Labour’s promise to reopen Gisborne-Napier rail line

Labour’s Phil Twyford has issued a statement on the Gisborne-Napier rail line that has been cut off by a major slip.

Labour pledges to re-open rail line

Labour in government will re-open the Gisborne-Napier rail line due to be closed under National, the party’s Transport spokesperson Phil Twyford says.

A clear promise to reopen the line.

“KiwiRail’s business case for the closure is utterly inadequate and falls way short of a comprehensive cost-benefit analysis, something a Labour government would carry out and which I am confident would justify the line’s re-opening,” Phil Twyford said.

A promise based on inadequate information and prior to a comprehensive cost-benefit analysis.  Labour have pledged to reopen the line regardless of what costs and benefits are determined.

“The line should be reinstated now for $4 million. It will never be cheaper. The longer you leave it, the more expensive it will be to re-open it.

It won’t be reinstated now. It will take time for Labour to do a comprehensive cost-benefit analysis, so even if they get back into government after the 2014 election by the time they reopen it the cost will be an unknown amount higher.

And if Labour do lead the next Government they will be in a coalition witgh Greens, plus possibly NZ First and the Maori Party. So they would need to get possibly several parties agree to reopen the line.

So this isn’t a pledge that can be taken as a genuine promise.

Mr Twyford said the BERL report noted annual freight volumes only needed to reach 180-200,000 tonnes per year for the line to be profitable. Current volumes of 44,000 tonnes showed that growth from local horticulture and forestry would bring the target within reach and this would justify future re-opening.

Current volumes are about a quarter what the BERL report says would be required to make the line profitable. That means volumes would have to increase FOUR TIMES for it to be profitable.

Tywford either thinks volumes can be quadrupled (he doesn’t say how) or he doesn’t think it is necessary for the line to be profitable – that means it would be a substantially taxpayer subsidised rail link, on top of the cost of reopening the line.

I’ll ask Phil Twyford to clarify.

Something “LABOUR’S FAIRER TAX SYSTEM EXPLAINED…” doesn’t explain

Are Labour’s CGT medium term risks understated? They are at least sketchy.

Labour has today revealed a bold plan to stop our valuable assets being flogged off overseas, give hard-working Kiwis a tax break, pay off the country’s ballooning debt and grow our economy.

The document mentions paying off debt a number of times. Labour acknowledge that ther proposal will require more borrowing in the short term (but they don’t mention this in the document).

Q&A 5. How much revenue is CGT forecast to raise?
Our policy has been fully costed by independent experts BERL. They estimate it will raise $78 million in the first year, rising to $2.27 billion in year 10. Over 15 years, it will raise about $26 billion in total. The amount raised will fluctuate depending on economic cycle.

It’s obvious that $78m in the first year won’t cover all the tax cuts (PAYE and GST), and CGT won’t cover them for a few years (they don’t say for how long). They say that the tax rate increase to 39% will approximately cover taking GST off fruit and veg. Before they increase tax take they will need to get more CGT that they have given up in no tax on the first $5k.

The estimated cost of the free-zone of $5,000 at full implementation is around $1.3 billion a year. Labour will pay for this with the CGT and by clamping down on tax avoidance.

On their figures, after ten years of CGT they will only be getting $1b in extra tax revenue (CBT less first $5k free). It could take five years or more (from 2014) before they increase their tax take.

How much extra borrowing will be required to fund their tax cuts? Labour have been scathing of National borrowing to pay for tax cuts.

If everything doesn’t go according to plan?

What if, in the first five or ten years, before the revenue from the CGT has grown enough to cover tax cuts, we have another recession? That could severely impact on CGT projections, meaning even more borrowing on top of the additioanl Labour borrowing.

It’s a high risk in the medium term.

Source: Fairer Tax Explained (large DOC download)