Prepare for another election cycle full of fiscal holes and creative cost estimates after the Act and New Zealand First parties vetoed Nicola Willis’ policy costing unit proposal

Labour finance spokesperson Barbara Edmonds says she is willing to help Nicola Willis revive plans for an election policy costing unit, after the proposal was blocked by Act and New Zealand First. 

Willis had suggested amending the Public Service Act to give political parties access to limited public resources in the 10 months before an election, but Cabinet rejected the idea on Monday.

“This is yet another example of National caving to its coalition partners instead of doing what’s right for New Zealanders,” Edmonds said in an email to Interest.co.nz.  

“I have a member's bill ready to establish an independent costing unit because Kiwis deserve honest, transparent debates about election promises. If the Minister is serious about getting this done, she could reach out to us.

Willis said she wouldn’t reach out to Edmonds as the members’ bill proposed establishing a new government agency which would duplicate the Treasury and Auditor General’s work. 

“Yet again, Labour’s first instinct is to employ more bureaucrats,” she wrote in an email. 

“The approach I proposed was to largely use existing resources to help political parties cost their policies in the lead-up to elections, but it is not appropriate to proceed with it without broad cross-party support.”

Willis promised to establish an independent policy costing unit during the 2023 campaign, after watching repeated policy debates collapse into arguments over “fiscal holes”.

National MP Steven Joyce popularised the term in 2017 when he accused Labour of being $11.7 billion short in its fiscal plan. He argued the party had failed to allow for routine spending increases—though experts disagreed.

The phrase appears 87 times in Parliamentary debates, first recorded in 2004 when Michael Cullen defended the Super Fund, saying those who wanted it abolished had to explain how they would fill the “fiscal hole” left behind.

Recent holes of various sizes

Fiscal holes dominated the 2023 election. NZ First leader Winston Peters claimed Labour faced a $20 billion revenue shortfall, which the Act Party misleadingly recalculated as $27 billion.

Willis echoed claims that weakening economic forecasts would force Labour to borrow more, though she avoided using the more fanciful figures. That led to her infamous question to then-Finance Minister Grant Robertson: “How big is his hole?”

But it wasn’t long before she faced a fiscal hole of her own. A group of economists estimated National’s tax proposal would raise just $268 million a year—far short of the $740 million claimed.

Once in Government, Willis relied on a different mix of taxes and spending cuts to cover the cost of the income tax cuts she had pledged would be fully funded.

There were other alleged fiscal holes that year too, including National’s Three Waters replacement and Labour’s GST-off-fruit-and-veg “boondoggle” policy.

Fights over fiscal holes have often derailed public debate, shifting focus from the substance of policies to whether cost estimates were precise enough.

Another concern, raised by the OECD, was that unaffordable promises made during election campaigns could pressure newly elected governments to abandon fiscal targets.

“Inaccuracies in the cost of the major political party proposals risk sub-optimal policy and further slippage, especially as these costings are presently often provided by consultants who do not always have access to all the necessary fiscal information,” it said. 

The OECD said an independent fiscal institution, like those used in some other parliaments, could help shift debate from the accuracy of estimates to the merits of the policies themselves.

Off the cards

These experiences convinced Willis that some form of costing unit should be in place before the 2026 election, and some funding was allocated in Budget 2025.

Various proposals have been floated for its scope and structure, but Willis asked Cabinet to establish the unit within the Public Service Commission with a $1.2 million budget.

Under the plan, the unit would field requests from parties and direct them to relevant agencies, whose staff would then prepare cost estimates for campaign policies. The process would resemble what parties already do during post-election coalition talks.

Willis told the NZ Herald she believed an independent costings unit would improve political debate, but Cabinet had decided the risks outweighed the benefits.

Act Party leader David Seymour told the paper the idea could put the public service in a compromised position during election campaigns. It would effectively be refereeing a contest designed to hold it accountable, and could be incentivised to skew the debate.

He also rejected the idea that official costings would outperform private ones, citing recent issues with modelling for the FamilyBoost policy.

Another risk raised during the Cabinet process was that election ideas could be leaked—either publicly or to government ministers—and would be subject to Official Information Act requests.