How Labour’s fiscal plan adds up

Steven Joyce says Labour has made a mistake with the figures in their fiscal plan? Have they?

No, but that doesn’t mean to say there aren’t things in the plan that are a bit unusual.

Does Labour have enough money to fund its election promises?

Yes. That is clearly set out in their fiscal plan. They have identified where they will spend more than National over four years and where they will get extra revenue from, which includes $7 billion more in borrowing.

So what is all the fuss about?

It is about the funding of areas of Government in two or three years’ time about which Labour has not made any spending promises and which is not accounted for in the four-year spending plan already passed by Parliament.

What sorts of things does it cover?

Any public sector wage increase that has not yet been negotiated, or to fund new unforeseen costs pressures.

How are they normally funded?

Any new initiatives not already itemised by Labour or provided for in the baked-in increases are funded from the operating allowance. The Minister of Finance decides on an amount of money each year which is always rolled into subsequent years because things like pay rises are not one-offs.

How would Labour fund those?

Its operating allowance is budgeted as one-off amounts. It would have plenty in the first year, 2018–19 with $835 million in operating allowance to play with. But with only $879 million in the next year, the actual new allowance would be only $44m for that year (or effectively zero in the context of Government spend that year of $114 billion). That wouldn’t mean no spending on new initiatives, but they would need to be funded by efficiencies elsewhere as Labour finance spokesman Grant Robertson has said.

What sort of amount is involved?

While the allowances over a couple of years would be tight, the total amount over four years is not that much less than National’s operating allowance once its election promises and inflation and demographic increases for education and health are hypothetically factored in. A 3 per cent pay rise for police starting in 2018–19 would cost about $33m a year.

So what is the “fiscal hole” Joyce has been talking about?

If the operating allowances as set out by Labour had been cumulative over the out-years and not a series of oneoff allowances, the total of allowances would have amounted to $9.4b – Joyce added in a few other alleged “errors” to get to $11.7b. Joyce has called that a “hole” and implied the books are wrong. They are not.