16 Sep 2020

Prefu: Parties offer dire warnings, optimism and a fiscal bermuda triangle

6:00 pm on 16 September 2020

New Zealand First's Winston Peters has joined National and ACT in criticising Labour and the Greens' economic plans for Covid-19 recovery as risky, wasteful spending.

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Photo: RNZ

Labour argues a balance is required between spending to boost the economy, managing the books responsibly, and without cutting key core services, and argues National's fiscal plan is caught in a "Bermuda triangle" that tries to do three conflicting things at once.

Finance Minister Grant Robertson released today's pre-election economic and fiscal update showing a budget deficit of $23.4 billion for the year ended June, while the level of debt is marginally better at 27.6 percent of gross domestic product (GDP).

Robertson said government spending had cushioned the blow of a one-in-100 year shock, and the numbers showed New Zealand in better shape than expected.

He also warned of tough times ahead however, acknowledging recovery from the Covid-19 pandemic would be tougher and take longer than was forecast in the Budget in May.

While National said the figures showed the pain would be deeper under Labour, the Greens argue for more taxes for the wealthy, and ACT says the levels of debt being accrued under the current government will be impossible to escape.

National: Borrowing should be to create work and build rather than simply spend

National Party leader Judith Collins says the update is "very dire reading".

"We are looking at ... or are in the worst recession in living memory and it is one where the only answers we have from the current government is to tax more, to borrow more and to add more welfare," Collins says.

National leader Judith Collins and finance spokesperson Paul Goldsmith after the release of the pre-election economic and fiscal update at Parliament.

National Party leader Judith Collins and Paul Goldsmith at a media briefing after the release of the prefu. Photo: RNZ / Jane Patterson

"Our plan, which will be released this week, will be all about growth, because no government ever taxed its way out of a recession."

The last recession in the 1980s took years of hard work to recover from, she says.

Staring down the barrel of 15 years of deficits to pay for Covid-19 means "it's not just our children who pay for this but also our grandchildren", Collins says.

National's finance spokesperson Paul Goldsmith says the PREFU figures show the "pain will be longer and deeper under Labour and under the current settings".

"In the short term, it's taking longer to come on, but in 2022, 2023 there will be more unemployment, so we're seeing a shrinking economy, another 100,000 New Zealanders losing their jobs over the next couple of years and deficits as far as the eye can see.

"It underscores the absolute importance ... of having a focus on growth and getting New Zealand back in track."

Collins says "wherever possible, any borrowing should be to create work, to actually build things ... rather to borrow and simply spend".

Collins ruled out a repeat of Ruth Richardson's "mother of all budgets" following the recession in the late '80s. That budget saw major cuts to government spending, especially on welfare institutes and benefits.

National finance spokesperson Paul Goldsmith after the release of the pre-election economic and fiscal update at Parliament.

National finance spokesperson Paul Goldsmith Photo: RNZ / Jane Patterson

"I'd also say to you this: our government ... is going to be focused on growth and growth for the economy is utterly crucial, otherwise we will have more than 15 years of deficits, which the current government is looking at."

Collins says having seen the books, she was assured that the National Party's "medicine" would work and be embraced by the public.

"All of our spending promises have been costed and we are actually releasing our own fiscal update in a matter of days and you will see how we can do it."

However, Robertson said National was caught in a "Bermuda triangle" style fiscal situation.

Finance Minister Grant Robertson releases the pre-election economic and fiscal update at Parliament.

Finance Minister Grant Robertson releases the pre-election economic and fiscal update at Parliament. Photo: RNZ / Jane Patterson

"They both want to increase spending, reduce revenue and dramatically reduce debt. You can't do all of those things at once credibly and I think their plan is lost somewhere in that triangle.

"The reason why I am so against the idea of austerity-style cuts to achieve the kind of debt reductions I've seen from the National Party is I've seen the impact in New Zealand in previous downturns of that sort of approach.

"That creates the intergenerational problems of children growing up in households where their parents aren't working, where they haven't got the incomes that they need."

Green Party: 'Exactly what taxes are supposed to pay for'

The Greens take credit for helping cushion the blow from Covid-19.

Co-leader James Shaw says it is clear additional revenue raising measures will be needed, pointing to the party's policy of implementing a wealth tax for those with net worth over $1 million and new income tax brackets at $100,000 and $150,000

"As a partner in this government, the Greens have played an important role in developing policies like the wage subsidy," he says.

Green Party leader James Shaw apologises for his "error of judgement" of the Green School in Taranaki. Wellington. September 1, 2020.

The Green Party's James Shaw, flanked by his co-leader Marama Davidson Photo: RNZ / Samuel Rillstone

"The picture it paints is simple. When more people have work, they are not only able to provide for their families, but they also earn money that they spend in their local communities - which are the parts of the economy where most people earn their livelihood."

Shaw says a wealth tax would help to rebalance the economy and ensure the wealthiest people in New Zealand, those who own property and shares, pay their fair share.

"We all chip in taxes so we can have the country we want, including affordable healthcare, quality education, and accessible public transport. This is exactly what taxes are supposed to pay for, and why those who are benefitting the most should chip in a little more."

ACT Party: 'The debt ... is going to be unaffordable'

ACT leader David Seymour says in the long-term, the debt levels from other parties are unsustainable and borders must reopen soon with tight regulations.

He says the numbers show it is clear public debt, unemployment and economic growth will be worse once the economic-stimulus "sugar-hit" wears off.

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ACT Party leader David Seymour Photo: RNZ / Dom Thomas

"The only thing that's got better is the next couple of quarters which is the sugar hit part of the game of two halves, once you get to the shutdown when that sugar hit wears off the forecasts have all deteriorated since May.

"In my view the government of New Zealand has not performed at providing sound public health strategy and measures and as a result our ability to weather the storm is worse than it might otherwise be."

He says every other party is in a spending race, but ACT is in "debt warning mode".

"I think New Zealanders are looking at the money that's being borrowed and saying can we afford all these spending promises ... because actually the debt that's being piled up is going to be unaffordable."

"What they want is a government that sets clear rules of the game so that businesses currently being driven bankrupt can remain open and they don't have to rely on wage subsidies for their employment - which is where too many people have been."

He says he thinks tightly regulated immigration and tourism needs to restart immediately.

"We've got to aspire to open the borders safely before the start of 2022. The rest of the world won't wait for us and a vaccine won't be here by then no matter how many people say they've got one."

"We have high-end tourist operators in central Otago who would be very happy to follow tight rules and pay heavy penalties for breaching them if they could bring high-end tourists in and isolate them themselves in a remote area.

"We're not able to do things like that because the whole modus operandi of this government is 'be grateful, don't aspire'."

Announcing the update, Finance Minister Grant Robertson had said the 2022 date was an assumption by the Treasury, not government policy, and the government planned to open borders as soon as it was safely able to do so.

Seymour says that is a good aspiration but not what the government has shown so far.

"I think the government's strategy of spending up large with cheap borrowed money now is not a sustainable approach."

He says the sustainable approach is to be smarter about public health and allow "real" activity to return.

On debt, Robertson argues New Zealand is in a far better position that other economies,

"The government met our target to lower net debt to 20 percent of GDP in both our first two budgets, putting us in a strong position to respond to Covid-19 and still maintain one of the lowest levels of debt in the OECD."

He said the Treasury was anticipating a 16 percent decrease in GDP in the June 2020 quarter.

"A historically large decline, but much smaller than the almost 24 percent forecast in the Budget update ... this is a global pandemic and it remains ongoing around the world. Many other advanced economies continue to struggle with heavily restricted economies and are having to manage large flare-ups of the virus. Our relative ongoing success in managing the virus still puts us at an advantage.

NZ First: Smarter economy, infrastructure and PGF are 'fundamental'

New Zealand First leader Winston Peters used the update to strike a blow against Labour and the Green Party.

Peters had a less rosy view, and said the update is the worst in New Zealand's history which should be a wake-up call for New Zealanders.

New Zealand First leader Winston Peters on the campaign trail in Rotorua.

"We've got a lot of soul searching to do" - Winston Peters Photo: RNZ / Simon Rogers

He said the next government would need to both grow the economy and live within its means, but parties on the left had made spending promises New Zealand could not afford.

"The next government needs to have a stiff backbone to resist Labour and the Green parties' grandiose spending plans.

"We've got a lot of soul searching to do ... it's no time for risks and wasteful spending. We need to be focused on turning our economy around now and those requirements mean that exports, running a smarter economy, the infrastructure ... and the Provincial Growth Fund are fundamental things to turn this economy around. It is no time for inexperienced and off-the-wall promises."

Peters said there was nothing to compare the situation to, as nothing like this had happened before.

He thought the unemployment figures were wrong.

"Unless we can get people very quickly relocated into jobs or trained for jobs, then unemployment could rise higher than the 7.8 percent they've predicted by March 22.

"These figures are predicated on what they know now. They're not predicated on the decisions being made by political parties right here in this campaign."

"What you have got out today is based on the last quarter and you can be certain it is not getting better right now because we have just been through another lockdown... I think the circumstances are worse than people in the Treasury have thought and dare I say it, hither to the government message has thought."

Unemployment could rise above 10 percent unless "we can change the psychology of a number of New Zealanders around in terms of being job ready and unless we can inject via sound tax policy, greater confidence into business", Peters said.

He championed the PGF as a tool for tackling the predicted unemployment.

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