Fiscal restraint to continue

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 spending. A sensible party will “spend” a surplus on a combination of debt reduction, extra spending 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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