Nicola Willis said National would work to pay down pandemic-era debt and rebalance the budget, if elected, but warned it wouldn’t happen overnight.
The party’s finance spokesperson made the remarks in a speech to the Auckland Business Chamber on Tuesday, which set the scene for a full fiscal plan due later in the week.
Willis also admitted, in a recent debate, that National would not achieve an operating surplus until 2027, the same year as currently forecast in the pre-election update.
She said this was still sooner than Labour as she didn’t believe Grant Robertson would actually be able to stick to the future operating allowances he had set.
Much of her speech on Tuesday appeared to be lowering expectations for what was possible in the soon-to-be-delivered fiscal plan.
“To understand the task that lies ahead of us you must first understand the size of the hole Labour has dug for us,” she said.
After significant spending during-and-after the pandemic, the Government is on track to run seven consecutive deficits — one year longer than National did between 2008 and 2014.
Willis said “big-spending budgets” had lifted net debt from $5.4 billion in 2019 to $73 billion today, with forecasts for it to rise to $100 billion by 2025.
“Labour don’t like to talk about any of this. When they do, they blame Covid,” she said.
“Don’t get me wrong — Covid has definitely contributed to New Zealand’s ropey books. But there’s more to it than just Covid.”
A total of $70.4 billion was allocated to Covid-19 initiatives, including an initial package of $12.1 billion and then $58.4 billion Covid Response and Recovery Fund.
Almost $20 billion was spent on the wage subsidy alone, but the money also covered health costs, managed isolation facilities, and billions in direct business support.
Other Government spending has added to total debt levels, but the pandemic has been the largest contributor by a significant margin.
For reference, National’s 2020 fiscal plan was to get net core Crown debt to $172 billion (50.6% of GDP) this year, which would’ve been $10 billion less than was forecast at the time.
Net core Crown debt was actually $155 billion, or 39.5%, in 2023, according to the unaudited result in Treasury’s pre-election fiscal update.
But, even assuming National kept debt $10 billion below this final result, net core Crown debt would still have more than doubled since 2019 — due to the pandemic.
Baked the books
In her speech, Willis said Labour had “baked in much higher levels” of Government spending even after the wage subsidies had ended.
She said the Government would be spending $30 billion more next year than it was in 2020 and 80% more than it was in 2017, or $1 billion extra each week.
These numbers are accurate but they are nominal figures, meaning they don’t account for inflation, a larger economy, or population growth.
Core Crown expenses were 34.3% of gross domestic product in 2020 and will be 33.5% next year. This is the same level of spending that occurred after the global financial crisis and the Christchurch earthquakes.
However, it is much higher than the 28% level that spending was at in the years prior to covid.
Willis said the pre-election fiscal update showed the Government wouldn’t get back under 30% ever again, despite setting that as a target in its 2017 election manifesto.
She said Labour would exceed its spending promises if reelected and risk triggering a “debt spiral”.
“Labour will soon present their fiscal plan. Some media and commentators will be tempted to take it seriously and to compare it with ours. But the truth is it won’t be worth the paper it’s written on”.
Willis said National’s fiscal plan would reduce taxes, fund public services and infrastructure, while still getting the books back in order.
However, she warned it wouldn’t be possible to balance the budget or pay off the pandemic debt during the next Parliamentary term.
“National knows that New Zealanders don’t expect us to fix Labour’s mess in year one. But we must chart a better way forward and use the next three years to exert more control over spending and debt”.
She said New Zealanders deserve tax relief, but that schools and hospitals also needed more funding. Future budgets would have to make room for both of these priorities.
National’s tax plan identifies roughly $14 billion in new revenue and cost savings across four years that will be used to lower income and property taxes.
It is designed to not worsen the debt, but it does prioritise tax cuts over reducing debt or balancing the budget.
Some economists have also warned revenue from the foreign buyers tax could fall short by $500 million, which would add to the debt or prompt extra spending cuts.
74 Comments
She's going to lower taxes, get the books in shape, and deliver?
All based on a total fake - the idea that you can tax some other people who aren't us?
Bollocks.
Only the stupid...
Oh - and it wasn't Labour - it was the Limits to Growth, coming to a place near you, now.
Labour has a plan that's "...part of our discussion".
"Hipkins said Labour's policy for this election was very clear..." same as last elections then...Co government, 3/10 Waters, unelected local authority representation, racist healthcare...
Countries that have run zero fiscal surpluses since 2005 (or well before) are listed below. Our obsession with returning to surplus is next level stupid. We run consistent trade deficits because we don't make anything particularly valuable here, so for Govt to run a surplus, the private sector (us) has to go further into debt (or hand over their savings to the Crown). We used to understand this. Indeed, it's why National used to argue against running surpluses!
- USA
- UK
- Italy
- Spain
- Mexico
- Portugal
- Israel
- Hungary
- Japan
- Etc...
So even National is admitting their "we'll save you" nonsense was, in actual fact, just that, nonsense?
Why am I not surprised?
So their budget is just as pie in the sky as Act's, NZ First's and most of the minor parties.
Thus far, the only believable budgets are from the Greens, TOP, and (sadly) Labour.
But if we're looking for ingenuity and vision we're down to TOP and the Greens.
Well that got a lot easier.
Agreed. TOPs policy around Affordable Housing (including LVT) is much more palatable: https://www.top.org.nz/affordable-housing
Now, let's be crystal clear how National will reduce the debt. It's actually a very easy 5-Step Plan....
- You stop using the power of the Govt purse to finance major infrastructure projects
- You offer sweet PPP deals to your investor buddies - "chunk in a few billion Blackrock and we'll give you premium returns longtime".
- Keep the net debt definition the same so that the PPP liability doesn't register as Crown debt (just a call on future revenue budgets)
- Stage the PPP payments so that they start small and don't pull too hard on the revenue budget for the first few years.
- Hope nobody notices as more and more of the revenue budget flows to overseas hedge funds and investors.
I don't think they'll need to. People do not appreciate (yet) just how austere the most recent Labour budget was. The National plan will be to bank Labour's considerable (real terms) savings over the next few years, slash the public service (starting with the already announced 8.5% cut to 'back office'), outsource public services, hold benefit payments down, and hope that their 'off the books borrowing' for major infrastructure projects gives the economy a boost and gets the tax take back on the rise.
Labour's big miss this election was going all cautious on infrastructure spending - they should have laid out a 10 year plan of new infrastructure, solar, cheaper elec bills, managed retreat etc. Everyone knows it needs doing.
Fascinating read, thanks.
"The cash payments will be around $125 million per year, starting only when the project is finished and open for use, and lasting for 25 years. This stream of cash payments brought back to today’s dollars is $850 million and is the “net present cost”.
125x25= $3.125 Billion
In a past life I used to do npv calcs to justify business cases: all about selecting the right discount rate. We always had to have the raw payback period shown as a sensecheck.
Solar - you DO represent a GND mindset. Money is issued as debt and there has never been more debt than now. Energy underwrites money 100%, and there has never - since we tapped into the fossil stock - been less remaining potent energy. Nor have there ever been less remaining planetary resource-stocks.
We are in debt-repayment overshoot, collectively. How it pans out, is moot; maybe a collapse, maybe rampant inflation, but reconcile it will. And in that light, default is almost guaranteed.
They can promise what they want. They only have to be seen as being 'better' than the status quo, and as has been shown in the past, promises can be broken and blamed on the previous government. We have seen this all before and it is just going to happen again and again. In NZ government lose elections, rather than there being a good alternative. But although I don't think Labour should get another term, and they won't, at least their costings and promises are probably more realistic.
Is this the same Nicola Willis who incorrectly stated that QE had flooded the economy with money. I doubt that she could even define what government debt is or how the government finances its spending or what sectoral balances are and what happens to household finances if the government runs surpluses. A frightening prospect to have as a minister of finance.
What is the effect of the Green party wealth tax policy on house prices?
What is the effect of that on small business?
What will that do to employment?
What about farming?
Why does a policy from the Greens get no scrutiny when it will be likely to become law if Labour were able to form a coalition?
Jfoe ....that is incorrect.
The settlement acct balances is just an intermediary step.
The final step is....Private Banks created deposits to pay the firms that sold assets to the Reserve Bank. ( increase in Broad money supply )
eg.. A Kiwi saver fund that Sold bonds to the Reserve Bank was paid in the form of a newly created deposits in its Bank acct.... Its Bank , eg. BNZ, was paid by the Reserve Bank by a credit to its settlement acct. ( increase in bank reserves )
The only way that money held in bonds can be reduced is if the Bond is repaid...and no longer exists.... as far as I know.
Except the RBNZ bought over $50b of government bonds, that is where the majority this governments “wasteful spending” debt exists. They bought and will sell/are selling these bonds on the secondary market. Except the price at purchase was high due to low interest rates, pushed lower by the purchase itself, and now, hey presto, interest rates are heading north and the bond price south. Good time to sell. So where is the balance? They spent $50b and need to balance the books on bonds worth what, $20b? Less? $30b+ in extra mortgage payments. They shorted themselves on the securities of future mortgage payments.
Yes, I said increase in settlement account balance or cash. If a bank owned the bond the increase is just to their settlement account balance. If a pension fund owned it, yes they get the cash (*and* their bank's settlement account balance increases).
Obviously this is just the reverse of a bond sale - the broad money position returns to where it was before the bond was sold.
I see cash and credit as being different.
Anyway...My post was to say that Treadlightly is wrong to malign Willis.... as He is the one who does not understand the nature of QE.
One thing I'd add....is that in a Crisis Bonds are not like cash.... Fear can cause liquidity to disappear.....and some Bonds are not so easy to sell.
.
Yes.... Central Banks can buy anything.... I recall during the GFC they even bought " troubled assets".... and probably paid the "asking price" (par ? )
Financial sector have been large beneficiaries of this "friendliness".
Back in the day.... Central Banks provided liquidity at punitive rates. ..... which is how it should be ....in my view.
Nicola,
the books could be balanced a lot more quickly if National stopped bashing beneficiaries and introduced a capital gains tax on the freeloading subsidised wealthy.
Also, in terms of beneficiaries, the capitalism system we run requires a % of the workforce to be unemployed. It is this completely illogical and immoral to put the screws on them.
The real benefits that need looking at are the ones over 65's receive regardless of need. That would be a start. Wouldn't even need a tax cut, just bring in a means threshold and redistribute the savings to those who truly need. If it's $18b p.a. that's what it is. But at the moment it goes to all and sundry regardless of how many rentals or millions they have in the bank. A return ticket on the Waiheke ferry is $50, but free offpeak with a gold card. $50 would go a long way to a struggling pensioner's heating bill.
We created a "surplus to requirements" role in our company as a succession plan for a very good young employee, because the 2 other positions are occupied by superannuants who now have a very low work ethic, just there to ride the bus while claiming their super, company health insurance and full personal use company vehicles.
No. Just income test NZS and have it paid via IRD. IRD get fortnightly (well, they’re supposed to) PAYE records so can easily extrapolate yearly earnings from that. If in any given fortnight the extrapolated earnings are more than say, $250k per annum, then no super is paid.
Would mean the likes of Winston Peters can’t get his parliamentary salary & Super.
Means testing is punitive. It means the 70 year old widow with no other income living in a mortgage free house in Manurewa worth more than say, $500k would get no super. The means testing crowd would tell that widower to sell the house and move, and live off the sale proceeds, completely ignoring where the widower would be able to move to, and maintain their community links. The older one gets, the more those community links matter.
Means testing is income testing. What you're referring to is an asset test.
A means test is a test in which your income is calculated in order to decide whether you qualify for a grant or benefit from the state.
https://www.collinsdictionary.com/dictionary/english/means-test
No. Over time the means test has been conflated to include both assets & income.
https://www.tewhatuora.govt.nz/for-the-health-sector/specific-life-stag…
https://www.servicesaustralia.gov.au/residential-aged-care-means-assess…
Doesn't change the definition. It's just they're using both Income and Assets to test eligibility.
Even that Te Whatuora link provides a distinction not only in the header "Income and asset testing" but in the income test section "Income test (financial means assessment as to income)".
Otherwise, we better write to Collins dictionary and make them aware people are conflating.
Forgive me if I’m way off on my thinking, but the majority of covid debt, was that not the RBNZ buying bonds as part of the LSAP? 50b or so out of 100b on offer, which is now valued at much MUCH lower, the RBNZ choosing to sell these off gradually could quite easily “inflate” the debt away by simply eroding it. My guess is rates will remain high so long as these debts remain, as they’re gradually eroded while not effecting the financial systems.
Grant was right, it’s all slogans and words but underneath the hood both parties have the exact same job to do. So what you’re really voting for is do we want some money flowing through our public services or private services.
Not a good time to hold debt either way, you’re the chosen one it would seem to pay for covid.
Translated: "There is a whole lot of stuff that we want to spend your money on - tax cuts for the wealthy, Redundancy payments and golden handshakes for staff who were clever enough to get those in their contracts. And ou... the tax cuts are way more important than balancing the books and paying down debt."
She is financially illiterate.
"Willis said National’s fiscal plan would reduce taxes, fund public services and infrastructure, while still getting the books back in order."
Tax cuts. Fund public services. And getting the books back in...
Tell me what is wrong with this 'picture?'
Nothing wrong with the picture if you are into surreal art :-).
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