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.
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