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Meeting our Budget Responsibility Rules


Rule 1: The Government will deliver a sustainable operating surplus across an economic cycle.

An OBEGAL surplus indicates the Government is financially disciplined and building resilience to withstand and adapt to unforeseen events. We expect to be in surplus every year unless there is a significant natural event or a major economic shock or crisis. Our surpluses will exist once our policy objectives have been met, and we will not artificially generate surpluses by underfunding key public services.

Labour’s Fiscal Plan projects OBEGAL surpluses throughout the forecast period. Higher investment in operating expenditure in health, education, and police is offset by higher revenue from cancelling National’s tax cuts, closing the speculators’ tax loophole, and reducing multinational tax avoidance. By running consistent surpluses, as the previous Labour Government did, the Government will be able to reduce debt to sustainable levels.

Fiscal year ended June

2017/18

2018/19

2019/20

2020/21

2021/22

OBEGAL ($m)

 

 

 

 

 

   BEFU

2,858

4,051

6,085

7,168

8,670

   % of GDP

1.0

1.4

2.0

2.2

2.6

   Labour policy plans

3,240

4,317

5,805

6,141

7,443

   % of GDP

1.2

1.5

1.9

1.9

2.2

OBEGAL.png

Rule 2: The Government will reduce the level of Net Core Crown Debt to 20% of GDP within five years of taking office.

To give future generations more options, reducing government debt has to be a priority. By setting a target, provided that economic conditions allow, we will be able to make responsible debt reductions and invest in housing and infrastructure that strengthen our country and prepare us for future challenges.

Labour’s Fiscal Plan projects that, by running continued surpluses and not undertaking irresponsible tax cuts, net core Crown debt will be 20% of GDP in 2021/22, five years after the 2017 election. This will give the Government the fiscal space it needs to make much-needed investments in housing, health, education, and infrastructure. Getting debt down will control the Crown’s interest costs of $10m a day, help to insulate New Zealand against economic shocks, and make greater public service investment sustainable.

Fiscal year ended June

2017/18

2018/19

2019/20

2020/21

2021/22

Net core Crown debt ($m)

   BEFU

64,171

65,721

64,218

62,769

60,738

   % of GDP

22.8

22.1

20.6

19.3

17.9

   Labour policy plans

66,259

68,513

68,760

68,357

67,899

   % of GDP

23.5

23.1

22.0

21.0

20.0

net_core_crown_debt_percent_of_gdp.png


Rule 3: The Government will prioritise investments to address the long-term financial and sustainability challenges facing New Zealand.

The Government will prioritise responsible investments that enhance the long term wellbeing of New Zealanders - such as restarting contributions to the Super Fund. In addition, we will invest in infrastructure to support our growing population, and reduce the long term fiscal and economic risks of climate change.

Labour’s Fiscal Plan projects that, by making measured increases to investment in housing, health, education, and infrastructure, while not undertaking irresponsible tax cuts, enough fiscal headroom will be created to restart contributions to the New Zealand Super Fund without compromising on the debt target. Restarting investment in the NZ Super Fund will increase the size of the fund to over $63bn by 2022/23 and will help to keep superannuation at 65 sustainable.

Labour is also committed to delivering an all gasses, all sectors emissions trading scheme. Any positive revenues generated by this scheme will be used to deliver a just transition to a low carbon economy. 

 

2017/18

2018/19

2019/20

2020/21

2022/23

NZS Fund Contributions ($m)

500

1,000

1,500

2,200

2,500

nz_superfund_contributions.png


Rule 4: The Government will take a prudent approach to ensure expenditure is phased, controlled, and directed to maximise its benefits. The Government will maintain its expenditure to within the recent historical range of spending to GDP ratio.

During the global financial crisis, Core Crown spending rose to 34% of GDP. However, for the last 20 years, Core Crown spending has been around 30% of GDP and we will manage our expenditure carefully to continue this trend.

Labour’s Fiscal Plan projects that government spending as a share of the economy will remain stable throughout the forecast period at 29%. This level of investment is higher than forecast in Budget 2017 and is made possible by not cutting taxes, a slower debt repayment track and some additional revenue measures. Over the forecast period, Labour will invest $8bn more in health, $4bn more in education, and $5bn more in income assistance for families (through Working for Families, Best Start, and the Winter Energy Payment) than projected in Budget 2017.

Fiscal year ended June

2017/18

2018/19

2019/20

2020/21

2021/22

Core Crown expenses ($m)

   BEFU

80,486

83,466

86,234

89,223

92,300

   % of GDP

28.6

28.1

27.7

27.5

27.2

   Labour policy plans

80,560

85,401

88,744

92,591

95,898

   % of GDP

28.6

28.8

28.5

28.5

28.3

Core_crown_spending.png


Rule 5: The Government will ensure a progressive taxation system that is fair, balanced, and promotes the long-term sustainability and productivity of the economy.

The Government will ensure a progressive taxation system that is fair, balanced, and promotes the long-term sustainability and productivity of the economy.

Labour’s Fiscal Plan shows that the tax system will become more progressive and favourable to the productive economy. By rejecting tax cuts that would give as much to the top 10% of income earners as the bottom 60%, we have stopped the tax system becoming more regressive. Cracking down on property speculation makes the housing market fairer and moves the incentives towards productive investments. Improving taxation of multinational corporations ensures that they are paying their fair share for the public investments they benefit from.

We will establish a Tax Working Group in government. It will have a mandate to create a better balanced tax system, including between assets, wealth, income and consumption. Labour is committed to delivering a tax system that is fair, simple, and collected.  

The figure below sets out the additional sources of revenue that the Labour Government intends to use over the forecast period.

Additional_revenue.png