impose on households and businesses.
“All of this would cost jobs and eat into family budgets.”
The five errors are as follows, over four years:
· Failing to roll out their operating allowances for each year into subsequent years ($9.4 billion).
· Failing to allow for any increase in paid parental leave in their Family Incomes package despite saying they have included it ($567 million).
· Counting additional BEPs multinational tax revenue when Treasury has already counted it in the PREFU update ($902 million).
· Only including costs of their Family Package from 1 July 2018 when they said it would begin on 1 April 2018 ($289 million).
· Further finance costs associated with extra borrowing ($580 million).
“The biggest error is their failure to continue each year’s operating allowances for additional expenditure into subsequent years. When operating expenditure is added, for example an increase in wages for police, that expenditure continues into following years. Labour’s operating allowances don’t allow for that.
“Once corrected, Labour’s spending plans result in net debt increasing by nearly $20 billion from current levels of $60.6 billion to $79.3 billion over four years.
“Labour was already increasing debt by $7 billion from current levels by their own admission, but this takes it to nearly $20 billion. This would be an irresponsible level of debt increase at this stage of the economic cycle. New Zealand should be reducing debt now, not increasing it, so we are ready for the next rainy day.
“They also would break their fiscal responsibility rules as net debt would not fall below 23.5 per cent of GDP by the end of the forecast period, in fact it would be higher than it is now, and get nowhere near their own plan to reduce debt to 20 per cent of GDP by 2022.
“That level of spending and increased debt can only lead to one thing – higher interest rates for Kiwi mortgage holders.
“Labour’s true spending plans as revealed in this analysis confirms that behind the leadership change we are dealing with the same old irresponsible tax, borrow and spend Labour Party.
“Labour needs to withdraw its fiscal plan and re-work its proposals.”