The $11.7 billion hole continued

For many of the arguments that support Labour’s fiscal plan and slam Steven Joyce’s attack on it see The Standard –  Steven Joyce’s comprehension fail.

I also have a comprehension fail – I have no idea who is right and who is wrong, but I suspect that both Joyce and Grant Robertson are fudging some numbers and descriptions.

Hamish Rutherford at Stuff:  Does Labour have an $11.7 billion hole or a poor choice of words?

The latest move in the election campaign saw National launch a stinging attack on Labour’s economic credibility, which it said amounted to an “$11.7 billion hole”.

National has little to lose from doing so. Comparing fiscal plans is complex as they never follow a set template, probably because every political party uses confusion as a strategy.

And as it is easy to confuse on something this complex it seems likely that both sides will keep claiming to be right.

While Steven Joyce claimed there are four key errors in Labour’s plan, only one really matters, both because of its size, and because the error being claimed would be so extraordinary.

This is that Labour had signalled a series of generous increases in the “operating allowance” over the next years, without counting the cumulative impact.

The charge is that Labour is choosing to give parts of the public sector more money as soon as it is elected, then ignoring the reality that they will expect the money again next year, and the year after, and so on.

This simply never happens in the real world. Nurses who get a pay rise in 2018 expect that they will be paid at least as much for the same job in 2019, and will probably want some more.

Labour has sought to explain the difference as one of misinterpretation, which it accused Joyce of doing deliberately.

Grant Robertson fronted reporters saying that its figures already include the steady cumulative increases in different parts of the plan.

Spending on health and education, to cater to the inevitable increases in cost every year, Robertson says, will amount to $6.7b over five years.

The confusion? Semantics, apparently. If nothing else, Labour is guilty of a very odd choice of words.

Where Labour uses the term “operating allowance” it means something quite different to what Treasury, or anyone else, would assume it would mean.

Robertson actually admitted the term meant “leftover cash”.

Government forecasts are complicated, and involve a fair amount of sleight of hand, on all sides.

But the term “operating allowance” has a generally accepted meaning, at least insofar as once you allocate it, the bill will typically be the same or more, forever.

Labour claims that it has gone further than National has, and properly accounted for the rising, and inevitable, cost of demographic changes in New Zealand as the population grows more quickly.

But its choice of words is one which created the confusion.

As well as using a term which usually means something different, it leaves open the suggestion that Labour’s fiscal plan is presented in a way which is designed to make it seem much more generous than it actually is.

Confused? I am.

Do I care about this? Not much.

Campaign ‘promises’ come thick and fast, and I think most people don’t expect all the spending to happen when whoever gets into government has to actually find the money to do things.

Politik: Joyce looks like he may have got his sums wrong

The argument rests on a line by line table that is published in Treasury’s Pre Election Fiscal Update (PREFU). The first figure Joyce disputes is Labour’s estimate of its “Forecast New Operating Spending”.

He says that Labour has included its new spending only in the first year and failed to repeat the spending each year after that.

Thus, he argues, there is a $9.387 billion gap between what Labour has estimated and what it should actually be forecasting.

Certainly, Labour’s estimates look suspiciously low given that they are $4.775 billion lower than what the Government is proposing to spend and Labour is boasting about how it will spend more on health, education and police.

Labour’s economic consultants, BERL, says it boils down to an argument of where to put new spending in out years.

It says some Governments prefer to put the spending in “Forecast New Operating Spending” where the spending is known but not yet allocated (e.g. population adjustments for health and education funding.

“The Labour Party Fiscal Plan explicitly allocates these items to their relevant spending lines.

“This leaves the resulting ‘operating allowance’ as a clear measure of what is available for future spending for policies or initiatives currently unknown.

“In essence, the alleged ‘hole’ is a fiction arising from a disagreement over definitions.”

Understandably  Labour’s Finance spokesperson Grant Robertson was concerned about the headlines Joyce was getting with his claims and called an urgent media conference yesterday afternoon at Parliament.

“This is a desperate act from a flailing Finance Minister,” said Robertson.

No more clear to me.

BERL directory Ganesh Nana has just been interviewed on RNZ and stands by their figures (Labour used them to audit their numbers) and I’m still not much clearer.

25 Comments

  1. duperez

     /  September 5, 2017

    Does Steven want confusion? Ironic that in the dictionary ‘confusion’ appears before ‘desperation’.

  2. Blazer

     /  September 5, 2017

    BERL is apolitical,and specialise in this type of work.Joyce is a try hard with a woeful track record of crony capitalism/corporate welfare.

  3. Remember how liebor were claiming an underfunding of the health sector in spite of the increased funding?
    Liebor have form

    • Blazer

       /  September 5, 2017

      its actually the health sector complaining about….underfunding of the health sector…by gum,by George.

  4. robertguyton

     /  September 5, 2017

    Dishonest, deliberately deceptive and desperate.

  5. Patzcuaro

     /  September 5, 2017

    “I also have a comprehension fail – I have no idea who is right and who is wrong, but I suspect that both Joyce and Grant Robertson are fudging some numbers and descriptions.”

    Politicians fudging numbers to their benefit, unheard of.

    “Campaign ‘promises’ come thick and fast, and I think most people don’t expect all the spending to happen when whoever gets into government has to actually find the money to do things”

    Promises coming thick and fast as election day nears, unheard of.

    • Patzcuaro

       /  September 5, 2017

      This why I don’t pay a lot of attention to what goes on in the campaign in deciding by vote. I use something like vote compass to establish which parties have similar values to me, then look at the polls to fine tune my vote.

  6. PDB

     /  September 5, 2017

    Kiwiblog nails the issue well – they have been dishonest on what spending they will be making if in govt, as they have been dishonest in what taxes they will bring in post-election;

    “The core of the arguments is over what is called the operating allowance in the Budgets. It is the provision that Governments make for future spending increases (or tax cuts).

    Now these allowances are cumulative. If you increase say health spending by $800 million in year 1 you don’t take that away a year later. It gets added to the baseline.

    The current allowance is $1.8 billion a year. Over four years that represents $18 billion of extra expenditure.

    Now Labour has pre-allocated almost all of that in their fiscal plan. You might say, well that’s fine. But think about the reality. Do you imagine Labour in 2018, 2019 and 2020 is going to deliver a Budget speech saying hey there is no extra spending beyond what we announced in 2017? Grant Robertson’s Budget speech would be one minute long.

    Labour’s record is of huge increases in the operating allowances when they were in Government. From 2004 to 2007 it was around $3 billion a year and in 2008 it was a massive $7 billion (which is why we had a massive deficit when tax revenue dropped away).

    It simply is not credible to think they will spend three years in Government (if elected) and not agree to any extra spending proposals.”

    • PDB

       /  September 5, 2017

      I didn’t see your post highlighting Ardern making up policy on the spot last night (no to super age rise) or even this morning (Ardern will suddenly match Nationals 100,000 number even though Labour policy is for only 10% of the total)?

      Funny that.

  7. Zedd

     /  September 5, 2017

    more Natz smug rhetoric.. ‘We know best & everyone else is WRONG !’

    btw; remember this

    1) GST increased to 15%, after promising not to
    2) Panama papers, ‘hush hush’
    3) Flag Ref. FAILURE
    4) ‘its all the fault of ChCh Quakes, GFC & Previous Labour Govt’..

    After 9 years they still expect us to believe all their B-S

    oh yes.. they are always correct… NOT !! 🙂

  8. PDB

     /  September 5, 2017

    ANZ Chief Economist Cameron Bagrie

    “There’s no hole. But they don’t have a lot of money to play with in the 2019 and 2020 budgets. They’ve basically computed up front to what they are going to do for three years. That’s fine but the wheels of government still need to turn and be funded.”

    Essentially Labour have only allocated extra funding for Health and Education for the next three years and nothing for any other govt departments including DOC, defense, justice, police etc etc.

    Looks to be Robertson playing ‘semantics’ – the ‘hole’ in their budget is in not allowing for obvious expenses (outside of Health & Education) that will arise through pay increases, inflation, increasing the public service (as Labour ALWAYS do), population growth and things like equal pay agreements they want to roll out across govt departments. Joyce was wrong as to exactly where the hole was and perhaps even the size of it, but needless to say the hole still exists.

    This is where Labour’s (non) tax policy comes in to make up the shortfall. Things like CGT are nothing to do with dropping house values and all to do with increasing the tax take to cover this unstated govt expenditure.

    Newsroom: “Robertson said Labour would also be asking Government departments to find efficiencies to offset some of the inflation and population pressures on costs.”

    Robertson is being dishonest in suggesting cuts (efficiencies) will be made to govt services to allow for govt departments with no additional budget to get extra funding over the next three years – when have Labour ever cut govt spending? If they are going to make cuts to govt departments outside Health & Education who will be affected, and by how much?

    • robertguyton

       /  September 5, 2017

      Joyce – There’s a hole!
      Bagrie – There’s no hole.
      PDB – Labour baaaaaaaad!!

  9. Blazer

     /  September 5, 2017

    Bagrie…’There’s no hole. ‘…..BERL…no hole….holey ravioli,Billy& Steve telling ..lies…again!

  10. David

     /  September 5, 2017

    Epic defense Blazer but where is the allocation in their budget, outside of Health and Education, for any baseline cost increases and or any unusual items which inevitably come along.
    We are meant to believe Labour are planning a zero budget for their first term.

    • PDB

       /  September 5, 2017

      If extra Health & Education spend is approx. 50% of normal total operating allowance (as we are told) that leaves around $6 billion unaccounted for by Labour in operating allowance needed to run everything else outside of Health & Education.

      Robertson is suggesting ‘efficiencies’ (cuts) to some of those govt services will cover this $6 billion? Why hasn’t he been ‘transparent’ about these govt cuts earlier? and what govt services are being cut?

      • Gezza

         /  September 5, 2017

        Not necessarily PDB. In my 3 decades of years of experience in Government Departments “efficiencies” does not always mean cuts. It is sometimes politik-speak for expecting departments to do a lot more with no increase in financial allocation.

        • PDB

           /  September 5, 2017

          G – this is Labour we are talking about. The public service under Labour always gets more money/people to do less work.

  11. Corky

     /  September 5, 2017

    Labour now in trouble. Commentators are now asking how Labour will fund operating costs and budgets given the governments purse would be very lean.

  12. Zedd

     /  September 5, 2017

    yes.. just watched TV3 news; a whole swag of economists & financial wiz’ say “JOYCE STUFFED UP !!” 😀

    Sounds like Jacinda was correct after all; fear-mongering AGAIN by the know-it-all Natz !!!!!!
    oh dear……………………. :/

  13. patupaiarehe

     /  September 5, 2017

    “I went to Massey University, from 1981 to 1985 in Palmerston North. I did a vet intermediate and didn’t quite make the cut for vet school so I did a zoology degree for two years,” he told the magazine.

    “In the first three years I passed all my papers, I was very excited. And then I started in student radio. In my fourth year I was doing economics papers. I sat six and passed three.

    “In my fifth year I enrolled for 3 and passed none. By that time I was fully into radio.”

    University study was free for all students while Joyce was at Massey University.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11917623

    • Gezza

       /  September 5, 2017

      Seems like the taxpayers’ money spent on Steven’ University study was wasted?