The cost of the alternative
November 23rd, 2011 at 3:00 pm by David FarrarI blogged on Monday how if there is a Labour-led Government, it will be unlike any previous MMP Government as the major party will be only 50% to 55% of the Government, not 80% to 90%.
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%, Greens on 15%, NZ First on 5% and the Maori and Mana parties on say 5% between them.
I estimated NZ First’s spending and tax manifesto would add up to around $40b over four years. If you doubt that go and look at their list of spending policies which is massive.
Trying to cost the Greens almost as massively long list was beyond me, but thankfully the good Mr Joyce has done it for me. he has it at $25b over four years. The Greens claim they have fiscal costings, but the link they publish comes up as page not found. Probably a reason for that.
Now the Greens would be 30% of a Labour-Led Government and NZ First (if they make it) 10%, so assume they respectively get 30% and 10% of their policies.
Take the $12b extra borrowing I make it under Labour and add on 10% of $40b and 30% of $25b and that is conservatively a total of $24 billion extra borrowing.
At 6% interest, the increase in interest on the debt would be around $1.44b a year by year four. And that doesn’t even include working out the compounding nature of debt.
The one thing which would be very clear is that there is no way a Labour-led Government could actually get the books back into surplus. You simply can not add on around $6b a year of extra spending, and get back into surplus. You will have a permanent structural deficit where debt only increases – the exact situation National inherited in 2008 (PREFU had a decade of deficits, DEFU had a permament structural deficit). All the gains and hard work of the last three years to restraing spending growth (including nil growth in an election year) will be wasted.
And imagine if Europe does plunge, and our revenue forecasts plunge also. Can you imagine Winston, Hone and the Greens agreeing to spending cuts to match? It would never ever happen. Don’t take my word for it – ask them.
November 23rd, 2011 at 3:07 pm
If your on the left then spening money = policy. Not spending money = no policy. If it doesn’t involve spending money then it isn’t policy.
Vote:November 23rd, 2011 at 3:07 pm
And this doesn’t even take into account lower economic growth resulting from their anti-business policies.
[DPF: Indeed. Their return to 1970s national awards will lower employment and tax revenues and increase welfare spending]
Vote:November 23rd, 2011 at 3:14 pm
Under this scenario I predict the following tax policy
Company tax back to 33% in the first instance then increased to 40% after 2 years.
Trust tax moved in line with company tax to prevent arbitrage.
Personal tax rates.
1st $5000 tax free
5001- 20000 5%
20001- 40000 10%
40001-60000 20%
60001-80000 33%
80001- 100000 39%
101000 + 49%
Note the personal rates align with the Trust rates at about the point where most with Trusts personal incomes would sit.
Also note a highly progressive scale in line with the philosphies of the coalition partners
Vote:November 23rd, 2011 at 3:16 pm
Of course the existing WFF schedule would be adjusted in line with these rates so the lower end would benefit from the Labour/Green policy promises
Vote:November 23rd, 2011 at 3:18 pm
it’s important for Key to nail Goff with this tonight .. Goff/King etc are tweeting that National COULD sell Kiwibank .. wtf, lets talk about the next 3 years Phil. Goff said HE would never sell Kiwibank which won’t matter in 3 days when he retires from the leadership
Vote:November 23rd, 2011 at 3:24 pm
DPF, I tried the link to their costings within the link you gave and it worked for me. This should lead right to it.
http://tinyurl.com/7xvoxmc
[DPF: they must have fixed it]
Vote:November 23rd, 2011 at 3:29 pm
lastman – thanks for that horrific outlook. At 49%, id look to head overseas.
Vote:November 23rd, 2011 at 3:30 pm
labour + greens + nzf = economics Greek style.
Vote:November 23rd, 2011 at 3:31 pm
From memory, Greens are on record as saying they will only try to get some of their policies through which based on their pdf, excludes a lot of the expensive ones.
Bit of bait and switch in my opinion. Get elected on policy but then dont implement them as you aren’t the majority party.
Vote:November 23rd, 2011 at 3:40 pm
and dime By my back of the envelope non economist but CA these rates wont come close to raising nearly enough revenue to pay for these morons promises.
Like I say A pollie who proposes to borrow in todays environment is a pollie that hates his or hers citizens with a vengance
Vote:November 23rd, 2011 at 3:46 pm
When the coalition from hell has finished squabbling over who gets to keep their election bribes…er promises, how many of their austerity measures do you think will ever see the light of day?
I cannot see how they would have any economic mandate whatsoever.
Vote:November 23rd, 2011 at 3:46 pm
Where is the ‘scaremongering’ tag for this post?
DPF, you conveniently ignore the fact Labour governments are actually very financially responsible, Cullen balanced the books and paid off government debt, the Lange government rescued NZ from financial collapse.
[DPF: You miss the point. The last Labour Govt was generally 80 - 90 % Labour. A post 2011 Govt would be 50% Labour.
And Cullen did not balance the books. He inherited surpluses and a growing economy from National. He never ever had to cope with a recession or tough economic times until 2008 when his budget ended up leading to a forecast decade of deficits]
Vote:November 23rd, 2011 at 3:51 pm
YesWeDid: Cullen squandered all his fiscal responsibility between 2005-2008, left NZ with a 2 billion hole, and the piggy bank for the rainy day (that’s why we didn’t get tax cuts remember?) was empty.
So please.
The next question is: does National have any fiscal responsibly? We’re only in an 18.6 billion hole right now.
Vote:November 23rd, 2011 at 3:52 pm
cullen wasted years of overlarge surpluses due to bracket creep and then left the cupboard bare (his words) by pre-spending a ton of money they never had to deal with.
the labour govt that got us out of financial ruin was due to Roger Douglas, none of the current batch have his stones.
Vote:November 23rd, 2011 at 3:53 pm
Interesting. Is it just me or do the Greens claim a billion a year for Christchurch via a levy (and claim that as income) but then fail to add that billion a year to the cost side of the equation?
http://www.greens.org.nz/sites/default/files/fiscal_implications_november_6_2011_0.pdf
Vote:November 23rd, 2011 at 3:55 pm
As CJPhoto says it looks like there is a huge discrepancy between Joyce’s figures and the Greens as the Greens are not aiming to get all their “nice to haves” in the next 3 years – so their opening bargaining position is shorter list of less expensive items. Since the link now works perhaps DPF could update?
[DPF: How incredibly dishonest to campaign for stuff they have no intention of delivering in this term]
Vote:November 23rd, 2011 at 4:00 pm
There’s a devil in me this afternoon. Why don’t we all vote for the Mana party, turn the country over to the other treaty partner and sit back and see how much better off we will all be. Of course, I expect all members of The Te Pakeha tribe to cash assets, including cash into a tribal trust for the benefit of future generations and one in three must give up their job so that the Governing Party’s members are all employed.
Then wake me up in three year’s time after Australia have rejected the third “please
Vote:take us into your commonwealth” appeal from the NZ (Mana led) Government.
November 23rd, 2011 at 4:00 pm
[DPF: How incredibly dishonest to campaign for stuff they have no intention of delivering in this term]
Much like ACT and their lower taxes but only when we are in surplus – same bloody thing DPF.
Vote:November 23rd, 2011 at 4:01 pm
If Labour get in with the other mobs the NZ dollar will be the short of the century. 40 cents per USD in 12 months.
Vote:November 23rd, 2011 at 4:04 pm
Berend:
Perhaps you have forgotten the Zero Budget: The first time in (?) living memory any governemnt has produced a Budget that did not increase net spending by a cent. And they did it in Election Year.
Vote:November 23rd, 2011 at 4:18 pm
The three priorities of the Green Party (jobs, rivers and kids) pay for themselves because they include significant revenue increases as well as spending increases – in fact they bring in more revenue than they spend.
There is $7.9 billion of extra revenue and $4.1 in extra spending. For details see http://www.greens.org.nz/sites/default/files/fiscal_implications_november_6_2011_0.pdf
Vote:November 23rd, 2011 at 4:20 pm
I wish this point was more widely known. That coalition is a coalition of the spenders.
I also wish the return to industrial 70′s was more widely known. Are these points being hammered in the final days to the election?
Vote:November 23rd, 2011 at 4:21 pm
Maybe you should update your post DPF given that the link to the Green’s costings seems OK (no idea about the content thereof…)
Vote:November 23rd, 2011 at 4:26 pm
[DPF: How incredibly dishonest to campaign for stuff they have no intention of delivering in this term]
I don’t know DPF, I just went to the greens site, there is a menu tab on the homepage labelled “2011 Priorities”. It comes out with the same list of stuff and links to the same bunch of costings, so it looks to me as if any voter visiting there would think that was what they were campaignng on.
Vote:November 23rd, 2011 at 4:40 pm
I Keep asking this question but why the fuck do the duplicitous Greens get a free pass from our media when it comes to their manifesto and their blatant outright lies.
Vote:November 23rd, 2011 at 4:53 pm
DPF, Green Party policy is made by its members, and as such it is essentially a “nice to have” list – things that the Green Party membership wants to do.
The Green Party caucus prioritises policy implementation, because there is obviously not a bottomless barrel of money to do all the things that the party’s membership wants. The priorities for the next three years are rather modest, give the forecast fiscal constraints. The Greens accept that some of their big spend policies, particularly in education and health, are probably not achievable in that timeframe.
BTW, DPF, I have checked that link in Firefox, Chrome & IE and works for me in all, so problem may be at your laptop. Try directly to the pdf of the costings:
http://www.greens.org.nz/sites/default/files/fiscal_implications_november_6_2011_0.pdf
Vote:November 23rd, 2011 at 5:00 pm
Im sure when National fail to get the books back into surplus they can blame the economy, blame the oil prices and blame anything but their own lack of foresight. In the face of stagnant oil production and rising demand anything other than investment in transport alternatives is fiscally imprudent.
Why invest in roads if driving increasingly becomes more unaffordable?
Why deliver tax cuts in the face of a deficit?
http://s1095.photobucket.com/albums/i475/westexas/?action=view¤t=Slide05.jpg
You can make all the projections you want and projections based off supply from 2002-2005 are completely wrong. So you can forgive the error in investing in roads under Labour but National do not have the same excuse. There is a wealth of data out there for instance Brent crude averaged $100 per barrel FOB in the previous 12 months, the highest it has ever been in nominal terms.
The Greens may be spending, spending and investing is completely different to spending and wasting. Trust me, the roads National want to build will be a real bitumen to repave as the price of oil and oil products increase. We may find we have to break up previous roads, that is the real austerity we may face.
Vote:November 23rd, 2011 at 5:29 pm
You townies forgot to mention an ETS that will devastate the export sector, like to see the clever bastards when the money runs out for the fancy coffee at the local cafe.
Vote:November 23rd, 2011 at 8:59 pm
The Greens are lying crapweasels, here is an example – they have allocated $20 million for SME business to “help” the transition from raising the minimum wage from 13.50$/hr to 15.00$/hr. Direct wage cost increases $1.50/hr + indirect costs: relativity + ACC + Kiwisaver + insurance, etc; total wage cost increase approx 2.50$/hr, per full time worker = extra $5,200 per annum cost. Well that $20 million will only cover 3,800 workers for one year, actual total workers on min 13.50 = 48,000 of which at least 50% are in SME’s = 24,000, and thats not including low paid on 13.51-15.00. Great bloody help, probably half the $20 mil will be paid to bureaucrats in IRD just to administer and police it, imagine the paperwork for an SME just applying for it.
In fact they will get far more in tax revenue (income, GST & ACC) from the increased wages than they propose to spend, dishonest pricks crapping on small & medium business yet again.
And S. Russell @ 4.04pm, stop talking crap, National have massively increased spending EVERY year. Treasury figures, actual total Crown expenditure for each fin year ending 30 June (figure in bracket is year on year increase from the preceding year and the party responsible):
Vote:2006 = $64.3 billion (Lab)
2007 = $68.7 billion (+6.8%, Lab)
2008 = $75.8 billion (+10.3%, Lab)
2009 = $83.4 billion (+10.0%, Lab/Nat)
2010 = $88.0 billion (+5.5%, Nat)
2011 = $99.9 billion (+13.5%, Nat)
2012 = $109.8 billion (+9.9, Nat) – FORECAST not actual, by PREFU2012 partial actual already 3.9% over budget.