The Labour and Green Parties are pledging to reduce government debt, and believe there’s enough fuel in the economy to do so without reducing government spending.
Announcing their joint fiscal strategy, or ‘Budget Responsibility Rules’ on Friday, the parties say they would work towards cutting net Crown debt from 25% to 20% of GDP, if elected into government.
At current levels of GDP, that’s an $11 billion reduction.
While Treasury forecasts suggest the Government is on track to reaching this target in three years, by mid-2020, Labour and the Greens are giving themselves five.
Speaking to interest.co.nz in a Double Shot Interview, Green Party co-leader James Shaw, discusses how a Labour/Greens government would reach this target while keeping core Crown spending at 30% of GDP. (And here's a video interview with Labour's Grant Robertson).
1. Economy going through ‘expansionary phase’
To begin with, Shaw says the economy is buoyant enough for government debt to fall without spending being hampered.
“The economy is currently going through an expansionary phase, so there is actually a bit more cash available. These are the surpluses that Bill English has been banging on about for some time,” he says.
“The government already collects quite a lot of money every year and the economy is currently growing, so there are actually increased receipts coming into the government as a result of that.”
Asked whether he’s saying Labour and the Greens would rely on more growth, rather than less spending, to achieve their target, Shaw responds:
“One of the things the Government has said is that they really want to reduce government spending as a proportion of GDP - right down - in fact lower than it has ever been in modern history…
“We think they are doing that at the expense of core public services and that is unnecessary. Government should be the right size. It needs to be as large as it needs to be in order to be able to deliver those core service.”
2. Reprioritising spending:
- Some roading projects should be ditched in favour of rail
Labour and the Greens are committing to decreasing government debt by reprioritising spending.
Shaw is specifically big on doing so by spending less on roads and more on rail.
While he wouldn’t scrap new roading projects that have already started, he would get rid of some that are on the drawing board, “where the commitment is substantially in the future”.
Shaw argues: “90% of transport funding in this country goes on motorways, some of which have got very very poor benefit cost ratios.
“And you saw a couple of weeks ago there was an announcement that the Puhoi to Wellsford extension - the cost has blown out from $495 million to $2 billion… Even when it started, it only had a benefit cost ratio of 0.25%.”
Rather, Shaw says the North Shore rail, which the Government has committed to completing within 30 years, must be brought forward.
The Green Party has also said that if in government it would want to cover the entire $1.4 billion cost of the light rail proposed between the Auckland CBD and Mt Roskill. Labour has only committed to paying half.
Pressed on how the Green Party would reduce debt when forking out for such costly rail projects, Shaw confirms its fiscal policy takes these spending commitments into consideration.
- Super Fund contributions should resume
The other spending commitment the Labour/Greens ‘Budget Responsibility Rules’ has considered is re-starting Crown contributions to the New Zealand Super Fund.
“It [the Super Fund] was set up to deal with a pretty significant risk in the form of the baby boomer generation moving through retirement over the course of the next 20, 30 years. The extent to which that has been underfunded places quite a big risk on future generations,” Shaw says.
The Government contributed $2.24 billion to the Super Fund in the year before contributions were suspended in 2009.
“I can’t commit to a specific level [of contribution], because we’ve got to see this year’s Budget before we know precisely what the numbers are,” Shaw says.
“We know that we won’t be able to resume them at the same level at which they were discontinued.”
Asked about his views on increasing the age of eligibility for New Zealand Superannuation to raise revenue to pay for Super Fund contributions, Shaw doesn’t believe the time is right to change the status quo.
“You shouldn’t go changing the settings - whether it’s age or any of the other options on the table - unless you’ve got cross-party consensus on it…
“When you’ve got all parties signed up to it, then you can say to people: ‘Here is the plan for the next 20, 30 years, in terms of how Super’s going to work’.”
Shaw says a government needs to be able to reassure people the plan around something like Super won’t change when a new government comes into power.
Asked whether he would back National’s plan to lift the age of eligibility by six months each year from 2037, until it reaches 67 in 2040, Shaw says: “I thought it was a volatile announcement and I think it avoided the main problem, which is the Super Fund payments.”
3. Tax on capital gains and carbon
While Labour has said it wouldn’t propose income tax policy changes this year, as it can pay for all its election promises with existing tax revenue, Shaw says the Green Party will be releasing a tax policy.
“We think that there is some urgency around climate change and the imbalance in the housing market that does demand some action in that first term of government. The Labour Party have said that they want to review the entire tax system in that first term of government and I’m comfortable with that.”
Shaw says the Greens’ policy will be “broadly consistent” with the policy it put forward in the 2014 election, even though “some of the numbers have changed”.
The Green Party has advocated for a carbon tax, which would enable 97% of New Zealanders to get income tax cuts.
It’s also supported increasing the levy visitors pay to support tourism infrastructure spending and the ambition for New Zealand to be predator-free by 2050.
Finally, the Green Party supports a capital gains tax, even though Labour has walked away from this; instead opting to expand the current bright line test from two to five years.
Asked whether he believes he would be able to twist Labour’s arm on capital gains tax if in government, Shaw says: “Like any government, the ability of coalition partners to influence the shape of that government really comes down to their numbers in parliament proportional to other parties.”