Getting ahead with National
John Key MP
National Party Finance Spokesman
19 August 2005
Getting ahead with National
National Party Finance spokesman John Key has outlined National’s approach to tax and spending.
“Our fiscal strategy recognises the importance of tax as a significant driver in people’s willingness, desire and ability to work, to gain skills, to save and to take risks,” Mr Key said at a financial briefing today.
National’s fair tax and family package will be phased in over the next three years, rising to an annual total of $3.9 billion in the 2008/09 year.
National’s fiscal strategy is focused on better quality public spending and a fair tax system that rewards hard work.
National will continue to run operating surpluses sufficient to cover contributions to the NZ Super Fund and some capital spending.
Our spending strategy will focus on getting more funding through to the front-line services in health, education and policing.
Our tax package focuses on the importance of tax as a significant driver in people’s willingness, desire and ability to work, to gain skills, to save and to take risks.
“These fiscal projections presented today do not take account of the $2.2 billion of additional revenue identified in yesterday's Pre-Election Economic and Fiscal Update (PREFU).
National’s Fiscal Strategy
National’s medium-term fiscal strategy is to run sustained budget surpluses over the course of the economic cycle, sufficient to fund contributions to the New Zealand Super Fund, and to fund some capital expenditure. We will be running an OBERAC surplus of approximately 2% of GDP.
“Debt levels will be maintained at prudent levels. Our focus is on removing obstacles to growth. A modest increase in debt to fund long-lived assets will contribute to lifting longer term sustainable growth rates,” said Mr Key.
Gross sovereign issued debt is forecast to be approximately 1% higher relative to GDP than currently by the end of the forecast period.
National will ensure that the Government’s net worth continues to improve.
Cutting Government Waste
Government spending has risen from $32 billion to $48 billion. National has no confidence that the projected spending path outlined in Labour’s last Budget represents an appropriate benchmark for spending.
National is anticipating lifting the annual budget spend by about $1.5bn a year on average over the next three years.
National will conduct a full baseline review of all spending, with a view to cutting low-quality spending and setting more sensible spending priorities. We anticipate stabilising core Crown spending at around 31% of GDP over the next term of government, about 1% lower than in the Labour spending track.
“Savings found from within the Health and Education sectors will be poured back into services,” said Mr Key.
“The fiscal projections make no allowance for the dynamic effects that are the entire point of our fair tax and welfare policies, and so in that sense are very conservative. The lower tax structure will provide much better incentives for working people, and so will boost growth and incomes, and therefore lift revenues above what a static analysis would suggest.
“National’s welfare reforms will, in time, see fewer people on welfare, reducing costs and generating revenues as people move from welfare to work.”
Mr Key identified savings, relative to Labour’s projected spending track.
Removing the minor threshold indexation allowance in Labour’s Budget.
Not implementing the Kiwi Saver scheme, because it won’t work, is poorly designed and is unfair. It is better to put working people in the financial position where they can save.
“Don Brash has been fully involved in the preparation of this package and is confident that the net additional fiscal impact is manageable, especially in the context of a slowing economy, and that it will not put pressure on interest rates.
National anticipates operating balances averaging around 2% of GDP over the coming three years.
If the Labour student loan scheme was implemented, Crown net worth would take a $1.7 billion write-off in 2006/07.
Gross debt will rise slightly, relative to 2005 Budget projections, to around 22% of GDP. Again, if the Labour student loan scheme was implemented, gross debt would be higher under Labour’s policies.
Note: These projections do not yet build in the substantial upward revision to revenue announced in the Pre-Election and Fiscal Update.