Crunch time for Bud­get num­bers

Par­ties’ ex­pected sur­pluses much the same — but health is a key dif­fer­ence

Weekend Herald - - BUSINESS - Brian Fal­low

Ei­ther Steven Joyce or Grant Robert­son i s likely to be writ­ing the next three Bud­gets. One week from the gen­eral elec­tion, what do we know about how they would dif­fer, given the dif­fer­ent poli­cies and spend­ing com­mit­ments of Na­tional and Labour, and given the same Trea­sury fore­casts of how the econ­omy will fare and how that will flow through into the Gov­ern­ment’s cof­fers?

Be­fore head­ing into the weeds, t wo caveats are worth not­ing. One is that all th­ese num­bers are sub­ject to fore­cast er­ror. We have only just had a fis­cal year in which the sur­plus was $ 2 bil­lion higher than the Trea­sury had fore­cast only weeks be­fore the end of the year. But for com­par­a­tive pur­poses, the fore­cast as­sump­tions are the same for both par­ties.

Sec­ond, both will al­most cer­tainly have to ne­go­ti­ate with coali­tion or sup­port par­ties. What fol­lows ig­nores the fis­cal costs and com­pli­ca­tions aris­ing from that.

That said, the strik­ing thing is how sim­i­lar Na­tional’s and Labour’s Bud­gets are for the three years to June 2021, in terms of the to­tal fis­cal en­ve­lope within which their spe­cific spend­ing prom­ises are con­tained.

Labour’s fore­cast for to­tal Crown op­er­at­ing ex­pen­di­ture over those three years is 2 per cent — or $ 6.9b — higher than Na­tional’s.

Over that pe­riod Labour ex­pects to have $ 6.8b more rev­enue, largely ( 85 per cent of it) from can­celling Na­tional’s planned tax cuts sched­uled for April next year.

So the two par­ties are fore­cast­ing al­most iden­ti­cal sur­pluses — adding up to $ 15.7b for Na­tional and $ 15.6b for Labour over the three years.

Na­tional would say those sur­pluses, and the tra­jec­tory of de­clin­ing pub­lic debt, tes­tify to its pru­dent man­age­ment of pub­lic fi­nances. Labour would say the cost of that ap­proach, in un­der­fund­ing pub­lic ser­vices, has been too high. Look­ing for­ward, where they dif­fer is in how they al­lo­cate those vir­tu­ally iden­ti­cal pots of money. A key dif­fer­ence is health. If you take Joyce’s Bud­get at face value, Na­tional does not in­tend to in­crease health spend­ing over the next three years. That spend­ing line is flat. But that is not what hap­pens, of course. In ev­ery Bud­get health gets the big­gest bite out of the new money or pre­vi­ously un­al­lo­cated op­er­at­ing al­lowance. In the cur­rent year, health spend­ing will be nearly $ 1b up on last year. So it is a bit cute for Labour to say it will spend $ 4.7b more than Na­tional on health over the next three Bud­gets. The dif­fer­ence would al­most cer­tainly be a lot smaller than that, but Na­tional’s non- com­mit­tal ap­proach makes it im­pos­si­ble to know how much smaller. Equally, it is a bit silly for Na­tional to say, in ef­fect: “We might spend more on health. Might not. Haven’t de­cided yet. But if we do there i s plenty there in the kitty”. Al­to­gether over the next three Bud­gets, Labour has com­mit­ted to spend­ing $ 4.7b more on health than Na­tional has in the pre- elec­tion eco­nomic and fis­cal up­date ( Prefu), $ 3.8b more on wel­fare ( mainly in its fam­i­lies pack­age) and $ 3.7b more on ed­u­ca­tion. Those three big- ticket items ac­count for $ 12.2b of the cu­mu­la­tive $ 14.4b of ad­di­tional op­er­at­ing spend­ing ( over and above the Prefu) it has com­mit­ted to. It al­most cov­ers that by a $ 6.8b higher tax take and by scoop­ing $ 7.1b out of the $ 10.3b of un­al­lo­cated op­er­at­ing al­lowance in the Prefu. That leaves Labour just $ 3.2b of un­com­mit­ted new money al­to­gether for the next three Bud­gets for ev­ery- thing but the big- ticket items ( health, wel­fare and ed­u­ca­tion).

Bill English and Joyce say that is un­re­al­is­ti­cally tight.

It is a fair point, but the rest of that sen­tence has to be “. . . if and only if you are de­ter­mined to run the same hefty sur­pluses both ma­jor par­ties are fore­cast­ing.”

There is a lot of give in the fis­cal bot­tom lines of both par­ties — op­erat- ing sur­pluses ( ex­clud­ing gains and losses) which av­er­age more than $ 5b a year over the next three Bud­gets.

Mean­while, dur­ing the elec­tion cam­paign Na­tional has been spend­ing some of the $ 10.3b cu­mu­la­tive op­er­at­ing al­lowance the Prefu gives it.

Sub­si­dis­ing GP vis­its for 600,000 peo­ple will cost nearly $ 300 mil­lion over the next three years, in­creased grants for first home buy­ers $ 225m and the ex­ten­sion to paid parental leave a sim­i­lar amount. In all, Na­tional has com­mit­ted $ 1.4b of its op­er­at­ing al­lowance for the next three Bud­gets, leav­ing $ 8.9b in the kitty.

So that is $ 5.7b more un­com­mit­ted spend­ing power than Labour has left, but Labour ar­gues it would take $ 4.7b of that just to cover in­fla­tion in health and ed­u­ca­tion costs.

On the rev­enue side of the books, Labour is count­ing on $ 6.8b more tax over the three Bud­gets. Most of that — $ 5.8b — comes from re­vers­ing Na­tional’s “tax cuts” — the in­come tax thresh­old changes leg­is­lated for next April to ad­just for seven years of bracket creep.

It also ex­pects to get $ 600m more than Na­tional does over the three years from crack­ing down on multi- na­tional tax avoid­ance, tak­ing In­land Rev­enue at its word that a dol­lar spent on fund­ing ad­di­tional com­pli­ance ac­tiv­ity re­sults in a $ 7 yield.

The in­ter­na­tional vis­i­tor levy is fore­cast to bring in $ 225m over the three years, plus $ 180m from prop­erty in­vestors, from push­ing out the bright line test for when cap­i­tal gains are tax­able to five years and from changes to the neg­a­tive gear­ing rules.

Grant Robert­son

Steven Joyce

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