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Labour releases responsible, costed fiscal plan

Labour’s fiscal plan for the next term will continue a strong track record of managing the books carefully while putting aside money for dealing with COVID-19 and protecting services like health and education, Finance Spokesperson Grant Robertson says.

“Labour’s fiscal plan is responsible, balanced and costed. It makes sure enough money is set aside to handle cost pressures in essential services like health and education, while keeping to the debt reduction track already set out in the Pre-election Economic and Fiscal Update (PREFU),” Grant Robertson said.

“The PREFU is the core of Labour’s fiscal plan, as it is for any incumbent Government. The books already contain Labour’s planned infrastructure investment of $42 billion over the next four years, a balanced debt reduction plan, and money for additional operating and capital investment over the next four years.

“It is presented in a similar way to the previous incumbent National Government’s fiscal plan in the 2017 election.

“New Zealand, along with the rest of the world, is facing a 1-in-100 year shock due to the impacts of COVID-19. Labour’s plan balances the need to keep debt under control while making sure services like health and education are protected from cuts,” Grant Robertson said.

“The main difference from PREFU is that the plan incorporates the extra revenue raised from a new income tax rate for the top 2% of New Zealanders. This means we can continue to properly fund health and education while keeping a lid on debt.

“Labour’s revenue policy means operating allowances – the money set aside to cover inflation, population changes and new policies – can be increased slightly to $2.625 billion across each of the next four Budgets. The plan keeps the current multi-year capital allowance of $4.8 billion, rising to $7.8 billion by the end of the forecast period.

“Labour’s fiscal plan accounts for policies already announced during the election campaign, and sets aside funding for contingencies and policies that are yet to be announced. As already announced, the extension to the Small Business Cashflow Loan Scheme, and promise to reintroduce the Training Incentive Allowance, will be funded from the COVID Fund because of these policies’ importance to the recovery from COVID-19. The plan leaves $12.1 billion protected in the COVID Fund. 

“Leaving $12.1 billion in the COVID Fund is the right thing to do. It means we are ready to counter the health and economic impacts of another global resurgence, and gives us the ability to support businesses and protect jobs if we need to move Alert Levels in New Zealand.

“A responsible fiscal policy also makes sure enough is set aside to protect the services New Zealanders rely on, like health and education.

“National’s plan doesn’t do this. They’ve left just $814 million next year, and $704 million the year after, to deal with basic cost pressures across the whole Budget. Labour’s plan sets aside double that – and that’s with election commitments being taken into account. 

“Putting health services at risk during a global pandemic, or education at risk during an economic recovery as National’s plan does, is the very definition of irresponsible fiscal management.”

“The PREFU forecasts and projections show net debt of 48% of GDP at the end of the projection period, down from a peak of about 56%. In PREFU, the deficit is also reduced from 10% of GDP to less than 1% of GDP as the economy grows. 

“We have already committed that if we do not need to spend the remaining money in the COVID Fund then we will not do so. This would mean that debt would decrease faster than projected at PREFU. Labour also expects that as a result of our sustainable economic growth plan the economy will grow faster than the standard projection rate which would also see debt fall faster and operating surpluses return more quickly. 

“Even on the PREFU numbers this means New Zealand will continue to have one of the lowest debt positions in the world. Other advanced economies went into COVID-19 with net debt averaging above 80% of GDP, while our careful management of the Government books meant we had less than 20%. In the UK, they’ve just reported net debt has crossed 100%,” Grant Robertson said.

 

Fiscal strategy document