Joyce v Robertson finance debate tonight

Stuff are streaming a finance debate from 7:00 pm between Grant Robertson and Steven Joyce. This may be challenging for Robertson in particular after today’s tax u-turn.

Ok, I’m getting sick of it already, same old arguments flying to and fro.

Robertson has just interrupted Joyce about five times in a row stopping him from talking. Waste of time.

Joyce is still claiming there is a fiscal hole, but seems to have changed his slant somewhat.

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.

Finance debate impressions

The finance debate in Queenstown last night was not broadcast on mainstream TV so I thought that the audience would be small, but going by the surge in hits here due to the debate there seems to have been a lot of interest.

Stuff Live have a lot of points from the debate.

My overall impressions:

Steven Joyce – a knowledgeable and competent performance generally but struggles to be convincing on housing issues, the government’s big problem. Probably gained and lost few votes.

Grant Robertson – also a competent enough performance, knows his lines well. His big problem was emphasised several times, whether Labour would introduce a Capital Gains Tax or not.

  • Robertson keeps saying Labour is being transparent by not saying what they will do.
  • He says they have been transparent since 2015 on waiting for a tax working group to ‘advise’ at some time in the future, but two years is ample time to have got advice from tax experts.
  • He admitted it will be a political decision.
  • He keeps using the example of National increasing GST after saying they wouldn’t, which suggests an intent to do something different to what they are saying.

James Shaw – a very competent performance from him but the quietest and least prominent. He comes across as knowledgeable and reasonable (whether you agree with his policies or not). He won’t have harmed the greens and may have helped. However the Greens would benefit from having a stronger more charismatic co-leader.

David Seymour – promoted ACT policies well, spoke strongly and well, joked, and kept needling Peters with some success. He usually got a good response from the crowd. He won’t have harmed ACT’s chances but has a battle improving them – his performance will have helped.

Winston Peters – but I think he came across far too doom and gloom and cranky. He preached doom for the country unless he gets to run it, but wouldn’t commit to what he might do on a number of things, including CGT and whether he would go left or right. A number of petty attacks, especially against Seymour. A blustering bullying bullshitting old school politician who contrasts a lot with Jacinda Ardern. I doubt he would have increased his fan base last night.

Debate reports

ODT: Tax main debate topic

On a capital gains tax, Mr Gower asked New Zealand First leader Winston Peters if he would stop the Labour Party introducing one during potential post-election negotiations between the two parties.

Mr Peters avoided the question, instead telling Labour finance spokesman Grant Robertson that he should tell the public before the election what rate the tax would be.

On an international tourist tax, Green Party leader James Shaw said his party had a different version to that announced by Labour on Monday, but he was confident any border levy up to about $50 a head would make no difference to tourist numbers.

Mr Peters said the Government should instead return the $1.5billion in annual GST receipts from tourism back to the regions where it was generated.

On the question of a bed tax, Finance Minister Mr Joyce said it was unnecessary because local councils, such as those in Queenstown Lakes and Auckland, effectively already had them in the form of targeted rates on businesses benefiting from tourism.

Mr Peters said he favoured the idea as a last resort if the Government failed to return more of its GST take to the regions, while Mr Shaw said he supported a recommendation for a national bed tax contained in last year’s McKinsey report, and also wanted campervans to be taxed.

But Mr Seymour said Act opposed bed taxes, and councils should instead be able to keep half the GST receipts on construction activity in their districts.

Newshub: Female candidates a sticking point at ASB Great Debate

ACT’s David Seymour, Labour’s Grant Robertson and Green’s James Shaw all amped up the popularity of their female politicians, at the end of the finance debate in Queenstown on Wednesday night.

Newshub:  David Seymour to Winston Peters on pension scandal: ‘Give them the file’

ACT Party leader David Seymour has called for New Zealand First leader Winston Peters to release his original form applying for the pension, after it was revealed he was receiving more than he was entitled to for seven years.

“I know that secret files don’t get out of the Government’s computers and into journalists’ inboxes by mistake,” Mr Seymour said at the ASB Great Debate in Queenstown on Wednesday night.

“One of the best things we could do is Winston, mate, just give them the file, so we can know it really was just a minor administrative error and we can all move on.”

It’s since emerged a number of National Party members were told about Mr Peters’ pension problems, as part of the ‘No Surprises’ policy. National finance spokesperson Steven Joyce, also at the debate, “categorically den[ied]” that a National member was involved in the leak.

Mr Peters argued they shouldn’t have been told at all, as it wasn’t relevant to the Government.

It wasn’t the only clash between Mr Seymour and Mr Peters during the debate, which saw another party representative joke the two were “like a couple of Chihuahuas”.

At one point Mr Peters scornfully pointed out Mr Seymour was talking big talk considering what his party was polling – 0.6 percent, according to the latest Newshub-Reid Research poll – and called him “a National party puppet”.

At another, Mr Seymour criticised Mr Peters’ many “bottom line”, his rules to working in a coalition with any party.

“He’s got more bottom lines than a 100-year-old elephant,” Mr Seymour cracked.

But Mr Peters was the one with the final laugh: “Mr Seymour, let me tell you: I will be there after the election and you won’t be.”

Stuff:  Winston Peters and David Seymour let it rip at debate

1 News: Watch: ‘Chinese sounding name argument’ hits a nerve in finance spokesmen’s debate

National’s Steven Joyce hit back when Labour’s Grant Robertson argued foreigners are speculating on NZ houses.

 

Election 2017 – Finance debate

Tonight there us an election finance debate in Queenstown from 7.00 – 8.30pm. The change of mind by one person to participate has increased media interest (it shouldn’t have made any difference). Those taking part:

  • Steven Joyce (National)
  • Grant Robertson (Labour)
  • James Shaw (Greens)
  • David Seymour (ACT)
  • Winston Peters (NZ First)

Topics: immigration, housing, tourism, the retirement age, inequality, employment and water.

Time: 7:00 p.m. to 8:30 p.m.

The debate will be broadcast with live video on the RadioLIVE and Newshub Facebook pages:

The ASB Great Debate is being hosted in Queenstown, with Newshub’s Patrick Gower as the MC.

There will be a catch-up audio broadcast on RadioLIVE beginning at 8:30pm.

Stuff will be live blogging and have a preview: Live: The big finance debate

We’re going to be live blogging through the night on this one and also bringing you some live stand-ups because what makes this particularly interesting tonight is that Peters is showing up. It’s understood Peters wasn’t going to be here because he refuses to debate Seymour but the leak of his superannuation overpayment has changed all that.

Being here gives Peters the opportunity to debate Joyce (remember Peters is blaming the National Party for leaking his overpayment and doesn’t believe Joyce that he didn’t know about it). So in short, expect some fireworks.

No doubt Seymour will do his best to wind up Peters over the course of the evening as well. They were on the same plane down to Queenstown and some of us on that flight were slightly alarmed about how that might turn out (for the record they didn’t speak to each other).


It was advertised to start at 7 pm. Live streaming started just after 7:10, to a peech by someone from the ASB. And the last 10 minutes the mayor of Queenstown has been speaking. He has just now finally stopped at 7:25 pm.

Starting with an opening statement from each MP.

James Shaw first. He says government should be solving the great problems of the time, and new Zealand has been run by grey administrators. He is giving a very general election speech, going through the three key Green policies. He got to the second, fixing a busted system of poverty. Then he ran out of time.

Winston Peters starts by saying how much the others in the campaign are throwing money around like 8 arm octopusses, without a hint of irony. He says we need a dramatic change of direction with economic and social change required.

Steven Joyce starts by positively promoting how well business is doing. He is targeting business but also mentions families. National’s main thrust. A fairly good speech for a business audience.

Grant Robertson talks about ‘the opportunity facing New Zealand”. “If we invest properly in our people…we will be able to seize those opportunities”. He claims New Zealand is in a “productivity recession”.  He pushes the three years free education not just for university but also trades.

David Seymour says we are heading towards bankruptcy and if the election doesn’t get here soon the country will run out of money. Not just financial bankruptcy but also intellectual bankruptcy. A few swipes at National. “We have to fix our RMA”. He’s got a few facts and figures. He claims to be 16 points ahead in the Epsom electorate so says a part vote won’t be wasted.

Then a diversion to the Super leak.

Joyce categorically denies any Minister leaked.

Shaw says he it is very said we are going through a series of scandals. Big cheer.

Robertson agrees and says that is not what this debate is about to bigger cheers.

Peters goers over all the claims he has made over the last few days. He has been allowed to hijack the finance debate. Major accusations. Polite shot applause. Nothing gained by letting him rehash.

Now something key to Queenstown – housing. But each MP is allowed to give a speech which is saying nothing much new.

Robertson carefully talks about cracking down on speculators to a Queenstown audience.

Peters gives his usual spiel, subdued applause.

Shaw gives a reasonable speech, promotes CGT, reasonable applause.

Seymour gives one of the strongest speeches and criticises National more than Labour, strong on reforming the RMA. He promotes half GST on construction to local government. His speech gets strong applause and laughter.

Peters then attacks Seymour saying he is giving a valedictory speech.

Robertson is asked to rule out CGT on businesses and farms – he defers to ‘getting the best advice possible’. Joyce slams him for not being up front, Robertson has a response ready – back to national raising GST, but that’s risky territory promoting the idea of a post election somersault.

Peters sounds very whiny about how bad things are, but he won’t commit to any policy positions. Asked about stopping Labour imposing a CGT and he says he was a Treasurer once.

Robertson again asked on CGT on businesses – he again avoids it. Audience groans.

Seymour and Peters going hammer and tongs again, Seymour digging on peters not deciding if he would stop a CGT or not, or whether he would go left or right, and saying businesses want certainty. Peters bites and rants and says Seymour won’t be back in Parliament after the election.

National’s response to PREFU

The National Party’s response to the Pre-election Fiscal Update:


The National Party will commit to implementing a further Family Incomes Package in the next term of government, subject to certain fiscal conditions being met.

“Our strong economy means the Budget 2017 Family Incomes Package will provide a positive boost to after-tax family incomes on 1 April of next year,” Finance Spokesperson Steven Joyce says.

“We are committed to delivering more for New Zealand families in the next term of government, subject to maintaining our strong plan which is allowing New Zealand companies to compete and succeed on the world stage.”

“The best indications from today’s PREFU announcement is that a similar sized Family Incomes Package to the current one would be possible from 2020, unless the economy performs better than expected,” Mr Joyce says.

The first Family Incomes Package will deliver an average of $26 a week to 1.34 million working families from 1 April 2018 through a combination of tax threshold changes, increases in Working for Families tax credits, and increases in the Accommodation Supplement. The Package will also provide an additional $13 a week per couple for 750,000 superannuitants.

Mr Joyce laid out a number of key conditions to be met for a second Family Incomes Package to proceed. These are:

  • Maintaining the Government’s debt targets of reducing net debt to 20 per cent of GDP by 2020 and 10-15 per cent of GDP by 2025
  • Meeting the Government’s spending commitments and forecasts for building infrastructure and improving public services laid out in Budget 2017
  • Funding any Family Incomes Package from cash surpluses and not from additional borrowings

The Pre-election Fiscal Update showed that cash surpluses beyond current and future budget spending commitments would commence from the 2020 financial year.

Mr Joyce says that a second Family Incomes Package would have a similar emphasis to the first package that commences 1 April next year.

“We would want to focus particularly on lifting the incomes of low to middle income families, look to simplify further the tax and transfer system so people can more easily see the link between their work and their earnings, and continue to lift the lower tax thresholds as incomes grow,” Mr Joyce says.

“The average wage is predicted to grow from $58,900 at March 2017 to $65,700 over the next four years. It is very important that we aren’t taxing middle income earners at 30 cents in the dollar. ”

“National has shown it can lift incomes and invest in public services and infrastructure. Under our responsible programme we can continue to do both.”

Mr Joyce said that the ability to have an ongoing conversation about boosting family incomes is only possible because of New Zealand’s strong and growing economy.

“Whether it’s investing in better public services, investing in infrastructure, or boosting family incomes, every budget initiative is only possible because our small and medium-sized businesses operate in an economy that allows them to compete successfully on the world stage.

“It’s crucially important that keep encouraging them to compete and succeed and not weigh them down with poorly thought through new taxes and polices that would stall the economy and stunt growth,” Mr Joyce says.

Pre-Election Fiscal Update 2017

Media release from Minister of Finance Steven Joyce on the PREFU.


A slightly softer growth forecast is the main feature of largely unchanged Pre-election Fiscal Update compared to the Budget forecasts three months ago, Finance Minister Steven Joyce says.

“The softer growth New Zealand has experienced in the six months to March flows through to a lower starting point in the 2017/2018 year,” Mr Joyce says.

“The net effect is that growth is slightly lower through the forecast period – averaging 3.0 per cent over the next four years rather than the 3.1 per cent predicted in the Budget.

“The other notable change is that Treasury expects the labour market to be tighter over the next four years, with lower unemployment and stronger nominal and real wage growth.

“Treasury forecasts unemployment to drop to 4.3 per cent by June 2020 and for the average annual wage to increase from $58,900 at March 2017 to $65,700 by 2021, a $1300 per annum improvement on the Budget forecast.”

Other changes to the forecasts include:

A smaller balance of payments deficit across the forecast horizon
Lower CPI inflation, especially in the 2017/18 year
Net government debt falling below 20 per cent of GDP in the 2020/21 year. New Zealand Superannuation Fund contributions remain scheduled to resume in that year.
Most other elements of the forecast remain very similar to budget predictions, with nominal GDP, migration levels and budget surpluses largely unchanged, although the timing of budget surpluses has changed.

“The Budget surplus is expected to be $2.1 billion higher in the year just finished,” Mr Joyce says. “However Treasury expects the lower growth forecast to result in surpluses that are $1.8 billion lower over the next four years. The net effect is about even.

“The Government’s strong fiscal management means that New Zealand is one of the few OECD countries to be posting fiscal surpluses. This hard-won position is underpinning the Government’s strong economic plan which is delivering jobs and steady real wage growth for New Zealanders.”

The large infrastructure spend committed to in Budget 2017 means that residual cash remains broadly in balance until the 2019/20 financial year.

“There is limited room for any additional expenditure beyond what is already proposed in these forecasts until the 2020 financial year when there is expected to be a $1.7 billion cash surplus.  Anything significant in the meantime would involve more borrowing or raising additional tax revenues,” Mr Joyce says.

The PREFU forecasts include the following budget spending commitments:

  • $7 billion in additional operating expenditure over four years in Budget 2017 which commenced on 1 July 2017.
  • $1.7 billion per annum ($6.8 billion over four years) operating allowance to be allocated for Budget 2018, increasing by 2 per cent each subsequent budget.
  • $32.5 billion in total capital infrastructure investment between 1 July 2018 and 30 June 2021.
  • $6.5 billion over four years ($2 billion per annum in out years) for the         Government’s Family Incomes package commencing on 1 April 2018.

“Government annual operating expenditure in these forecasts increases from $77 billion to $90 billion over the next four years, which is sufficient for significant ongoing improvement in the provision of public services,” Mr Joyce says.

Labour’s capital gains tax plans

Labour’s campaign plans for a Capital Gains Tax seems to be to say how bad a lack of a CGT is, but not admit the intention to introduce one once they are leading government.

Housing spokesperson Phil Twyford on The Nation:

Lisa Owen: So is it Labour’s goal to get it down to that – about four times?

Phil Twyford: We want to stabilise the housing market and stop these ridiculous, year on year, capital gains that have made housing unaffordable for a whole generation of young Kiwis.

Lisa Owen: But in essence, you’re going to drop the value of houses, if you want them to be four times the price of the average income.

Phil Twyford: Well, we’re going to build through KiwiBuild. We’re going to 100,000 affordable homes.

Lisa Owen: I want to come to KiwiBuild in a moment. I just want to talk to you about the price.

Phil Twyford: That will make housing affordable for young Kiwi families. That’s our policy.

Lisa Owen: Well, do you need a capital gains tax to get that threshold down to where you would want it to be?

Phil Twyford: Well, we are going to shift the goalposts by taxing speculators. So under our plan, if a speculator sells within five years—

Lisa Owen: Yeah, that’s the bright-line. I am asking you about capital gains – a bit of a sensitive issue for Labour.

Phil Twyford: Not a sensitive issue at all.

Lisa Owen: So do you think we need a capital gains—?

Phil Twyford: If a speculator sells a rental property within five years, they will pay income tax on the capital gain.

Twyford keeps referring to taxing speculators. He must know that speculators and property developers who by and sell property with the intention of making a capital gain are taxed now.

From Inland Revenue “If you’re selling a residential property and one of your intentions when you bought the property was to sell it, then you’ll have tax to pay on any profit you make from its resale.” – http://www.ird.govt.nz/property/property-selling/selling-property.html

The bright line test (currently two years, Labour say they will increase it to five years) just makes it easier for IRD to enforce taxing capital gains.

Lisa Owen: Yeah, we know about the bright-line. What we don’t know about is a capital gains tax. So do you think that you need a capital gains tax to get house prices down to the ratios that you think are right?

Phil Twyford: Well, we think comprehensive tax reform is overdue in this country, not only to tilt the playing field away from real estate speculation

Lisa Owen: Last chance – capital gains tax?

Amy Adams: Answer the question, Phil.

Phil Twyford: In the first three years, we’re going to do a tax working group that will redesign the entire tax system.

So Labour are campaigning on “redesign the entire tax system” but generally avoid saying whether their intention is to include a more comprehensive capital gains tax.

The lack of pre-election clarity on Labour’s CGT intentions continued on Q+A yesterday. Grant Robertson repeated how ‘transparent’ Labour has been, and said Labour “won’t shy away from hard decisions”, but refused to be transparent about their intended decisions on a CGT.

Grant Robertson: It’s also about cracking down on speculators. We have to make sure that if someone’s flipping their third or fourth property within five years of of buying it then they’ll pay tax on that.

I would be very surprised if that example wasn’t already covered by current tax law and  IRD now. See Property tax decision tree – Is your property sale taxable? “To work out if the property you are buying or selling is taxable”.

Grant Robertson: “We’re saying that we’ve got to take some action both in terms of cracking down on speculators, building more affordable homes, and we will get better balance in our housing market.

Corin Dann: A capital gains tax. You need to clear up for us what exactly is the position here, because it’s, what’s going? Is there going to be a capital gains tax within side the next three years if you’re elected.

Grant Robertson: So we’ve been absolutely clear. We’re going to this election with a policy that says that if you sell off an investment property, not your family home, within five years, you will pay tax on that. That’s building on a form of capital gains tax that Steven’s government’s introduced.

What we’ve then said, and I’ve been saying since 2015, is that we will have a working group that will look at getting a better balance into our tax system, between how we tax assets, and how we tax income.

Labour wants ‘a better balance’ – that is, a change.

Corin Dann: Would you seek a mandate for that capital gains tax?

Grant Robertson: Just as the working group that Steven had in 2010, didn’t go back to the election and then increased GST, which he’d campaigned against, we will look at the outcomes of that.

It seems clear that Labour has intentions to introduce a more comprehensive CGT if elected (if the working group they appoint recommends it), before the 2020 election.

Corin Dann: That’s a change from Andrew Little.

Grant Robertson: It is a change from Andrew Little.

A significant change. In 2015 Little told The Nation: “Well, we won’t introduce it in our first term, and we won’t introduce any change that significant to the tax system, any material change to the tax system, without going to the people first and getting a mandate to do so.”

Grant Robertson: Let me be absolutely clear about this. We have a housing crisis. We’re not going to sit on our hands for years, the first term of government and not do anything about that. I want the experts to talk to us about that.

Steven, is it right at the moment that someone who goes to work every day, pays tax on every cent of their income, that someone who flips a property after owning it for three years doesn’t tax on that property?

Steven Joyce: Well actually…that’s actually taxed now. So there’s the news for you Grant, if someone actually buys a house, gets an income…

Grant Robertson: Why did you put a bright line test on it then?

See Govt to tighten tax on capital gains (RNZ)  on the budget announced in May- “Capital gains on residential properties bought and sold within two years will soon be taxed by the Government. Unlike the current regime, the new test will not rely on proving a seller’s intent to make a capital gain.”

Steven Joyce: That’s the absolute minimum, under the New Zealand law right now if you’re buying and selling houses for profit you must pay tax.

You know that’s not happening…

Steven Joyce: Well actually it is happening now, that’s the truth, if you go and have a look at Inland Revenue that’s the case.

But coming back to your point. So you’re saying a capital gains tax, is that on unearned capital gains? So when the value of somebody’s business goes up, or somebody’s farm goes up, this us why you don’t want to talk about it…

Grant Robertson: This is why we’re doing a working group.

Steven Joyce: I get that. So that’s why you don’t want to talk about it.

Grant Robertson: This is why…because we’re not going to shy away from the tough challenges.

Steven Joyce: So it could be on the business.

Grant Robertson: We’ve been absolutely clear. If we ever put a capital gains tax on it would not apply to the family home, but right around the world people do this to stop speculators in the housing market.

Turning to Joyce.

Corin Dann: Is it an equity issue, is it a fairness issue? People have made an enormous amount on capital, and income earners, the vast bulk of the population who are earning wages are not seeing anywhere near the gains of capital.

Steven Joyce: In terms of capital gains tax the answer to that question is it depends on what it is. If it’s an unearned capital gain, which is actually what a comprehensive capital gains tax is, ie if your house price goes up in value the tax man sends you a bill, or if it’s your business goes up in value the Tax man sends you a bill, or if your farm goes up in value the tax man sends you, that’s what a capital gains tax is about, that you get taxed on capital gains.

Corin Dann: So how is it that the OECD, the IMF, Treasury, the Reserve Bank, just about every mainstream economic organisation you can think of says New Zealand has needed a capital gains tax for years.

Steven Joyce: Yeah but they want it on the family home. That’s what they want.These are the theoreticians saying tax the family home, and tax them on the unearned capital gain every year, so you should get a bill at the end of the year, if your house has gone up a hundred thousand dollars you should get a bill for thirty thousand dollars or whatever your tax rate is for that unearned capital gain.

That’s never going to fly, Grant’s acknowledged that, but what he isn’t telling people…

Grant Robertson: exactly because we’re not proposing that.

Even if Labour’s working group recommends it.

Steven Joyce: …he’s not telling people whether it would go on their business or on their farm or on their second house…

Corin Dann: Well lets clear that up because it will come up.

Grant Robertson: What we want to do is to address the fact that we’ve got a huge imbalance in our tax system between hardworking people who go to work every day and pay their taxes and people who are speculating in the property market who don’t. We’re going to get the experts in. We’ve been transparent about this…

Steven Joyce: Have you ruled out small businesses?

Steven Joyce: Are you going to rule out small businesses?

Grant Robertson: …we’ve been transparent about this from the very beginning. In 2015 I announced that we were going to be having this working group. What we’re not prepared to do is shy away from hard issues, and that’s what Steven and his Government have done for nine years.

Steven Joyce: Are you saying that you won’t be taxing small businesses on their capital gains?

Grant Robertson: We are focussed on the speculation in the housing market.

Steven Joyce: Is that saying you won’t…

Grant Robertson: We’re focussed…because I actually want to listen to the experts

Steven Joyce: …so you won’t do farms?

Grant Robertson: I don’t want to shy away from these tough issues…

Steven Joyce: …will you do capital gains on farms?

Grant Robertson: This is about speculation in the housing market.

Steven Joyce: No I don’t think it is, because he’s refusing to rule it out.

 

 

Robertson keeps pushing for tax on property speculation, which is already taxable, but keeps refusing to say whether they will widen tax to capital gains on businesses.

Despite Roberton’s assertions that Labour is being transparent and won’t shy away from ‘the hard issues they are very shy about saying what sort of capital gains tax they want to introduce next term if they are in government.

I expect this to keep coming up through the campaign. Jacinda Ardern will need to be well prepared on this or Bill English will hammer her and Labour on CGT.