Now a $20bn hole accusation

Steven Joyce’s accusation of a $11 billion ‘fiscal hole’ livened up campaign debate. he was widely criticised but didn’t back down.

Now the Government is reversing the hole blame.

RNZ: Govt accuses National of leaving $20bn hole

The government has accused National of leaving it with a $20 billion bill which has not specifically been included in future budgets.

Finance Minister Grant Robertson told Parliament this afternoon that National failed to put aside the money for its promised big ticket Defence Force upgrade.

“As one commentator has said, the National Government never accurately costed it and made no provision in any of its long-term forecasts to pay for it.

“This is far from providing certainty.”

Government officials are now reviewing the programme to look for better value for money, he said.

“This is the responsible thing to do given the mess left by the previous government,” Mr Robertson said.

Robertson seems to be preparing the ground for either a cut back to spending on the Defence Force upgrade, or justifying larger than promised spending and deficits. Or both.

But his predecessor Steven Joyce denied National had left behind a fiscal hole.

He said the $20 billion of promised spending stretched over 15 years and could be paid for out of nearly $110 billion of unallocated capital funding over that same time period.

“There’s plenty of room in the long term forecasts.”

Mr Joyce said it was a desperate ploy to divert attention from Mr Robertson’s plan to ramp up debt.

“I think the Labour Party might be tilting at windmills to suggest this somehow leaves a fiscal hole.”

Expect this fiscal punching and counter punching to continue, but the crunch will come when Robertson presents his first budget next year. Then we should see the actual fiscal situation as affected by new Government policies and spending, for the short term at least

Ardern and English post debate comments

Bill English and Jacinda Ardern were interviewed after their final debate of the campaign.

She wasn’t drilled about Labour policy, just mainly asked about English’s comments on various things, and how she has been attacked, and the nature of the campaign.

Just one Labour policy issue was raised, on renegotiating the trade agreement with South Korea.

TVNZ take:

Ironically English promoted a lot more policy ‘ideas’ than Ardern in his stand-up.

English responds to a number of questions about the alleged fiscal hole. English sticks to claiming that ‘everyone’ agrees that there is ‘a hole’ and is sticking to his/National’s estimate of the size of the ‘hole’.

He says he backs his experience of having delivered eight budgets in making his claims.

Also asked about Nationals income tax claims. English is still claiming Labour will raise income tax. He has an argument with journalists about semantics. English rewords it as Labour needing to pass legislation that will change/raise the level of income tax . They give up and moved on.

Also covered was the prospects of coalition deals with Peters. Nothing new came out of it.

The interview with English was much longer (11 minutes) and more substantial than Ardern’s (3 minutes). English was still in campaign mode.

He said that if returned to government National would not be in a position next week to decide on an appeal of the Teina Pora compensation.

Robertson ‘best case’, Joyce ‘worst case’

It looks like the fiscal hole issue will continue to get a hammering today. Patrick Smellie says that it is a conflict between best case and worst case scenarios, with reality likely to be somewhere in between.

It has highlighted more than a hint of desperation in the National campaign, which is being led by Steven Joyce, but also shows that Grant Robertson doesn’t have a lot of money to play with.

Pattrick Smellie: It’s arithmetic, stupid!

Election campaigns mixed with forecasts of the future are a dangerous combination.

Now that the dust is settling, a somewhat banal conclusion is emerging: they’re both wrong, and the truth is likely to be somewhere in the middle.

Labour’s numbers are nothing like as compromised or wrong as Joyce claimed, but it requires some heroic assumptions about Labour’s ability to control all spending outside health and education to believe the numbers it’s published.

In other words, Joyce has claimed a worst case scenario. Robertson is claiming best case.

On that basis, it’s entirely reasonable to split the difference in the interests of trying to explain what’s at stake here, and to conclude that Labour’s forecasts will turn out to be anything between $4b and $6b short of its published fiscal plan, should it form a government after September 23.

If Labour turns out to be a spendthrift government, then Joyce’s alleged $11.7b miscalculation could prove to be too little.

Alternatively, if Labour turns out to be an unexpectedly tight-fisted government in a time of endless forecast Budget surpluses, its spending under-estimation might be far less than my punt of a $4b to $6b shortfall.

However, it is hardly unreasonable to expect Labour to end up spending more than forecast to stop the ship of state from springing politically unpalatable leaks. Public sector wage pressure, demographic demands on other public services and even the small amounts of inflation still pulsing through the economy will severely test the fiscal track that Labour has outlined.

That’s still a long way short of what Joyce claimed, but a problem for Labour’s fiscal credibility nonetheless.

So it looks like Joyce has sacrificed his own economic credibility, deliberately or not, in order to put the spotlight on Labour’s money manipulations.

However, it’s also likely to be a problem that a returned National-led government would face. National has already pledged about $400 million a year of the $1.8b a year it has available for new initiatives in each of the next four years, and on Joyce’s own admission, health and education routinely take the “lion’s share” of those new spending buckets.

In other words, National has probably just about run out of extra money to spend too.

That’s only a real problem for national if they want to keep throwing around election bribes. If they had stuck to ‘steady as we go’ they would be on stronger ground, relatively.

If Joyce now comes out and concedes he over-egged Labour’s fiscal pudding he could reduce the damage on National, leaving the spotlight on Robertson’s fiscal tightrope.

But if Joyce quadruples down he may drag National down with him.

Here is Joyce explaining his claims on RNZ yesterday:

Looks like Joyce stuffed up

Steven Joyce versus Grant Robertson plus a number of economists.

Looks bad for Joyce, for national, and for Bill English.

And by continuing to claim there is a hole they have kept digging a credibility hole of their own.

Economists have pointed out that Labour have left themselves with little economic room to manoeuvre, but their numbers largely stack up.

Joyce has left himself with no easy way out of this. A backfire, big time.

Not only does this look bad for National, it helps boost Robertson’s and Labour’s economic credibility.

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.

Fiscal feud

Steven Joyce claimed their was an $11b ‘hole’ in Labour’s fiscal policy today, but Grant Robertson claimed it was a diversionary attack and his numbers stacked up.

Joyce:

$11.7b hole in Labour’s fiscal numbers

The Labour Party has an $11.7 billion hole in its fiscal plan that blows its debt out and breaks its own budget responsibility pledge, National’s Finance spokesperson Steven Joyce says.

“These are significant errors that raise questions about Labour’s whole spending approach and their fiscal competence,” Mr Joyce says. “Their spending numbers were already high and this makes them a lot worse.

“Labour’s recipe would lead to more debt, higher interest rates and a slower economy – not to mention the host of extra and unexplained taxes they would impose on households and businesses.

“All of this would cost jobs and eat into family budgets.”

The five errors are as follows, over four years:

  • Failing to roll out their operating allowances for each year into subsequent years ($9.4 billion).
  • Failing to allow for any increase in paid parental leave in their Family Incomes package despite saying they have included it ($567 million).
  • Counting additional BEPs multinational tax revenue when Treasury has already counted it in the PREFU update ($902 million).
  • Only including costs of their Family Package from 1 July 2018 when they said it would begin on 1 April 2018 ($289 million).
  • Further finance costs associated with extra borrowing ($580 million).

“The biggest error is their failure to continue each year’s operating allowances for additional expenditure into subsequent years. When operating expenditure is added, for example an increase in wages for police, that expenditure continues into following years. Labour’s operating allowances don’t allow for that.

“Once corrected, Labour’s spending plans result in net debt increasing by nearly $20 billion from current levels of $60.6 billion to $79.3 billion over four years.

“Labour was already increasing debt by $7 billion from current levels by their own admission, but this takes it to nearly $20 billion. This would be an irresponsible level of debt increase at this stage of the economic cycle. New Zealand should be reducing debt now, not increasing it, so we are ready for the next rainy day.

“They also would break their fiscal responsibility rules as net debt would not fall below 23.5 per cent of GDP by the end of the forecast period, in fact it would be higher than it is now, and get nowhere near their own plan to reduce debt to 20 per cent of GDP by 2022.

“That level of spending and increased debt can only lead to one thing – higher interest rates for Kiwi mortgage holders.

“Labour’s true spending plans as revealed in this analysis confirms that behind the leadership change we are dealing with the same old irresponsible tax, borrow and spend Labour Party.

“Labour needs to withdraw its fiscal plan and re-work its proposals.”

Robertson:

Joyce gets it wrong on Labour’s Fiscal Plan

Labour’s Fiscal Plan is robust, the numbers are correct and we stand by them despite the desperate and disingenuous digging from an out-the-door Finance Minister, says Labour’s Finance spokesperson Grant Robertson.

“Steven Joyce has embarrassed himself. This is a desperate, cynical stunt to create a diversion. Our plan has been approved by BERL and they continue to stand by this plan. We stand by this plan. These numbers are robust and I refute Joyce’s allegations.

“Our operating expenses are above the line and are clearly stated. For health and education, which represent the lion’s share within any year’s operating allowance, there is around $6.7b for health, and around $1.8b for education, both clearly stated in our Fiscal Plan.

“This is a desperate act from a flailing Finance Minister. He knows that we have accounted for our expenditure in health and education going out into future years, He’s being disingenuous and trying to mislead the New Zealand public. I’m sure they’ll see through it.

“We have quite clearly put in the spending requirements to meet the promises we have made. Our fiscal plan adds up. We are absolutely clear that we have the money to meet the commitments that we’ve made.

“I challenge Mr Joyce. Is he going to fund health and education for the cost pressures of inflation and demographic changes? He needs to be up front with New Zealanders, because that’s what we’ve done.

“Labour’s Fiscal Plan details funding for housing, health, education, transport, police and other priorities, while running surpluses and paying down debt. We can afford to do this because we have put those priorities ahead of National’s plan for tax cuts that deliver $400m a year to the top 10 per cent.

“National has serious questions to answer about their own fiscals – they haven’t allowed $8.5b for cost pressures in health and education. They haven’t funded their GP policy properly. They haven’t said where the money for their $11b of capital spending will come from.

“We’ve been transparent, which is something that the National Party has never been. We’ve produced a detailed fiscal plan, they’ve produced a double-sided piece of A4 that lists their campaign promises,” says Grant Robertson.

Response to Steven Joyce’s claims:

Failing to roll out their operating allowances for each year into subsequent years ($9.4b)

  • National have made a simple mistake – Labour has put the money that National hides within the operating allowance in the accounts. Doing it this way is more transparent as New Zealanders can see how much more money will be going into the system.
  • National on the other hand has not done this, In 2018/19 National will have to provide $650m for inflation in health and education alone. Once you take this from their operating allowance they have less available than Labour.

Failing to allow for any increase in Paid Parental Leave in their family incomes package despite saying they have included it ($567m)

  • The money for this is incorporated within the Families Package Line within the Fiscal Plan. This has always been Labour’s position – and we have led the debate on PPL for the past three years.
  • The costing is based upon the MBIE advice to Ministers that was provided to the Select Committee that examined Sue Moroney’s original Bill.

Counting additional BEPS multinational tax revenue when Treasury has already counted it in the PREFU update ($902m)

  • Page 202 of Vote Revenue shows that for every dollar spent on investigations $7 of discrepancies are found. This has been a consistent message from IRD in select committees and in their publications. We are going to provide them with $30m of additional revenue for investigation activities so that they properly assess multinationals’ taxation statements.

Only including costs of their Family Package from 1 July 2018 when they said it would begin on 1st April 2018 ($289m)

  • Both versions of the Fiscal Plan have been clear that the Families Package will commence on the 1st July 2018. We will need to pass legislation to make this happen and to undo the $400m tax cut for the top 10 per cent of earners.
  • The website of the Labour Party did have a statement saying under the Families Package when it was first announced that it would be 1 April. But in terms of the numbers in the fiscal plan they have not changed at all, it has always been 1 July 2018.

Further finance costs associated with extra borrowing ($580m)

  • This is an erroneous figure. If indeed we were missing $11b in spending then we would need to find that finance cost. However, as is clear from P.14 of the Fiscal Plan we have accounted for the additional finance costs that our fully costed programme would deliver (see line “additional finance costs”).

I have no idea who is right.

It’s unlikely to be a coincidence there is a leaders debate tonight. We may get an idea who is confident about their calculations/assertions by seeing who avoids this and who pushes it tonight.