Debt under a Labour-led Government

November 21st, 2011 at 1:00 pm by David Farrar

As readers will know there has been a lot of scrutiny about how much extra there would be under a Goverment over the next four years. says it would be around $4b, National says around $16b and my calculation has it at around $12b (of which half is the Goofynomics borrow to save strategy for the Super Fund).

Let’s go with my figure of $12b for now (which is in fact only $2b different from Labour’s $4b as they acknowledge that excludes borrowing for the Super Fund). Now that is what the extra debt would be for a Labour majority Government. If Labour got 50%, then they could implement their policies without compromise.

But if Labour does manage to put together a government, they will comprise (based on current polls) only around 55% of the Government. On the Roy Morgan poll they would in fact be just 50%.

This means that the parties they need to negotiate with to form a Government will have massive power, much more power than any other minority partner under MMP. Because the larger your proportion of the votes the Government needs, the more say you get. This is an issue that as far as I know, no media has seriously looked at – what would be the policy mix of a Government that had Labour on 25%, on 15%, on 5% and the Maori and Mana parties on say 5% between them.

That $12b of debt would be just a start. Let us look at the policies NZ First will want included in a budget:

  • universal student allowances
  • match student loan repayments $1 for $1
  • Cut tax rate for new exporters to 20%
  • lower company tax rate to 27%
  • lower GST to 12.5%
  • tax free threshold of $100/week
  • turn TV One non-commercial
  • Increase Govt R&D spending from 0.3% of GDP to 2% – a 600% increase
  • Accelerated depreciation for specified industries
  • 10% off power prices for pensioners
  • Increased funding to decile 3- 10 schools
  • reduce class sizes for lower decile schools
  • increase health expenditure to 10% of GDP
  • Increase defence spending to 2% of GDP
  • abolish GST on rates
  • abolish income tax on secondary jobs
  • abolish tax on savings
  • cap tuition fees, eventually reducing them to zero

There’s probably even more than this but I can spend only so long reading their manifesto. I can’t even begin to add them up but I’d say we are talking ten billions dollars a year in lost revenue and extra spending. Now let’s say he even gets 20% of his wishlist, and that is probably an extra $8 of borrowing over four years.

And bear in mind also that Winston is saying he would refuse any agreement in advance for how much extra spending will be needed to have him vote for the Government for three years. So every year Labour would have to feed him as much money as he can get, to keep their Government in office. This is not scare-mongering – this is exactly what Winston is promising to do, and there is no way Labour could govern without him.

But Winston is only the entree. Let us look at what the Greens want. At 15% they would have over half of Labour’s support, and be around one third of the Government. So they may get up to one third of their wishlist. That includes:

  • tax-free income threshold of $10,000/year
  • Write off all student debt, even for those not in paid employment
  • tax-deductible study costs for those with no allowance
  • A full universal student allowance for those aged 16+
  • Increased accommodation allowance for students
  • Reduce then abolish tertiary fees
  • Increase school operations grant by 10%
  • Maximum class size of 20 for schools
  • Increase benefit levels to “sufficient for all basic needs”
  • Increase public health spending to 10% of total health budget

There are again many more beyond that. And again the bill will run into the billions, and even the Greens can only come up with so many extra eco-taxes to plug the hole.

The two major parties are normally the ones who get the most intense scrutiny over the costings of their policies, and that is because they form the bulk of the Government. For example even if National reaches out again to ACT, United Future and Maori parties, National will be probably 90% of the Government. Hence, highly likely their debt track will hold up (especially as ACT ask for less spending not more).

But Labour is looking to be 50% to 55% of a Labour-led Government. This is vastly different to when they were last in power and they were over 80% of the Government. At 50% to 55% they will be comparatively weak, and the parties they will need to vote for their budget will have much more power and say than in the past – hence why it is important to also scrutinise their tax and spending plans.

I haven’t even looked at what spending one might have to agree to for the Mana and Maori parties, but it will not be nothing, and a Labour-led Government is only possible if Labour, Greens, Maori NZ First and Mana parties all vote for their budget.

So forget about $12b of extra debt. That is just the starting position. It is inevitable it would be significantly more than that.

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35 Responses to “Debt under a Labour-led Government”

  1. JamesS (352 comments) says:

    David, are you sure the Herald have that right about Winston and his export policy? I thought NZ First’s policy was a 20% tax credit for exporters (something I actually agree with) not a special company tax rate.

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  2. Bed Rater (239 comments) says:

    The most amusing thing about this post is that there is a Labour Party advertisement running directly underneath it.

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  3. Black with a Vengeance (1,552 comments) says:

    explaining is losing…is that true ?

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  4. somewhatthoughtful (436 comments) says:

    Sounding a bit desperate there DPF, those internal polls must be pretty bad.

    [DPF: Don't be a fuckwit. How is pointing out the cost of policies desperate? Does this mean that every blog post pointing out stuff like this is desperate and due to bad polling, because you know I've been doing it for three years when National has had great polling]

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  5. RightNow (6,337 comments) says:

    What do you mean by that BWAV?

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  6. wreck1080 (3,522 comments) says:

    I fear that if national do not win, what is going to happen?

    Initially, the kiwi dollar will spike quite a bit — in anticipation of a doubling of borrowings to 600 million a week.

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  7. YesWeDid (1,002 comments) says:

    ‘Sounding a bit desperate there DPF’

    I think the proper term ‘somewhatthougthful’ is ‘increasingly weird and hysterical’.

    [DPF: Yes it is weird to point out the costs of promises. Only in lefty land]

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  8. Grendel (873 comments) says:

    Mana have hoardings up promising 20 000 new state houses.

    at 250K each (and it will probably be more than that as some of them will be 5-6 bedders) thats 5B in cost.

    plus all the forgone income as the rents will be so marginal as to be static. so not only 5B in extra cost but little to no income and also massive cost in both maintaining them (as state tenants are brutal to their properties) but more wages for staff to property manage them and deal with all the disputes.

    would not surprise me if the cost of this policy in terms of extra costs and forgone income on the 5B not invested better is 1B a year.

    but then Sue, Hone, annete and minto don’t have an economic bone between them.

    so there you go DPF you can add a % of that in :)

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  9. Jimbob (639 comments) says:

    With the Labour lead Government in office and the extra borrowings, NZ will get multiple credit down grades, interest rates around 8-10%, and a sinking dollar putting up inflation as petrol would be around $3 per litre.
    In summary, we’re toast.

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  10. RightNow (6,337 comments) says:

    It’s a clear choice this Saturday, a vote for the left is a vote for economic ruin

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  11. toad (3,654 comments) says:

    On that polling scenario, Labour wouldn’t be getting all its spending priorities through, DPF. I suspect two of the loopier and more expensive ones – borrowing for the Super Fund and GST off fruit and vegetables – would be among the first the Greens would be attemptiing to negotiate off the list.

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  12. swan (651 comments) says:

    “…$12b (of which half is the Goofynomics borrow to save strategy for the Super Fund).”

    National Party Policy – $16b invested in the super fund whilst carrying debt.

    Labour Party Policy – $16b rising to $22b invested in the super fund whilst carrying debt.

    DPF, you would have to agree that if the latter is Goofynomics, so is the former would you not?

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  13. YesWeDid (1,002 comments) says:

    So DPF, playing this game, ACT have a policy of reducing personal taxation to 15% and GST to 10%, where is your post costing this into National’s debt projections?

    [DPF: Boy are you stupid today. Actually that is not ACT policy. Don Brash has said there should be no tax cuts until we are back into surplus.

    But regardless you miss the main point. National would comprise 90% to 95% of a National-led Govt so the policy concessions to others would be relatively minor]

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  14. somewhatthoughtful (436 comments) says:

    Quote: DPF’s comment.

    Because if you were serious about this you’d do it to a National/UF/Maori govt or the (less likely) National/UF/ACT/Maori govt. Also you’re assumption that every partie’s policy is just going to be passed is a bit rich too, if anything they’ll all fight so much nothing will be passed.

    [DPF: See comment above. And not assuming all their policy will be passed. That would bankrupt us within days. I assumed that they may get say 20% or so, which would still cost billions]

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  15. Rick Rowling (776 comments) says:

    match student loan repayments $1 for $1

    Write off all student debt, even for those not in paid employment

    Paid off your student loan? Loooooooooooser!

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  16. Rick Rowling (776 comments) says:

    YWD asks

    “So DPF, playing this game, ACT have a policy of reducing personal taxation to 15% and GST to 10%, where is your post costing this into National’s debt projections?”

    From the article

    But Labour is looking to be 50% to 55% of a Labour-led Government. This is vastly different to when they were last in power and they were over 80% of the Government.

    Which is different from a National led Government where Act is 2% of the Government, and 0% of the numbers needed for National to govern.

    It’s not costed in, because ACT won’t have the numbers to demand it.

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  17. Rick Rowling (776 comments) says:

    *your
    *party’s
    *National’s 65 seats means lots will be passed.

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  18. dime (8,751 comments) says:

    why are the lefties so upset that DPF is analysing their policies? wouldnt you want your world leading policies promoted? :)

    so rather than offer any rebuttal, we get “explaining is losing” and “you’re desperate” haha

    as for ACT! wanting to cut taxes – didnt the Don say its not the time to be cutting taxes?

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  19. PaulL (5,774 comments) says:

    Hmm. $10K tax free threshold is actually good policy. National should offer this to Greens to go into coalition with them. A real policy win, and one that any National party with a grain of sense would have had in their manifesto already. Along with initiatives to reduce the effective marginal tax rate of people moving off benefits into work, this could make a huge difference to the employment rate. And a nice carrot addition to the stick policy of work testing. It still dismays me that National failed to include this as part of their overall tax policy

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  20. Christopher Thomson (374 comments) says:

    Well that seals it for me.

    I’m voting for the labour/Green/other Moonbats.

    With all that money I will now have I will buy gold and weapons and survival food. Fortify the property and then wait for the inevitable collapse. Sit it out and be ready to take control when the loonies have been dealt to.

    Seriously, how come when I get into debt I sell stuff to generate extra cash. Reduce my spending and pay back debt as quick as possible. It’s the only way out on a personal level. Why do damned commie cum socialists not see this and seem hell-bent on destroying the country? That’s almost rhetorical I know.

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  21. Pete George (21,804 comments) says:

    All these election promises knowing full well there is little to no chance of the policies being implemented is dishonest, and it puts United Future at a severe disadvantage. We cost our policies and have policies that could realistically be included in a coalition agreement. That means we don’t get paid any attention.

    The Greens get away with totallly idealistic policies. One of their big three they have been repeating and repeating is conjuring up 100,000 ‘green’ jobs, with no explanation of how it might happen (if they would go into coalition with National which they won’t) apart from childish “surely we can get some of the new green business projected in the world”.

    Honesty and being realistic doesn’t sell news or buy votes.

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  22. swan (651 comments) says:

    Yep have to agree with you on that Pete.

    100,000 green jobs for me sticks out as a milestone for the Green Party. It represents their evolution into a professional political party of pure spin and populism, where only one thing matters: votes.

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  23. PaulL (5,774 comments) says:

    swan: their evolution into a part of pure spin, yes. Professional…….no.

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  24. RightNow (6,337 comments) says:

    100,000 Green jobs = the loss of at least twice that many ‘traditional’ jobs, if we look at the experience of countries like Spain (loss of 2.2 traditional jobs per ‘green’ job created).

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  25. Tauhei Notts (1,509 comments) says:

    Once upon a time one had to be quite bright to attend university. I was so dumb that I failed university entrance at my first attempt.
    N.Z. First are improving in the polls. So are the Greens.
    Both promise huge advantages to student loan borrowers.
    Anybody with enough intelligence to attend university should be able to see that their student loans must be maximised.
    If a university student is so dumb that they cannot see that, then us mug taxpayers are wasting their money having them suck up education dollars at a university.

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  26. side show bob (3,660 comments) says:

    Toad, Yeah the Melons would probably scuttle some of Liarbores more insane polices but replacing them with insaner polices doesn’t count.

    If the really quite mental left pull this off then I predict huge civil unrest. The only way they can get away with the bullshit they propose would be to set tax rates at such a high percentage that business are simply not viable and fail. We have had decades of expending socialism and still the country sinks further into the mire. You would think that maybe they would have figured out that ever increasing taxing and spending will eventually destroy us all.

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  27. Other_Andy (2,079 comments) says:

    Rick Rowling

    “Paid off your student loan? Loooooooooooser!”

    Actually, anybody who is and has been resonsible will be a loser.

    - Working hard to get ahead – loser!
    - Have your own health insurance – loser!
    - Save for your retirement – loser!
    - Only have the number of kids you can affort – loser!
    - Bought your house and ay a mortgage – loser!
    - Saving for your kids education – loser!

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  28. publicwatchdog (1,817 comments) says:

    Want to find some public money to help pay for ‘social welfare’?

    EASY-PEASY!

    CUT OUT THE CONTRACTORS on ‘corporate welfare’!

    If the recent USA ‘POGO’ (Project On Government Oversight) research is anything to go by – NZ could potentially slice our $82 billion central government spend in half.

    Next – how much could rates at Local government level be reduced by CUTTING OUT THE CONTRACTORS?

    http://www.scoop.co.nz/stories/PO1111/S00095/wheres-nationals-corporate-welfare-reform.htm

    Penny Bright
    Independent Candidate for Epsom
    waterpressure@gmail.com

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  29. sparky (235 comments) says:

    Anyone who is stupid enough to vote for Winston Peters, (the snakeoil salesman) is just simply crazy. He hasn’t costed any of his promiises, and how does he think he going to get anything passed, when he is not joining up with any other party. All he is going to do is cause major trouble. Look at his track record. He never answers a question, and gets nasty if he is cross examined. He try’s to intimidate everyone. What a TOSSER. So between Labour/Greens/NZF/Mana/Maori, this country will be bankrupt and no one will receive anything if that happens. Wake up NZ.

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  30. PaulL (5,774 comments) says:

    Penny: is it even try that 50% of the NZ Govt spend ($41 billion you’re saying available) is spent on contractors? I doubt that somewhat – a huge proportion goes on welfare, pensions, education and health. Most of those areas are owned and delivered by government staff in government buildings. Unless you think the janitors in schools are great targets for cost savings. (yes, I know, don’t feed the trolls……)

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  31. Kimble (4,092 comments) says:

    Even worse PaulL, Penny’s plan only works if the services provided by those “contractors” would be provided for free otherwise.

    Yep, your local lefty troll is once again advocating slavery as a solution.

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  32. publicwatchdog (1,817 comments) says:

    The problem PaulL is that the Rogernomic$ mantra that ‘Private is good – Public is bad’ hasn’t actually been subjected to any ‘cost-benefit’ analyses. I know – because I’ve asked.

    During the Auckland Mayoral campaign I regularly asked citizens and ratepayers at various public meetings just one simple question:

    Over the last 20 years with all this contracting-out of Council services which used to be provided ‘in-house’ – had their rates gone UP or DOWN?

    The ‘devil is in the detail’ – but we don’t get the devilish detail.

    We don’t get the names of the consultants/contractors; the scope, term or value of the contracts published so that they are available for public scrutiny.

    We also don’t have publicly-available ‘Registers of Interests’ for local government elected representatives or local and central government staff responsible for property and procurement – so that concerned citizens can do the ‘public watchdog’ job that none of the NZ statutory ‘third party public watchdogs’ are doing (in my considered opinion).

    Strange isn’t it – that NZ ‘perceived’ to be the least corrupt country in the world (along with Denmark and Singapore< according to the 2010 Transparency International 'Corruption Perception Index') has so little genuine transparency when it comes to 'line-by-line' accounting and openness of 'the books' – as it were?

    Penny Bright
    Independent Candidate for Epsom

    PS: Just because I am raising issues, and facts that some Kiwibloggers may not like – hardly makes me a 'troll' – does it?
    It just concerns me that there is so much focus on debt and borrowing – rather than spending?

    Commonsense really?

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  33. RightNow (6,337 comments) says:

    I may have been drinking but frankly I agree with what Penny’s saying. And it’s in the same vein as a few of Cactus Kate’s post about corporate welfare. I’m sure many kiwiblog readers are familiar with it from one side of the fence or the other.

    more beer

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  34. publicwatchdog (1,817 comments) says:

    Good on you RightNow.

    Thanks for that.

    (I haven’t been drinking – don’t need to in order to give credit where it is due ;)

    Cheers!

    Penny Bright
    Independent Candidate for Epsom
    waterpressure@gmail.com

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  35. PaulL (5,774 comments) says:

    Penny, I don’t think anybody disputes that some government contracts are poor value for money, nor that there is some corruption in even the least corrupt country. I could give you a list of reasons why that occurs.

    But the key point here is your suggestion that government could save 50% of it’s expenditure. That’s completely absurd, and there’s no way you have any sort of statistics to back it up. Moving from that completely wild assertion to a more reasoned statement doesn’t make you any less a troll – i.e. someone who posts outlandish statements in the hopes of a reply.

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