Fiscal restraint to continue

April 1st, 2014 at 12:00 pm by David Farrar

The Herald reports:

Prime Minister John Key says don’t look to National for a big spend-up in the Budget or in the election campaign, despite the forecast surplus in the next financial year.

And he said some of Labour’s promises, such as extending free early childhood education to 25 hours week, would send New Zealand back to deficit.

The surplus is looking to be relatively modest. As we move into surplus, we don’t want to blow it all of extra . A sensible party will “spend” a surplus on a combination of debt reduction, extra and tax cuts. Parties may disagree on the exact proportions between the three, but what is unbalanced is a party that only promises one or two of the three.

Part of the surplus had to be used to repay debt and could also be used potentially to build the New Zealand Superannuation Fund or build up the EQC fund.

“In the end if you are going to have the argument that in the bad times, like a Christchurch earthquake or a recession, the Government should borrow money to stimulate or support the economy, by definition in the good times you’ve got to prepare for another rainy day.”

Exactly. This is indeed the time to start paying off debt.

The half yearly fiscal update in December forecast the first surplus to be just $86 million, reach $5.6 billion in 2017 – 18. Finance Minister Bill English had set the new spending allowance for the next four years at about $1 billion a year.

“Bill English’s view is that $1 billion is pretty much the new normal,” he said. …

Labour in Government spent on average $3 billion to $4 billion extra every year for the last five years in office.

Growing spending by $3 billion a year is and was unsustainable.

Mr Key cited Labour’s promise to increase early childhood education from 20 free hours a week for three and four years old to 25 hours a week.

The policy doesn’t take effect until July 2017 but Labour has costed it at $57 million in the first year and about $60 million after that.

Mr Key said the cost was more likely to be $600 million, $700 million or $800 million.

Labour have a long history of under-estimating the cost of their policies. Also what is most important is not the initial costs during the transition, but what is the ongoing annual cost once fully implemented.

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26 Responses to “Fiscal restraint to continue”

  1. mikenmild (11,158 comments) says:

    Sorry how can a policy be estimated to cost $60 million per year by one party and $800 million by another. Fact checkers please?

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  2. dime (9,606 comments) says:

    This pisses me off.

    The left have basically won in this country.

    No way National can go into this election offering tax cuts. Cause guess what? People on high incomes will get more money! Ya know, the people who pay the tax.

    The media would go apeshit. Labour & greens would scream tax cuts for the rich and national would take a hit.

    Hence, we have our own little socialist paradise.

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  3. Lance (2,529 comments) says:

    @dime
    It’s all OK..
    You know, just tax the rich pricks and money will come flowing in, every poor family will be able to buy a BWM and it will be the land of milk and honey. Russell will print money as we all bask in untold wealth and happiness.

    What else does anyone need to know?

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  4. Viking2 (11,215 comments) says:

    Hasn’t been that much restraint in spending in the last 5 years. Carry on as usual.

    Borrowing is how much t fix broken land and buildings and force building owners to do the same when the savings are dubious.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11229826

    Oh and never mind WWF and Student Loans and Whanau koha etc etc.

    The budgeting is a fucking joke.

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  5. dime (9,606 comments) says:

    New spending allowance… a billion a year.. so thats just pork? whatever they come up, just for the fuck of it?

    maybe a ministry of transexuals? not sure we have one of those?

    maybe a new allowance for some minority?

    basically just garbage that we “must have”

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  6. Judith (8,211 comments) says:

    Well that is a bit sad for National, because although it might be the sensible way of looking at it, many will look at it as a sign that things aren’t as good as we have been told they would be, and that National has not met the promises they made for a bright future.

    I can’t help but think it is a bit of ‘reverse’ psychology going on here. John is hoping that people will see this as a sign of honesty and his addressing things responsibly, which it may very well be, but, I think he over-estimates the thought capacity of a lot of people.

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  7. cha (3,823 comments) says:

    Growing spending by $3 billion a year is and was unsustainable.

    >

    Yeah, coughing up $3,559,231,051 in interest on $76,176,632,624 is sustainable.

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  8. Kimble (4,392 comments) says:

    Sorry how can a policy be estimated to cost $60 million per year by one party and $800 million by another. Fact checkers please?

    I think it was hyperbole MnM.

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  9. rangitoto (209 comments) says:

    “Yeah, coughing up $3,559,231,051 in interest on $76,176,632,624 is sustainable.”

    Yep that was the result of the Nats sticking with Liabore election bribes. English seems to have managed to get a lid on it though. Time will tell.

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  10. cha (3,823 comments) says:

    Yep that was the result of the Nats sticking with Liabore election bribes.

    Golly, the election was won by keeping another party’s election bribes, who woulda thunk it.
    /

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  11. Spam (595 comments) says:

    “New Spending” should be the inflation-adjusted costs of the old spending. If they want truly “new” spending, it should be offset by culling of “old Spending”

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  12. rangitoto (209 comments) says:

    Clarkenstein was only just turfed out so why not. Shudder to think of what the debt situation would have been otherwise. Greece and Spain on steroids.

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  13. duggledog (1,411 comments) says:

    Lady at work says she’s voting Greens

    I say; how much do you owe on your home? She say, $500k (it’s Auckland; value she reckons $860k)

    She say, we can just afford the interest, they both work but they have 2 x kids under 5. She owes another $50k on credit cards, HP, car repayments etc

    I say, you know Metiria is on the record saying they might just have to prick that Akl bubble? What would you do if your house value fell to $650k and the interest goes up a bit?

    She say who is Metiria Turei? Her eyes start to glaze over

    So I say, there’s more money you owe; you know we all owe 76 thousand million, if you imagine there’s 2 million tax payers we effectively owe $38,000 each plus interest? (There ain’t 2 million taxpayers)

    She say well the government should fix that

    I say you know us ratepayers owe $14,500 each?

    She say Len should fix that.

    I say I’m going out for lunch.

    Dime, I reckon there’s got to be some cheap properties at some point. Call me a cynic but I have yet to see any fiscal restraint; NZ Inc is the exact copy of my friend at work – massively exposed. I’ve got a fair amount of trust in Key and English but f*** me. They haven’t even disestablished all those blasted Commissions!

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  14. tvb (4,229 comments) says:

    There is a much larger constituency for spending than there is for meaningful tax decreases. Against that background what is the National Party supposed to do. Cancel democracy?? Ruth Richardson nearly lost National the election in 1993 only to usher in a Labour Government which would cancel everything. It is a carefully calibrated balance. No one wants to end up like Greece but I feel the NZ electorate would tolerate getting fairly close which means a Labour Government could be tolerated until the money really runs out.

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  15. Dave_1924 (96 comments) says:

    gee Cha – we were in a recession, the GFC hit destroying large chunks of wealth around the world and sending a number of our best export markets into a tailspin. National won the government benches and made a RATIONAL decision not to slash and burn the OTT Labour policies like WFF so that NZ families would be insulated from the worse of the happenings offshore.

    We got very lucky in 07 thru 09 that China went on an OTT spending binge to keep its economy relatively buoyant in the face of its key export markets in the US and Europe tanking. that support Oz which as our then major trading partner helped keep this countrys economy from the worse of the schmozzle that impacted Europe, States etc

    the borrowing costs your criticising were the cost of keeping our unemployment rate below 15% and protecting NZers from an economic implosion

    personally after the next election I am all in favour of national slicing and dicing WFF and interest free Student loans and using the freed up monies to pay down our borrowings to prepare us for the NEXT external shock.

    Labour always spends to much, National always has to clean it up. been that way since 1989

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  16. rouppe (932 comments) says:

    Growing spending by $3 billion a year is and was unsustainable

    Yet none of the gross spending was wound back. WFF could sustain a significant reduction and still target families earning under $60,000 combined

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  17. RightNow (6,776 comments) says:

    mikenmild (8,214 comments) says:
    April 1st, 2014 at 12:09 pm

    Sorry how can a policy be estimated to cost $60 million per year by one party and $800 million by another. Fact checkers please?

    Yeah, from what I can find quickly online and using very rough approximations:
    The subsidy is $11.25/hour for 3 and 4 year olds, so an extra 5 hours per week = $56.25 per child per week, or about $3000 per child per year. NZ has about 60,000 live births each year so there’s roughly 120,000 3 and 4 year-olds. We apparently have up to a 96% participation rate for kids going to ECE in the last year before starting school. Let’s say we drop it to 90% average over 3 and 4 years old.
    So approx 108,000 kids get approx $3,000 additional subsidy each year = $324 million per annum.

    The question I have is did John Key mean it was likely to cost $600,700,800 million per year or over the three year term of a government? If the latter then I’d say some of my approximations must have been too high.

    Let’s hope Labour’s resident policy analyst can shed some light on why their costings are so light.

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  18. kowtow (7,844 comments) says:

    TVB

    The constituency for spending essentially legislates theft from those who work and save.

    Universalism has led to an immoral and corrupt form of democracy.

    Any politician who stands against that immorality is committing electoral suicide.

    So,we’re fucked.

    This is one of the reasons I have so much time for American grass roots Tea Party activism.It is the answer.Small government,genuine democracy,the payers dictating how their money is spent.

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  19. Nostalgia-NZ (4,985 comments) says:

    I go for the paying off debt, and also a big tick for ACC costs falling for employers.

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  20. igm (1,413 comments) says:

    The abolition of WFF, DPB (except in exceptional circumstances), curbing ridiculous payments for the likes of two toilets in Islamist households, and disestablishing government commissions would put this country in a very good financial position. There is too much welfare and waste set up by consecutive Labour Governments that needs dumping, and that is right now!

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  21. duggledog (1,411 comments) says:

    Dave_1924 @ 1.20 pm

    Yep, I hear you and you’re right – National got handed the shittest card imagineable; a three pronged fork up the arse;
    1: Empty coffers and eternal deficits thanks to Helen & Michael
    2: A f***ing great earthquake
    3: A f***ing great global crisis

    However – your hope that they might start winding down unaffordable government spending after the next election; dude, they just won’t.

    They had the perfect opportunity – those three excuses above – to do something, and they didn’t.

    Roger Douglas would have.

    We simply can’t afford top keep ‘insulating NZ families’. We can afford to tell them the truth – that we are a trading nation at the bottom of the world riding on colossal personal and central debt, and as such every man jack one of them is horrendously exposed.

    This should be what Colin Craig says at every opportunity from now to September – the truth about our financial position, and the truth about how much power we have in the world; virtually none

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  22. wreck1080 (3,778 comments) says:

    There is a large disconnect between politicians cost estimates and accountability for that estimate.

    How can this be addressed? Elections don’t seem to punish at the individual level where it is required.

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  23. Than (439 comments) says:

    Sorry how can a policy be estimated to cost $60 million per year by one party and $800 million by another. Fact checkers please?

    Easy, they use assumptions about uptake rate and ECE participation to get the result they want.

    David Cunliffe’s version:
    Assume one child in six will take advantage of the additional five hours, and no change in the overall ECE participation rate. That’s an extra $3,000/year for 20,000 children, total cost $60M.

    John Key’s version:
    All children currently in ECE take advantage of the extra 5 hours, plus it encourages increased overall participation in ECE from 96% to 97%. In addition to the extra $3,000/year for those 96% of children already using the 20-hour scheme, you also have an extra $15,000/year (i.e. the full cost of 25 free hours, not just 5) for the extra 1% of children who previously weren’t in ECE. Total cost $345M + $180M = $525M. Throw in some admin costs and Key’s $600M is in the ballpark. To get to $700M or $800M just increase the overall ECE participation rate.

    Neither are factually wrong. The question is which assumptions do you consider more plausible.

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  24. leftyliberal (642 comments) says:

    RightNow/Than: ECE is already subsidised by the government, it’s just not subsidised to “free”. The average for the additional hours is closer to $25/person ($4.88/hour based on 2011 MoE survey).

    So that alone would reduce your numbers to something closer to $120m, and lower participation of those that actually get the ‘free’ education could potentially get somewhere closer to Labour’s numbers.

    I suspect, ofcourse, that it will be more expensive than this – but I wouldn’t have thought they’d be an order of magnitude out as Key is suggesting. Indeed, given the total budget for ECE is 1.4B in 2013, which includes a lot more than just the 3-4 year olds, Key is claiming that by offering an increase of 25% the costs will increase by more than 50%. Not particularly plausible.

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  25. Viking2 (11,215 comments) says:

    Fiscal restraint would be not sending highly paid diplomatic staff to the European court to save fucking whales.

    Why shuld the taxpayer pay for that stuff. Let someone else’s taxpayers do that.

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  26. deadrightkev (313 comments) says:

    What a joke. National fiscally responsible? Since when?

    National took over all of Labours dumb policies, bailed out a finance company for hundreds of millions, paid out hundreds of millions on treaty claims, added an ETS and increased government spending.

    The GFC and earthquake was a perfect time to put a solid plan for the future in place. But nothing.

    Who is fooling who here? There is no vision or financial blueprint. Just good old born to rule steady as she goes.

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