12 Sep 2023

Election 23: Country paying high price for Labour 'mismanagement' of economy - David Seymour

6:37 pm on 12 September 2023

The opposition has hit out at government spending and borrowing after the pre-election economic and fiscal update but Labour says it shows the economy turning a corner.

The Pre-Election Economic and Fiscal Update, released this afternoon, is a bit more positive than expected, with a more moderate slowdown now predicted over the next few years.

It said the recovery would be largely driven by high levels of migration that have helped stabilise house prices and fill critical skills shortages, but it comes with warnings about the potential impact on housing demand and inflation. Unemployment is expected to peak at 5.4 percent in 2025.

The update shows New Zealand should avoid recession in the coming months, but will return to surplus later than forecast in the Budget, and deliver larger deficits in the meantime.

There's still persistent inflation, predicted to come back to acceptable levels only in late 2024 - which means interest rates are likely to stay higher for longer.

National said the books showed six years of Labour's economic mismanagement had taken a toll on New Zealand, with "more pain to come", leader Christopher Luxon saying Labour's high spending meant the economic slowdown would last another 18 months.

ACT said the update showed spending within three years was set to be $11 billion higher than previously forecast, which could mean more borrowing.

The government argues the books show New Zealand's economy recovering, with inflation coming down.

National: 'Life shouldn't be this tough'

The economic forecasts show that six years of Labour's economic mismanagement have taken a toll on New Zealand, with forecasts showing a sustained economic slowdown, high inflation and high interest rates, Luxon said.

"Treasury's latest forecasts show the economy isn't working for Kiwis. The economic slowdown is expected to last for another 18 months, as interest rates stay high for longer in an attempt to combat persistently high inflation driven by Labour's addiction to spending."

With government spending up and debt blowing out, households and businesses would remain "under pressure"," with "more pain to come", Luxon said.

"New Zealanders deserve better. Wages have been growing slower than inflation, the fortnightly cost of a $500,000 mortgage has increased by $750 in the last two years, and food prices have been increasing at rates not seen since the 1980s.

National Party leader Christopher Luxon and deputy leader Nicola Willis respond to the PREFU on 12 September, 2023.

National Party leader Christopher Luxon and deputy leader Nicola Willis respond to PREFU. Photo: RNZ / Giles Dexter

"As a result of our economic conditions, too many of our people are looking at opportunities overseas, with nearly 40,000 Kiwis permanently leaving the country in the last year.

"It is clear that Labour is out of ideas and has no plan to turn things around. New Zealand can do so much better."

At a media briefing, Luxon with finance spokesperson Nicola Willis alongside said: "Make no mistake, Labour's addiction to spending is driving this economic pain."

He said it was not just about the figures. Behind all the data, families were having to face tough decisions, such as taking on second jobs and giving up things like swimming lessons for their children.

"Life shouldn't be this tough," Luxon said.

"Labour has had no plan to grow the economy, other than spend more money."

Despite spending $1 billion more a week, the current government had little to show for it, citing a slip in educational standards, pressures on the health system and rising crime.

Willis said: "Labour has left the cupboard bare. After years of spending up a storm, the day of reckoning is now here."

Debt blowing out, the longest string of deficits (seven years), flat real GDP to the end of 2024 and high interest rates were among disturbing signs, she said.

By 2027 government debt would be $129b - $13b more than was projected in the Budget in May.

"There's a $13b hole in the economy which we learned about an hour ago."

She said Finance Minister Grant Robertson had never curbed his spending and was not about to start now.

"We need to get discipline back in government spending and stop the waste."

Willis said after looking at the forecasts National remained committed to its plans for tax cuts.

"But we are also committing that every dollar taken in tax will be spent carefully."

Willis said the Nats had been "very conservative" in their projections to ensure they could provide tax cuts without penalising frontline services such as health and education which would actually be allocated higher funding every year.

Luxon said the country was seeing economic mismanagement on a scale it had not seen before, labelling Robertson "one of the worst finance ministers this country has seen". Better fiscal outcomes were required than what had been shown today, he added.

Like ACT, National would also be releasing a full fiscal plan, Willis said. It would be available before early voting started, Luxon said.

Labour: Economy is 'turning the corner'

By contrast, Labour leader Chris Hipkins said the update showed the New Zealand economy was "turning the corner after a rough period of time".

"Economic growth is returning, the government's books are heading back into surplus and we're winning the battle against inflation," he said. "Forecasts are showing that unemployment will remain low and there is real reason for optimism about the future of the New Zealand economy.

"The government's careful management of the government finances does see us returning back into surplus - albeit a year later than we had previously been expecting - that is an indication of the difficult economic period that we have been in just right about now when we see tax revenue declining."

Labour leader Chris Hipkins on the election campaign trail, with Nelson candidate Rachel Boyack (right), on the streets of Nelson on 11 September, 2023.

Labour leader Chris Hipkins in Nelson on Monday. Photo: RNZ / Nathan Mckinnon

"Overall I'm pretty pleased with the picture that the pre-election fiscal update is showing."

Labour has been contending with a dramatic 5.5-point decrease in the latest Newshub poll compared to six weeks earlier. Hipkins defied the polls.

"Forecasts can be wrong," he said - referring to the poll, not the Treasury's modelling - "we've got five weeks of campaigning ahead of us ... we're gonna need a good campaign and we're going to have one."

He had acknowledged on Morning Report the poll showed there was a "mood for change" - he said Labour was "also offering change".

"We've got a range of practical targeted measures that are going to make a difference to New Zealand families - like making dental care free for under-30s with a plan to roll it out further in future terms of government like taking GST off fruit and vegetables; like making prescriptions free; and we saw from the visit that we had in the pharmacy this morning just what a difference that is making.

"I said when I became prime minister that I wanted to refocus the government on getting back to basics, that we were going to focus on issues like the cost of living. Inflation coming down shows that we're starting to win that battle."

Challenged over Labour's ability to make further promises of spending for its election campaign given the state of the books, he said the party would release a full fiscal plan, the promises would be modest and all add up, the costings would be accurate and they'd have a plan to pay for them.

"That's certainly not something the National Party can claim at this point, because - what are we now, 14, 15 days after they've announced their tax plan - all of the numbers have fallen apart and they still won't share with New Zealanders what they're going to cut or how they're going to pay for the massive hole they've got in their plans."

ACT: 'This government has left us with no more money'

ACT leader David Seymour said the update had revealed Robertson's "poor economic management".

"The next government will need to take real action to balance its budget so Kiwis can balance theirs," Seymour said.

"PREFU shows Labour has no plan for paying off debt, no plan for turning things around, every year forecast the country borrows more and more until we lose first world status."

ACT party leader David Seymour

ACT party leader David Seymour. Photo: RNZ / Angus Dreaver

Seymour said the country needed to go in a new direction that focused on reducing wasteful spending rather than having high spending, borrowing, debt and interest repayments and a large current account deficit that would take the country to 59 percent of GDP total foreign debt by 2026-27.

ACT would release an alternative budget to offer some hope to escape "the long, slow slip" next week.

He promised "fiscal responsibility" if ACT was part of a new government.

"Unfortunately this government has left us with no more money - they've run out of other people's money and we're now going to end up spending more on interest repayments than primary and secondary education."

Seymour said in a media release the update showed that within three years spending will be 11 billion higher than forecast last year which would lead to even more borrowing with net debt forecast to reach $100 billion by 2025.

"More debt means more interest. The interest bill is forecast to be $9.2 billion by 2026, exactly twice the $4.6 billion expected in BEFU 2022.

"New Zealand is now spending more as a country on interest than primary and secondary school education, and twice as much as is spent on police, courts and corrections combined. Kiwis' taxes aren't paying for public services, they're paying for Labour's mismanagement."

Seymour said government spending and borrowing was contributing to New Zealand's current account deficit blowout which remained in the negative throughout the forecast period.

"New Zealand is marking time and borrowing money to stand still, it's like we're still in Covid paralysis while the rest of the world has moved on."

Labour had gone from spending $80 billion a year to $139 billion a year, he said.

In his comments Seymour also took a swipe at potential coalition partner National, saying its plans for savings of $2b a year have already been offset by PREFU forecasting for more than $2b in extra core Crown expenses in 2024 alone.

"Criticising but then keeping wasteful programmes like Fees-Free and free school lunches [which National has announced it will retain] is not the real change of direction New Zealand needs," Seymour said.

Greens: 'When things get tough, government needs to do more'

Green Party finance spokesperson Julie Anne Genter said the numbers were better than people had been expecting - but people were doing it tough, and the government should be supporting them more.

"A government is not like a household budget, when things get tough government needs to do more to help our people - that's why we have it there. It's there for us to work together to get through the hard times.

"The really responsible thing for government to do right now would be to change the tax system, to raise more revenue so that we can support New Zealanders who are doing it tough. That means increasing Working For Families; doubling the Best Start payment and making it universal for babies under the age of three; building thousands more warm, dry homes; and making dental care free."

Green party MP Julie Anne Genter

Photo: RNZ / Angus Dreaver

Predictably, she talked up the prospects of funding these through the Greens' proposed wealth tax.

"That's important because it means that we raise enough money to guarantee everyone an income that covers life's essentials. There is so much we can do as a country if we fix our unfair tax system.

She warned against the National and ACT party policies, by comparison.

"We have a massive infrastructure deficit and we also have a social deficit in New Zealand, so the absolute wrong thing to do would be to cut spending and to cut taxes in a way that primarily benefits the highest-income earners, or landlords and property speculators: that's what National and ACT are proposing.

"I think that the parties on the right will do and say anything to try and get votes. They know that people are struggling with high cost of living and they claim to have the solutions but in reality they're largely going to help the very wealthiest get even wealthier, give tax breaks to property speculators. None of that is going to help build a more inclusive and strong New Zealand."

"The very wealthiest in New Zealand and around the world would have average people believe that having them get richer is somehow going to benefit everyone - we know that's not true, those are the failed policies of the 1980s and 90s here in New Zealand. They made inequality worse."

RNZ has approached Te Pāti Māori for comment, but it was yet to respond.

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