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Alliance Police Cost Put At $1.8 Billion

Auckland Chamber of Commerce

ALLIANCE POLICY COST PUT AT $1.8 BILLION

The Alliance proposal to fund $1.8 billion of new policies over three years by tax increases and a "temporary" tariff will inevitably put the economy under severe and continuing pressure.

This is a principal finding of a report commissioned by the Auckland Chamber of Commerce, which also concluded that:
* Unemployment will increase
* Growth will decrease
* Public debt will start to rise again; and,
* Government spending as a percentage of GDP will increase sharply.

In the long-term, the prospect of further tax increases will remain a constant threat and dependent on the success the Alliance has to generate the new revenue it requires from three proposed sources:
* Increased tax rates for high incomes
* An unimproved-value tax on commercial land; and
* A "temporary" 5% tariff on all non-Australian imports.

The report, by Wellington-based economic forecasters Infometrics, indicates that Alliance policies are not sustainable over the long term.

The Chamber of Commerce provided Infometrics with a list of policy assumptions based on Alliance announcements which Infometrics fed into a version of the Long Term Fiscal Model developed by Treasury and used by Government for preparing its annual economic progress outlooks.

Under current forecasts public debt, presently at 22.8%, is expected to continue to fall to 17.4% of GDP by 2003/04. A previous analysis of Labour Party policies indicated debt falling to 19.1% of GDP, but under the Alliance debt bottoms out at 19.4% of GDP and, as with Labour, starts to rise again.

Constant pressure to increase taxes under Labour-Alliance coalition Michael Barnett, Auckland Chamber Chief Executive, said the combined impact of Labour/Alliance spending proposals - Labour's of $1.24 billion and Alliance's $1.8 billion - would mean a constant pressure to increase taxes further and New Zealand's long-term prosperity hopes put back on permanent hold.

Contrary to the Alliance-Labour rhetoric, the analysis confirmed that unemployment would get worse. Treasury-based forecasts project unemployment at 6% by 2003/04 but under Labour it increases to 6.4% and 6.6% under the Alliance.

Mr Barnett said that the Chamber decided to commission the analysis in the absence of any clear details from the parties as to what their fiscal bottom lines are, compared to those of the recently announced Government figures.

Alliance Policies

Infometrics assessed Alliance tax policy revenue at $749 million compared to the $760 million estimated by the Alliance.

Alliance tertiary education policies are estimated to require an additional $425 million, to be funded through the introduction of an unimproved-value tax on commercial land, which is unlikely to raise more than $200 million, leaving a shortfall of some $225 million.

A critical "turning point" in the analysis is whether the Alliance succeeds in convincing its coalition partner to impose its temporary 5% tariff, a proposal which would generate some $320 million annually and so reduce the need for tax increases.

Other key spending areas in the period to 2003/04 include:
* Benefit increases, $815 million compared to the Alliance estimate of $640 million
* Economic development programme, $200 million (compared to $150 million proposed by Labour)
* Health, $350 million, as per the current baseline forecasts, but with an additional $175 million for mental health
* Housing, including building 3000 new state houses and financial assistance to first-home buyers, $300 million.

The analysis also indicated that inflation will increase by 0.5% more by 2003/04 than currently forecast, and annual growth fall steadily to below 1% by 2003/04, compared to the cuurent forecast of growth rising to 3.5% by 2001/02 before tracking back to around 2% in 2003/04.

Stark Election Choices Emerging:
"Despite a conservative interpretation in key areas such as education and health, it is clear that Labour - with the Alliance - will have to spend around $1.5 billion over three years to implement their policies," Michael Barnett said.

It is inevitable that the price of a Labour-Alliance coalition will be a "buy-in" by Labour of some of the Alliance spending initiatives, but whether Labour also agrees to the Alliance revenue proposals - a tax against higher earners and a land tax, and a return to tariffs - will inevitably pitch such a coalition into early strife - just as happened when National agreed to a "buy-in" of selected New Zealand First proposals.

Mr Barnett challenged all parties to give some urgency to "come clean" with voter-friendly details of what their respective fiscal programmes would be. "It is getting very late in the campaign for the parties to have not yet presented such a basic policy indication to voters," he said.

As Labour's obvious coalition partner, the Alliance would significantly increase spending pressures, and the extent of the "buy-in" by Labour of Alliance policies was a matter of speculation and future negotiation.

This is leaving the electorate with a clear choice for the election:
* A Labour-Alliance which would put pressure for increased spending and increased taxes; or
* A National-Act in which Act, plainly, will be pressing National for reduced spending and tax cuts.

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