Steven Joyce has a cunning plan
By Richard Harman (author)
National showed is election campaign hand yesterday as it tried to back Labour into a corner on tax and appears to have already partly succeeded.
By the end of a day heavy with exchanges about the fiscal situation and the respective parties’ economic policies, Labour announced that it had dropped its 2014 campaign promise to raise tax on incomes over $150,000.
That was the tax that former Prime Minister John Key dubbed "the envy tax".
And as if to emphasise that National was now revving its campaign up, Prime Minister Bill English appeared to be sporting a new tinted hair style which made his hair appear less grey and more blonde.
But Labour was not the only party back tracking yesterday.
After NZ First’s Richard Prosser (correctly) told a Business New Zealand conference that the party’s policy was to buy back the privatised power generators and that delegates ought to sell their Contact shares now, Party Leader Winston Peters came back with a modified version of the policy.
Prosser came under fire at the conference from ACT Leader David Seymour who called him "a fucking idiot".
Then Peters himself appeared at the conference and when he was asked about Prosser’s comments in a question from the floor said buying back the generators was a matter of judgement and timing.
“Because properly controlled the value will not be in those shares the way it once was,” he said.
Then after he left the conference, he issued a statement going further.
He said had Posser had time he would have explained that the buyback of power companies would be at an appropriate time in the future, that is, “we would only be buying back shares when they became available.”
Whatever that meant.
But the real debate yesterday was over tax.
It started with the Pre Election Economic and Fiscal Update which showed a slight downwards adjustment in growth figures due to reduced residential investment.
Treasury pulled back the growth figures from the Budget by .3% for this year and next year and then by .1 per cent from then on out to 2021.
Even so, Westpac economist, Michael Gordon said the figures still seemed optimistic.
“We felt at the time of the Budget that the Treasury’s economic forecasts were very optimistic, and we would still regard them as such even after today’s downgrades," he said.
“For instance, the Treasury expects GDP growth to accelerate to 3.7% in the year to June 2019, a pace that hasn’t been reached at any point so far in this cycle.
“ In contrast, we expect growth to slow to 2.7% by that time.”
At the same time Treasury is forecasting some changes to the Govbernment’s fiscal situation with a more than doubling of the surplus this year to $3.7 billion dollars on the back of more tax and lower spending but then it sees lower surpluses --- albeit still large --- out to 2021.
If Westpac's forecast proves accurate, those surpluses will tumble.
The Government plans to set aside $1.7 billion a year increasing by 2% a year for new operating expenditure, otherwise, the money will be used to repay debt which is projected to fall from its current 24.5% of GDP to 20.00% of GDP by 2020.
That theoretically leaves nothing more for any Government to spend. And that’s how National's strategists hope to back Labour into having to announce more taxes to pay for policy initiatives they may announce during the campaign.
But there is a debate over the Government’s seeming rush to repay debt.
Some economists are arguing that the Government’s insistence on reducing debt to 20% is at the price of funding public services.
Joyce though defends the targets.
"The experience we have had as a country in recent times is that we have had both internal and external volatility brought about by unusual events, but some are sadly not as unusual as we would like them to be,” he told the PREFU media briefing.
"We had first the GFC which created a need to have fiscal headroom or debt headroom and secondly, of coruse, the Canterbury earthquakes.
"In effect over that period, we lifted net debt from, about six per cent of GDP up to about 26% of gd.
“So our view is that we should be creating perhaps not quite as much headroom as previously but certainly sufficient headroom to be able to do that again.”
However, Joyce has been able to foreshadow another Families' Income Package in 2020 if conditions allow it.
He didn’t specify those conditions at the media briefing but said he would talk about them on the campaign trail.
However shortly after the briefing ended the National Party put a statement setting out the conditions.
It said they were:
- Maintaining the Government’s debt targets of reducing net debt to 20 per cent of GDP by 2020 and 10-15 per cent of GDP by 2025
- Meeting the Government’s spending commitments and forecasts for building infrastructure and improving public services laid out in Budget 2017
- Funding any Family Incomes Package from cash surpluses and not from additional borrowings
The statement continued: “The Pre-election Fiscal Update showed that cash surpluses beyond current and future budget spending commitments would commence from the 2020 financial year.
“Mr Joyce says that a second Family Incomes Package would have a similar emphasis on the first package that commences 1 April next year.
"We would want to focus particularly on lifting the incomes of low to middle-income families, look to simplify further the tax and transfer system so people can more easily see the link between their work and their earnings, and continue to lift the lower tax thresholds as incomes grow," Mr Joyce says.
"The average wage is predicted to grow from $58,900 in March 2017 to $65,700 over the next four years. It is very important that we aren't taxing middle-income earners at 30 cents in the dollar. "
Thus National now has a clear difference with Labour which is committed to scrapping the April 1 tax cuts next year to make way for more spending on health and education.
Essentially Joyce (who is National's campaign chair) is offering potential National voters two rounds of tax cuts over the next Government.
The package next year will cost $2 billion.
But Labour is proposing to spend $12 billion health and education over the next four years.
Joyce argues, that on the figures presented yesterday they would have only two choices. Either they paid debt down more slowly, or they increased taxation.
Expect to hear along those lines from National as the campaign unwinds!
But National may he overly optimistic if it thinks the rest of the election campaign is going to focus on fiscal management.
At the Business NZ conference, the Prime Minister was asked about how he planned to counter Ms Ardern.
A questioner from the floor said a lot of talk in business was about engaging millennials who were more interested in purpose than profit.
“I wonder today whether Jacinda Ardern is relating to people a bit better, more with the purpose than the nuts and bolts that you described today.”
English replied that he knew young people, he had raised six of them.
“I can tell you one thing,” he said.
“They know when purpose and values need to translate into action.
“On the first place, I’ve set out what I think New Zealand can achieve and for young people that I talk to, they believe they should have the ability to express their talents and their aspirations in New Zealand whether those are doing good works, running businesses or improving the environment and I agree with them.”
So we now have there the contesting themes of the campaign; Labour’s sunny politics of hope and National’s matter of fact politics of pragmatism.