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Labours fiscal plan – ring fencing

Written By: - Date published: 5:24 pm, July 5th, 2014 - 14 comments
Categories: budget 2014, Economy, labour, same old national - Tags: ,

I have spent a large chunk of the this week digging my way into Labour’s fiscal plan after the Liu smear collapsed. I think that the fiscal plan is a work of art, and very classy art at that. Of course you have to read it closely and look at what it is intended to do.

Brian Fallow, economics editor at the Herald seems to like it as well. His analysis is a lot better than mine, so read that first. I’ll quote some interesting bits and add some commentary.

But first the boring bit. Labour and National are going to do roughly the same surplus and debt levels via different mechanisms. Labour will wind up with more debt, but also more assets than National would.

nz core debt as a percent of GDP - labour fiscal plan

The plan balances between doing the things that have to be done for the long-term good of society with the need to not make the business community to go apeshit with shock the way that they did in 2000. Not that they needed to then, and definitely not now.

Fallow on Labour and  National budgets

There are important differences, of course, but the similarities are striking.

Both are committed to running surpluses and paying down debt. Over the three years 2015/16 to 2017/18 inclusive they both forecast operating surpluses which are almost identical.

The debt target Labour focuses on is net debt including the assets of the New Zealand Superannuation Fund, to which it would resume contributions four years earlier than National.

So it borrows more but has a corresponding increase on the asset side of the Crown’s balance sheet.

This measure of net debt would fall from 15 per cent of gross domestic product now to 12.1 per cent in 2017/18 and 3 per cent three years later, compared with 11.8 per cent and 3.7 per cent projected in Budget 2014.


14 comments on “Labours fiscal plan – ring fencing”

  1. mikesh 1

    The necessity of reducing debt seems to need clarification. For public works and infrastructure, borrowing, in order to spread the costs (repayments and interest) over the many generations of taxpayer who will benefit from that infrastructure, seems reasonable.

    Similarly, the focus of both parties on reducing deficits seems misplaced as they don’t have to borrow in order to run deficits. Thjey can simply create the money they need and, if necessary, use the tax system to avoid inflation.

    • Colonial Viper 1.1

      Hey mikesh,

      There has to be a bit of caution IMO in that past assumptions of regular and significant real economic growth (3% + p.a.) which does allow interest bearing debt to be reliably paid back are probably over.

      Thjey can simply create the money they need and, if necessary, use the tax system to avoid inflation.

      Yes. Or compulsory savings as another vehicle – which is a good concept by Labour. (Shame its directing money to Wall St gamblers and private financiers though).

      You don’t have to raise interest rates on debt and increase unemployment to avoid excess inflation.

      • mikesh 1.1.1

        I think a time is coming when the main political divide will be between those who want growth and those who want sustainability. Herman Daly, eco-economist and former World Bank economist, believes that the reason the 1933 Chicago plan was not adopted was because it insisted on getting rid of fractional reserve banking, and it was thought that this would hamper growth. National and Labour both seem to be pro-growth, which seems to explain the similarity between the budget and Labour’s alternative.

    • Draco T Bastard 1.2

      For public works and infrastructure, borrowing, in order to spread the costs (repayments and interest) over the many generations of taxpayer who will benefit from that infrastructure, seems reasonable.

      But happens to be physically impossible and is thus totally unreasonable.

      Similarly, the focus of both parties on reducing deficits seems misplaced as they don’t have to borrow in order to run deficits. Thjey can simply create the money they need and, if necessary, use the tax system to avoid inflation.

      Correct. So why don’t they? Why do so many people say that they can’t do what can actually be done?

      The answer comes down to one reason: The rich won’t like it as it will remove the power that they have at the moment that their wealth gives them.

      • mikesh 1.2.1

        “But happens to be physically impossible and is thus totally unreasonable.”

        Maybe. But National seems to have chalked up 50 billion doallars worth of debt in any case.

        • Draco T Bastard

          Yes. It’s part of the delusion that is our monetary system. A delusion that is used to take our wealth from us.

  2. George 2

    the need to not make the business community to go apeshit with shock the way that they did in 2000.

    That’s not a need, it’s a nice to have.

    • George 2.1

      Good policy though. Spending in education and health is not simply nice to have.

  3. Colonial Viper 3

    All this long term budget planning takes into account the end of affordable fossil fuels in 25 years or so, right? Right? 😯

  4. finbar 4

    Johnny and his tight five,will for sure leave debt of $70 billion,if lost this time round.God help the other billions given another round.More care says,no more of this debts freinds usury,more care says enought.Socialist says,care can be managed.

  5. Michael 5

    Not much difference between Labour and National, IMHO. They are both committed to appeasing global capitalism and making the poorest and most vulnerable people pay the cost. There are alternatives, which a “real” Labour Party would adopt, defend through the campaign, and implement once elected.

  6. Jepenseque 6

    Hi, labours fiscal plan outlines 1 billion + in annual capital gains tax revenue in 5 years time. It says this is from berl modelling. What does this imply for house price growth under labour? I’ve emailed David parker but no reponse has come. Anyone know here?

  7. Tracey 7

    Thanks for this Lynn.

    Numbers are not my gig, not helped by numerical dyslexia so I appreciate the efforts of those who try to dig deeper.

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