Labour’s 100-day plan keeps books in check, switching tax cuts for transfers
By Paul McBeth
Dec. 14 (BusinessDesk) - The Labour-led government’s 100-day policy programme will keep the government’s books largely unchanged over the next four years as cancelled tax cuts cover the bulk of its family support plans.
Finance Minister Grant Robertson unveiled the numbers behind the new administration’s policy platform in today’s half-year economic and fiscal update, saying $8.36 billion of savings accrued from cancelling the previous administration’s tax cuts covered the costs of greater support for low and middle income families and the first year of free tertiary education fees.
The Treasury estimates a $1.7 billion difference between the operating balance before gains and losses (obegal) over the forecast horizon from the pre-election update, with Robertson set to preside over smaller surpluses in the next two years of $2.5 billion and $2.8 billion, before generating bigger ones at the end of the period. By June 2022, the obegal surplus is forecast to be $8.8 billion from $4.1 billion in 2017.
“Our priorities are different from the previous government,” Robertson said in a statement. “We are targeting spending at the early years to invest at the time in life where the evidence shows it makes a difference.”
Labour secured the Treasury benches after winning support from the New Zealand First and Green parties at the September election, ending three terms of the National-led administration.
The families package goes to the heart of one of the upcoming budget priorities to take action on child poverty and homelessness and supporting families to get ahead, and sits alongside building quality public services, sustainable economic development and supporting the regions, and managing the nation’s natural resources and addressing environmental challenges.
The Treasury’s forecasts are predicated on robust economic growth which is seen expanding an annual average pace of 2.9 percent over the next five years, due to population growth, low interest rates, and government spending.
The new government has bulked up its operating allowance to $2.6 billion for the 2018 budget from the previous administration’s $1.7 billion allowance. That allowance falls to $1.88 billion in the out-years, which Robertson said will “provide the fiscal room we need to keep public services such as housing, health, education and police up to standard” over and above what’s budgeted for in the 100-day plan.
The Crown’s policy programme is seen stimulating the economy in 2018 and 2019 with increases in operating and capital spending and the families package, before having a contractionary effect over the following three years and the size of government and tax relative to the economy shrink.
The expanding economy and cancelled tax cuts are seen adding an additional $22.2 billion to tax revenue over the next five years, which is seen rising to $97.8 billion by 2022 from $75.6 billion in 2017.
Robertson’s budget policy stated noted the “infrastructure deficit in New Zealand which needs to be addressed” and said capital investment will be a “key focus” for future government budgets, with some $41.7 billion expected over the next five years.
That includes the $1 billion a year provincial growth fund and the early resumption of contributions to the New Zealand Superannuation Fund amounting to $3.35 billion over the forecast period.
That will see the government take on more debt to fund those programmes and delay the return to cash surplus until 2020.
Net debt will be $8.2 billion higher than over the forecast period compared to the August pre-election fiscal and economic update, peaking at $69.4 billion, or 21.9 percent of gross domestic product, in 2019, before falling to $66.8 billion, or 19.3 percent of GDP. Net debt was $59.5 billion, or 21.8 percent of GDP, in 2017.