Labour says it will get NZ$497 mln surplus in 2014/15; Extra borrowing would peak at NZ$4 bln in 2016/17; Alters PREFU to show net debt to zero in 2022

Labour says it will get NZ$497 mln surplus in 2014/15; Extra borrowing would peak at NZ$4 bln in 2016/17; Alters PREFU to show net debt to zero in 2022

The Labour Party is promising a government surplus of NZ$497 million in 2014/15, the same year as National, but a billion dollars below the current track. 

The party released a fiscal strategy in Parliament Buildings today, refuting claims from National it would need to borrow an additional NZ$17 billion over the next four years to pay for its spending promises.

In response, Labour today said it would borrow NZ$2.6 billion more than National over the next three-year Parliamentary term, and that net core Crown debt would peak NZ$4 billion higher than what Labour said was the current Budget track, in 2016/17.

Labour used figures including the assets held in the Superannuation Fund to show it would get net government debt to zero in 2021/2022, saying that would be a year ahead of the current track under National.

'Include the lost dividend stream'

However, it compared its track to a Budget track in Treasury's Pre-Election Fiscal Update (PREFU) which Labour had altered to try and show what it thought the impact would be from lost dividends due to the sell down of SOEs under the planned mixed-ownership model.

Treasury's current approach is to not include any possible lost dividend flow from the up to 49% sell-down of Mighty River Power, Genesis Energy, Solid Energy, Meridian Energy and Air New Zealand shares into its five year projections. The government says the sell-down in shares would take place over three to five years and raise between NZ$5-7 billion to be used over at least five budgets for new capital spending such as that on schools and hospitals. In the PREFU Treasury says:

"The Government has announced its intention to offer partial ownership of certain State-owned enterprises to private investors if it is re-elected. This is often referred to as the "Mixed Ownership Model". As there is insufficient information to forecast individual transactions, there are no estimates of sale proceeds, selling costs, foregone dividends or ownership changes in these forecasts."

The government has made the committment that any new capital expenditure above the NZ$800 million allowance it has given itself in each of the next five budgets will be met from its existing capital base - most likely the sale of assets it currently owns.

Although Treasury does not include an assumption in its forecasts over the next six years that this will be met from the sale of the specific assets mentioned above, Labour says it is obvious that is what is being planned, so Treasury should account for up to half of the expected dividends from those companies not being included in its forecasts.

Different approach

Labour Party Finance spokesman David Cunliffe stood behind Labour's decision to include the super fund in government assets when calculating net Crown debt - something Treasury does not do for its headline net debt figures (although it does provide net debt excluding and including the Super fund in its budget documents).

Labour is proposing to put NZ$750 million into the super fund in 2012/13, NZ$1.5 billion in 2013/4 and NZ$2.25 billion in 2014/15 - money that will need to be borrowed as the books would be in deficit for the first two of those years, and a small surplus in the third.

By including the super fund in the net Crown Debt calculation, the liability created by the extra borrowing would be neutralised by the asset placed in the super fund. If Labour were to use the current administration's approach to calculating net Crown debt without the super fund, its debt track would therefore be higher as the borrowing could not be offset by a corresponding asset.

More soon.

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44 Comments

By gum it's a grand scheme isn't it....wonder if the Labour supporters realise cunny plans to jack up the cost of electricity so he can squeeze more from the "assets" he plans on not selling any of....hard to see where else he would be able to boost revenue so he can pay back the outstanding debt....

Oh and not to forget labours' cgt will hey presto be applied to the family home...every year...on top of rates....You gotta love it....as plans go they really have engineered a way of losing votes.

 

Mate you wait and see how jacked up prices get once this mob have flogged off the likes of Meridian to private owners (who will be foreigners for sure).

We've already sorted that LB....the next election in 014 is just round the corner and any price jacking will hand the Greens (the main opposition) a club to bash the govt with...expect the divs to be lower than the govt bond rate....the fund managers have already marked the assets down as long term Turkeys with the prospect of low divs forever and no capital gains. The expectation is the govt as majority owner will issue new shares as and when they want loot. So the share price goes nowhere fast. The ones to gain will be the new directors and bosses...fat salaries and fees for them all.

You make it sound as if massive price hikes caused by privatisation of Kiwi assets ISN'T a foregone conclusion when everyone knows it is. Why do you think so many Nat supporters are against the asset sales? It's because they know that selling off the country's profitable assets is a STUPID BLOODY IDEA! Unless you're someone who will make a quick buck from the sales and then shoot through to some private tropical island to enjoy the fruits of selling off the country's future.

Crucial yes, and in need of massive capital investment, especially the airline. Where to get that much needed capital. Questions not asked or answered ctnz.

Labour sold off a pile of stuff. Go check the records. Yes the rail selloff was taken as a chance to grab the wealth and leave a gutted system. But rail too needed a massive capital injection.

As for the land selling screaming...been going on since the 1860s when Maori quite rightly spat the dummy at the political rorts and land thieving that characterised the undemocratic and highly corrupt early govts in NZ. So nothing new there.

What is often forgotten is the fact that NZ today is not the country planned for in 1900 and you ought to expect the same massive changes to take place between now and 2111.

Was it 1906 in which a Chinese man living in wgtn was shot dead in the street by an English criminal who was allowed to walk free by the Courts....!

Like it or lump it ctnz, our future wealth depends on what happens in Beijing.

ctnz, if you are that concerned - then don't cast a "lost" vote.  Better to back one of the parties (greens or labour) where that vote NO TO ASSET SALES will actually count.

 

NZ can't become debt free with the financial system the way it is. Yes, I mean it is actually impossible. No need to take my word for it however,

www.positivemoney.org.nz

 

How do you figure that they are going to be sold to foreigners, LB, when the Govt. will retain 51% ownership and the balance will be sold to New Zealanders? Where do you find "foreigners" in that?

David –  considering the worldwide circumstances and a relatively bad record can Kiwis wealth maintain their 51%  shares or are companies forced to let foreigners to buy a majority. ? I

However, New Zealand’s debt is mainly private and New Zealand’s gross general government debt as a percentage of GDP was ranked 6th lowest out of 34 OECD countries for 2010 (World Economic Forum, 2011, Global Competitiveness Report.

http://www.nzinstitute.org/index.php/nzahead/measures/household_wealth/

 Is the National Party just playing another cheap election card to look good not considering the long term consequences – then David dream on ?.

This government has a well established record of broken promises and false statements about the costs of things.  The obvious examples are gst, kiwisaver, personal tax cuts.

Why would anyone believe their story about retaining 51% share holding?

Re the balance being sold to New Zealanders -- who buys off them? 

I see, so if New Zealanders themselves chose to sell their shares to foreigners, then that's not their (New Zealanders) fault, that’s National’s fault too? You're a bit too ideologically blinkered there for me, mate. If New Zealanders sell their shares to foreigners, that's their fault and their responsibility, and no one else’s. But I’m glad to see you have such faith and trust in your fellow countrymen and don’t consider them to be craven and grasping.

Oh and as for your comment above, you forget to add:- interest free student loans, working for families, midnight golf, and sing-a-long-a-Maori-song to your list. Oh and don't smack your baby.

So Wolly - is it better to pay for private power or state power? Where the profit will go? Take government out as they always get what they want.....

Hmmm...lot of factors in there stp....state has a proven poor record managing everything...private in a truely competitive market win hands down but show me such a market...hah.....

I think the private is the one if users can switch easily without cost. It gives users the option to own the shares and bash the directors into line but only if the law prevents any one party from owning more than 5% of the shares. Fat chance of that.

So you get a stench from both the camps.

How about a company with user ownership and user voting based on power used with an upper voting limit...where profits are returned to users and the state gets zip.

So Wolly, where exactly power is managed more poorly under government than by private owners......which company?

Power to the home is a basic monopolistic service using resources. Few others come to mind too.

It should not be private at all.

If government is to be manager of them - it is our selection or election that make them there. The private owner is here or there but the profit gone. Although we can still nationalise them...after all; at the cost.

Ideology is really bad adviser - something is good to be private - something else is our as a society. Nature does not like efficiency as a norm.

Where do you get the "cunny plans to jack up the cost of electricity" from?

Or is it yet another fgment of your imagination....sure looks like it is...

CGT on the family home, yet more porkies from your imagination it seems.....

"The CGT will exclude the family home and is estimated to raise $78m in the first year rising to $2.27 billion by year 10."

http://www.stuff.co.nz/national/politics/5284832/Labour-confirms-capital...

Do show us an URL that says otherwise.......

Whats up Wolly is it fear?

regards

Nothing of the sort steven...it's logic. Labour will raise the price of power while buying votes 014 on promises to rebate low income families and those on low incomes or benefits for power costs...and their cgt is a flop as an earner unless they include the family home..also countered with a scam to rebate low income families on their cgt charges. The deliberate debasement of the currency is a part of both parties economic policies, so there will always be an element of 'capital gain' to tax even if it is not a real capital gain. If there isn't, expect policies to cause property prices to rise.

CGT as a tax base has never seemed sensible to me... How does a government budget on what is effectively a windfall tax? If its an 'anti-speculator' tax then target it as such, but baking it in as part of the taxation system seems undesirable and unpredictable (unless we accept that government/banks will act in concert to inflate prices further). 

Other govns do it fine.

They are targetting it....its not on the family home for instance.

regards

The answer to that, KW John, is that they can't. CGT are notorious for collecting far less in tax than was predicted. Add to that the negative effects on asset values that can happen during recessionary periods that result in either a deferral in selling assets or selling them at a loss, and you suddenly have this massive hole that opens up in the government’s current accounts.  Add that to a reduction in general tax revenues that also happen during recessions, and things can turn ugly very quickly. In spite of what the Labour Party, the Greens and the Hickey’s of this world tell us, CGT’s do not, economic salvation, make.

Thanks David B/Steven.

So the CGT has to be aimed at changing behaviour rather than generating revenue?

I can accept it may 'change behaviour', but I agree with David B otherwise.  Sorry, but it feels truly half-arsed as an election policy /way forward. We need to be more honest in how we approach these things.

Quite like minimum standards for rentals though :) 

The price of power (increasing it) is in effect a regressive tax....so its very unlikely your fantasy would be correct....

CGT, no it catches ppl who only get their income from capital gains so pay no tax at all.

Property prices will tank.....as will shares jsut a matter of time.....months...maybe 2 years.....but I think months.....

regards

The point you refuse to accept steven...and it is very clear to see...Labour cannot collect enough revenue above the cost of running the bureaucracy to collect it, from a cgt unless they apply it to everything.

Property is being propped up by both govt and RBNZ policy and you have yet to see the govt go full steam ahead with immigration. The economy is critically dependent on the bubble staying firm as can be.

Power prices will rise and keep rising or the much promised increase in productivity from new enterprises cannot exist. One very dry summer and you would see blackouts! Labour are only attacking the govt plan to sell because they can see no other way to harvest the hate vote and the funny thing is that hatred of asset sales came from Labour's decisions to flog stuff in the past. How ironic!

All the way Wally, bar  the last paragraph... who gives a toss which Party did what /when, the argument for selling power generators must be made on its own terms. Not convinced at all.

Try 'putting it into 'local' ownership before the IMF visit'  next maybe?   

Why would the assets in the Superannuation Fund would be included as the governments?

A good point.....lies, damn lies and statistics as they say.....Im sure if you asked an accountant there is good reason....in a way its is an asset but its balanced out because its someone else money plus interest....so I see it as a liability....

I suspect the idea is to get the money and then "direct it" at suitable projects that labour decides are "worthwhile" its reall just a con IMHO....

regards

 

What are the capital gains tax assumptions?

For example, who is to say we are going to see any substantial capital gains in property over the next (say) five years? Seems like we have taken on enough debt as it is to bid up housing.

Of course the govt could always set inflation off to the races and then tax the 'capital gain'. But this would be a Ponzi scheme that would collapse.

Then there is the issue that rich people tend to not need to sell.

cgt on shares also for instance which is tax free right now.

regards

That is not entirely correct, Steven. Under NZ tax law, if you own more than $50,000 in global stocks, they are subjected to taxation every year on their capital value. Moreover, if you are a share trader, or you buy and sell shares in NZ and Aust. with the intention of selling them for a capital gain, then those gains are subject to a CGT. It is disingenuous of you to suggest that there is no CGT on shares in NZ, becuase contrary to what you claim, there is.  And I would put it to you that if you started to buy and sell shares in NZ on a regular basis, Inland Revenue is likely to take a great interest in you.

Too True David B.  And the way the tax is structured is designed to push people away from long term share investments into some other activity where the long term gains are not taxed each and every year.  Hmmm. What could that be in New Zealand.  Oh that's right. Property investment.

The so-called "Fair Dividend Rate" that Cullen put into law is one reason I will be very keen to avoid voting labour

The 26 Billion in Borrowing that National has taken on over the past 16 months is one reason I will be very keen to avoid voting national.

 

A pox on both parties I say!

Read the report that Labour released when it announced the capital gains tax policy -- it was done by Berl.

Borrowing to invest in the Cullen Fund...

Are they mad?  They are gambling that the 'growth' assets in the Fund will keep growing... in the face of a global debt and energy crisis.  The most likely scenario is that they would be borrowing heavily to fund a declining/collapsing asset.  Greece, here we come!

Russel Norman is displaying a darn sight more economic sense, and has condemned this  - Labour are on their own on this one. 

Correct....

regards

Lot of the discusion is not all that relevant, unless you actually believe Labour will lead the next government.  And if by perchance that happens, Labour will be very beholden to the minors, especially a significant bloc of Greens, alias the true ' reds' and social engineers. So better look at what they are wanting because the dog's tail will wag given the opportunity for any Labour-Geens-Mana coaliion. And hopefully ACT has by now self-desructed so the more extremist  element of National should have have no clout.

Labour wont be anywhere...I think thats a pretty sure conclusion....

2014 is now it.

regards

As there is insufficient information to forecast individual transactions, there are no estimates of sale proceeds, selling costs, foregone dividends or ownership changes in these forecasts.

Am I right then to conclude that the government has decided to sell assets without having a reasonable understanding of the impact those sales will have on their accounts? 

Is that reckless, incompetent or what?

You don't need to have a reasonable understanding of the impact of sales, all you need is ideologically based faith and hope.  Facts and reasoned thinking are for losers.

Add to that the fact that their supporters care only about their political "team" winning at any cost and the recipe for disaster is complete.

The rugby world cup is over so we need someone to cheer for! It makes us feel good!

Right well that sorts Labour out...another 3 years in the wilderness and rightly so. Plenty of time for them to learn all about economics and the ruin of welfare without savings.

As for the govt, sadly another 3 years will lead to the usual arrogance displayed by National that gets up peoples noses. We will likely be told in 014 that "hey the surplus is almost here....honest it is"....so friggin what!....by then the debasement will have slashed the dollar value a good 25% since 08....the banks will have sucked the margins out and the govt grabbed tax on top only to waste it on subsidies to landlords that protect the property bubble and the Party Rump.

NZ will remain a property scam wrapped up in RBNZ cheap credit as directed by the landlord banks that dictate Beehive policy. The only road to success for Kiwi is one the banks don't use. Stay away from debt. Go for frugal. Needs not wants.

Yer, well Wolly practice what you preach, you probably well enough catered for (good on you for that by the way) and don't 'need' national super, but sure as hell you 'want' it, eh?

NZyoungster’s “Inner Rebellion” - gone ?

Watching “Backbenchers” I’m struggling with the fact that youngsters wearing a T- shirt saying “I’m a Key person” – supporting Nationals**, smiling every time a National candidate made a statement and looking sad with any other candidate making statements ? Why are NZyoungsters not more rebellious and want their elementary future protected first - our planet and our environment – our clean and green nature in stead of “big man’s” megalomaniac economic growth ?

 How much is our younger generation politically already brainwashed ?

** could be any party

IMO there's going to be such a fiscal hole that whoever is the govt will tax anything and everything -  you could qualify to emigrate to Canada - seriously thinking our son should do that, at least they have "sandy" oil.

http://www.cic.gc.ca/english/immigrate/skilled/apply-who-instructions.asp#list

 

Cunny's secret plan is a secret no more....seems his spreadsheet developed a leak...the 6 billion to be invested in the Cullen fund (borrowed from offshore) will come from an investment fund to be established using the 6 billion to be invested offshore. Both are timed to take place at the same time.Doh. Goofy will be appointed as fund manager to manage the loot.....his title will be...wait for it....."The Six Billion Dollar Man"

The $6billion cannot be lost because it is invested in the fund that has loaned the $6billion to the Cullen fund.....gee this finance stuff is easy.

Good questioning by Alex on the Phil Goff show.  And great attempts by Alex trying to get real answers with follow up questions  -  unfortunately Goff just kept to his wooden, rehearsed answers instead of real gut level genuine replies.