According to its new fiscal strategy, Labour wants to tax more and spend more, targeting core crown spending at 33% of GDP. Meanwhile, National has ruled out all new taxes. Voters now face a clear choice, writes Henry Oliver in today’s excerpt from The Bulletin.
To receive The Bulletin in full each weekday, sign up here.
Labour released its fiscal strategy this weekend, promising to return the country to surplus by 2029-30 while slashing debt and setting up an independent Parliamentary Budget Office, RNZ’s Tuwhenuaroa Natanahira reported yesterday. Leader Chris Hipkins said his party would “get the books back into shape,” but would not do it by “making life harder” and cutting services.
The plan commits Labour to six key policies, including returning to surplus on Treasury’s traditional OBEGAL (Operating Balance Before Gains and Losses) measure, reducing net debt to 20% of GDP “over time,” and holding core crown spending and revenue at about 33% of GDP once its proposed capital gains tax is fully implemented. Labour would also revive the Reserve Bank’s dual mandate of maximum sustainable employment alongside price stability.
The ten billion dollar question
As Henry Cooke wrote in The Post this morning, the core of what Labour laid out is simple: “It is a social democratic party. It wants the state to be a larger part of the economy and to worry more about unemployment. It wants to tax more and spend more.” Specifically, Labour wants core crown spending and revenue to align at about 33% of the economy. National wants 30%. Every 1% of GDP is worth around $4.35bn — “not money you find down the back of the couch,” Cooke noted.
The less clear part of Labour’s strategy is the revenue. If revenue is at 33% of GDP by 2031, that’s an increase of about $10.3 billion a year – a lot more than the $1.3bn the capital gains tax is forecast to raise. Getting rid of the Investment Boost tax credit – about $6.6bn over four years – will help but not get all the way there. Also, “given Labour (and National) have no interest in adjusting income tax brackets to account for inflation, bracket creep will also slowly increase the tax take over time without any nasty big “rises”. But, Cooke says, Hipkins has indicated more will be revealed ahead of the election.
National wants to tax the same and spend less
National, meanwhile, has made the dividing line as clear as possible. At the launch of Christopher Luxon’s Botany electorate campaign, the party upgraded its promise of “no new taxes on working people” – made just two weeks ago – to “no new taxes” at all, ruling out the bank levy and the bed taxes it had promised it would investigate, Stuff’s Emma Ricketts reported yesterday. National’s finance spokesperson Nicola Willis also took the opportunity to reject Labour’s fiscal strategy, saying it amounted to “nothing more than spending more, borrowing more and taxing more.”
In a statement, Labour’s Kieran McAnulty, said the pledge amounted to promising cuts to services. “If you’re ruling out revenue, you have to cut spending. So what are you going to cut? More nurses? More hospital services? More frontline workers? More support for families?”
Auckland mayor Wayne Brown was “deeply disappointed” by the decision to rule out a bed levy, Stuff’s Isaac Davison reported last night, saying the move was “a huge missed opportunity.” He had been pushing for a bed tax on tourists to help fund Auckland’s infrastructure needs. “A bed-night levy is a user charge, not a general tax,” he said. “Taxes are unavoidable, you can avoid this by just not staying in a hotel.”
The choice
As Cooke wrote, both parties are now making clearer than ever to voters what they are offering. “Labour wants to tax and spend more; National wants to tax about what they do now and spend a bit less.” Neither should come as a surprise, but each offers a different path for the country over the next few years. “This is what elections are for.”
