Peters’ demands the wild card for Labour
You can call Labour’s draft budget a lot of things, including ‘‘careful’’ and even ‘‘showing limited ambition’’. But it sure isn’t profligate, and only a Right-wing warrior would dub it a taxand-spend splurge.
If the polling companies are right, and there is a mood for iconoclastic change akin to that seen in the US and Europe, Labour may have blundered by not grasping the moment.
And all the while Winston Peters and the Greens are eating Labour’s lunch and nibbling away at its support base.
The Greens have cooked up a healthy two-course meal; environment-focused policy combined with a radical welfare and tax recipe. Co-leader Metiria Turei’s risky admission to youthful welfare fraud provided the banner headline.
Meanwhile, NZ First is preparing the political equivalent of an old-fashioned Sunday roast; a referendum on the number of seats in Parliament, shaking up the Reserve Bank and monetary policy, slashing immigration, and the oldest and best – ‘‘protecting’’ superannuation. It’s all being trundled around the regions, in old world style, on a campaign bus.
Suffering in the polls and facing attacks on both flanks, Labour has made a conscious decision to talk up its ‘‘fresh approach’’ to appeal to the mood for change. Yet its fiscal plan, released this week, continues to hug the centre line.
In that respect it continues its middle of the road economic policy prescription.
Its most significant proposed reforms in that realm are to monetary policy. But senior figures in banking seem relatively comfortable and reassured by the contact they have had with Labour’s finance spokesman, Grant Robertson.
Elsewhere, leader Andrew Little threw overboard a capital gains tax, a higher top tax rate and an increase in the state pension age. No revolution there. Coming back to its newly minted fiscal plan – and despite its plan to ditch National’s tax cuts – Labour’s framework is similarly designed not to spook too many horses.
Sticking within its ‘‘Budget Responsibility Rules’’, agreed with the Greens, it is tipping annual surpluses of $4 billion-plus and only modest tax changes.
Using the same growth parameters as Treasury, it sees debt falling to 20 per cent of GDP by 2022, just two years later than under National.
(Finance Minister Steven Joyce is being far more cautious about building up buffers against future shocks, adding a long-term target of debt below 15 per cent of GDP by 2025.)
It’s a debt trajectory that gives Robertson room to outspend National, to be sure. But debt at 20 per cent and surpluses as far as the eye can see would still be the envy of most OECD countries. (Australia’s government debt is about 41 per cent and rising.)
His plan ought to inoculate the party against the usual claims that it is a less responsible fiscal manager than National (though Joyce as campaign manager is honour-bound to give it a whirl).
The credit rating agencies will not bat an eyelid.
But of course the sustainability of Labour’s draft budgets – when translated into coalition government reality – may be a different thing.
The Greens ought not to be a major threat to Labour’s plans if they are true to their signature on the Budget Responsibility Rules deal. Ironically, these cut in from election day, just as the memorandum of understanding between the two parties expires.
Ominously, there are rumblings of discontent within Labour about the Greens’ policy costings. Is this what Robertson was hinting at – although it could equally apply to NZ First – when he said, ’’as a party that wants to lead government it is our duty to be able to say to people ‘this is what we are planning and this is how we are going to pay for it’. That perhaps isn’t required of all parties ...’’?
But the biggest risk to Labour’s carefully laid fiscal groundwork will be NZ First. Its tertiary policy alone starts at $4.6 billion, by its own estimates.
To meet other demands, Labour has earmarked $878m next year – and a total of $9.9b over four years. That pool of cash will have to cover future new initiatives and Labour campaign promises as well as coalition agreements, augmented by a spot of ‘‘reprioritisation’’ from its own policies.
It is, if you like, where any fiscal plan runs smack into the cost of Winston’s bottom lines. And it is a problem National will also face – though with potentially more leverage – if it needs NZ First.
It’s one of the wicked ironies of MMP elections.
However hard Joyce and particularly Robertson work on fiscal responsibility, they stand to be judged as much on Peters’ spending – or at least how far they are prepared to curb it – as on their own carefully wrought budgets.