While the consensus seems clear that Steven Joyce’s claim of Labour having an $11.7 billion dollar hole is not true, the same cannot be said of Winston Peters and New Zealand First.
New Zealand First’s spending promises have reached new heights this election, with at least $12.5bn per year unaccounted for. Add to that one-off outlays of $18bn, and a NZ First government would be scratching around for $55bn after one term (three years). This is from the ridiculous to the absurd, even for Winston Peters.
To give you an idea of how off the wall New Zealand First’s promises are, the annual income tax collect is only $33 billion, so Peters’ promises would require funding equivalent to roughly a 50% increase in tax rates - and even then we still have to find the $18bn of one-off costs.
Clearly, this is nuts. Winston Peters either has no intention of fulfilling his promises, or is contemplating the mother-of-all tax increases. Now, a cynic would say it doesn’t matter, that NZ First voters have no idea about such matters, so Winston can promise them the earth, and they’ll lap it up and believe in every word.
In other words, we’re witnessing a cult here, nothing to do with the art of the possible. Peters has always promised more than he can fund, and he has always gotten away with it. The issue in 2017 is the extent that he’s telling porkies. It’s bizarre.
Here’s the detail.
NZ First has confirmed they will reduce Company Tax rates to 25% over three-years, commencing from 1 April 2019. This is a drop in company tax of around 14.6% (taking account of exporter tax rates). Total corporate tax revenue is about $13b at the moment, so the cost of this change is around $1.9b pa.
Winston has also promised to “remove GST off food”, as well as local body rates. Let’s put aside the fact that tinkering with our GST system is fraught with issues, and there are much more efficient ways to make housing and food more affordable. The real problem here is the estimated $3.6 billion pa price tag.
The NZ First website claims the GST removal will be funded through a “tax evasion crackdown”, and clamping down on the black economy. There is absolutely no plan attached to how this crackdown will happen, nor how anything like that amount of revenue is out there to grab.
His plan to return GST from tourism to the regions hits the chord that he has been playing for years – that the death knell of our regions is “imminent”. With minimal detail given, it’s hard to know what this really means, let alone estimate the cost. It isn’t clear what money he would give back, to whom, and what that money would be used for. However, if this included both international and domestic tourism, the bill could run up to around $3 billion pa. Money that would otherwise fund central government’s activities has to be found from somewhere… we wonder where.
Environment & Climate
The promise to allocate adequate resources into alternatives to 1080, which NZ First will ban, has been costed by Newsroom at $450m pa to cover a similar area as the recent Battle For Our Birds.
NZ First also plans to ban inshore fishing and compensate the fishers for their losses, a plan that if it includes paua, lobster and snapper, would be a one-off cost at least $1.3b.
1,800 more police ($324 million pa based on Labour’s calculation of 1000 police).
The list of promises goes on with three free GP visits for pensioners a year (there are 600,000 pensioners and at $60 extra per visit, that is $108 million pa), and free health checks for year 9 students ($10 million pa, based on the cost of the B4 school check). Not a single one of these promises comes with an indication of how they will be paid for.
By far, the biggest cost on his campaign check book is his plan to give a universal student allowance, and write off student debt for those who stay in New Zealand for the same period of their study. Now, this would be great for all those students who are worried about the burden of their burgeoning debt. But what about the 70% of kids that don’t go to University, and the 40% of kids that don’t go on to any post-secondary school study? And what about the people who have to go overseas for their career?
Finally, what about the price tag? NZ First claims it will be only $450m, but we calculate it will be closer to $2.3b per annum, plus $5b in student loan write-offs, and that’s before hordes more people decide to go to University because it is free.
Business & Economy
NZ First has committed to raising the minimum wage to $20 an hour. New Zealand's minimum wage increased by 50 cents to $15.75 an hour on 1 April 2017. In 2016, when the minimum was $15.25 an hour, MBIE estimated that increasing it to $19.80 would cost the government an extra $545 million pa. It would also put about 30,000 people out of work – increasing the unemployment rate by about 1%, at the cost of around $300 million pa in unemployment benefits.Winston also wants to buy back the shares in SOEs that have been sold, which he will somehow do at the same price they were sold for. In fact, they want to bring our banks back into New Zealand ownership as well. It seems there is confusion even amongst their own ranks to how this will work, as recently Winston was forced to clarify a statement from current NZ First MP Richard Prosser when he said, "That means if you have shares in Contact [Energy], get rid of them.". A representative from Mercury Energy asked Prosser after the session how he proposed to fund such a buy-back of electricity companies, given it would be a one-off cost of at least $11 billion.
While failing to provide any substantial solutions to stem the housing crisis, NZ First have actually decided it’s a good idea to fuel it, promising to fix interest rates at 2% per annum for 5 years for first home buyers. From current investment stats, this would cost around $1.1 billion, not considering the flood of extra buyers who would be drawn in by such low rates.
Welfare Reform/ Family Poverty
Winston’s voter base has for some time been the elderly, and he is continuing that track with promises to remove income and asset testing from aged care. No one has costed that proposal, as it is likely to require Treasury’s database to do so.
And of course, Winston’s biggest bribe is a long-term one; his promise to keep the age of eligibility for Superannuation at 65. NZ Super alone by 2060 will be soaking up 8c in every dollar we earn, and as a result of this and rising health spending, government debt will have ballooned to twice national income.
Winston has said in the past that NZ Super is sustainable. By doubling GDP, Winston claims that we could halve the Super bill. He has neglected to give a plan on how to double GDP, and didn’t realise that NZ Super is linked to income, so would double too. In fact, the only way that GDP could mathematically double without the Super bill also rising is by either immigration or increasing business profits; neither of which are likely to appeal to Winston’s followers.
His commitment to Railways of National Importance, including a rail line to Marsden Point, will apparently be funded by “revenue generated by railway service charges” and a “combination of Land Transport Fund funding and crown grants.” These investments might prove to be cost effective, or, they might be as big a white elephant as the Government’s Roads of National Significance. At this stage we don’t even know the cost, with estimates for the Marsden Point line alone ranging from $100m-$1b.
The following are other promises made by Winston:
Re-carpeting government buildings with wool (costed by the Taxpayers Union at a one-off of $120 million).
A government contribution to a new sports stadium for Christchurch.
Commitment to rebuild the Christchurch Cathedral, with a one-off pricetag of $104m.
Many of the proposed changes from Winston will have a systematic impact on how our Government collects and spends each year.
Reduced Business and export tax rates: $1 .9 billion
Removal of GST on food: $3.6 billion
Return GST to regions: $3 billion
GP Visits and health checks: $120 million
Universal Student allowance and zero fees: $2.3 billion.
Increased Minimum wage: $545 million
Police: $324 million
Alternatives to 1080: $450 million
Increased Unemployment benefits: $300 million
Interest at 2% p.a. for first time buyers: $1.1 billion
$ 13.6 billion per year
Capital & one off costs.
Compensate fisheries: $1.3b
Share buyback: $11 billion
Railway of national importance: Between $100 million -$1b
Re-carpeting: $ 120 million
Christchurch Cathedral: $104 million
Student loan write-off: $5 billion
$ 18 billion