Labour s Alternative Budget

Transcription

1 Labour s Alternative Budget Pre-election Update

2 About this paper This paper lays out the fiscal consequences of Labour s first term policies. It forecasts those consequences through to Fiscal Year 2020/21, which will be the end of Labour s second term. This is the most comprehensive forecast of the impacts of policies produced by any political party. Even with the resources of government behind it, National has not articulated how it will spend the new operating spending allowance it has allocated in the budget during the next parliamentary term. We show how our election promises are costed and paid for, and the surpluses which result. We have made a $1 billion allowance from the $1.5 billion pa allocated in the government s budget to new spending. While this $1 billion remains unspent, we have stated this will largely be needed to maintain service levels the face of inflation and demographic change especially in health and education. Underlying every number in this paper are Treasury s projections for the economy and the Crown accounts; we haven t created our own projections, simply laid the fiscal effects of our policies on top of Treasury s. An important point to note is that, although we expect our policies to result in stronger growth than the weak growth projected under the current government s policies, we have been conservative and not incorporated those expectations into these projections. Labour uses the Net Core Crown Debt including the New Zealand Superannuation Fund measure of debt. It is logical to include the NZS in the measure of net debt as it is an asset that will be used to allow the Crown to reduce the need to borrow in the future. It is no different from any other Crown financial asset, only the time until the assets are expected to be realised is longer. Both the current government and the previous Labour government produced net debt including NZS figures in the Budget tables. The first section of this paper shows, in total terms, how Labour will pay for its new spending commitments while also paying off National s record debt. It also provides side-by-side comparisons of fiscal changes under the current projections and under Labour s. The second section shows in more detail how our policies achieve Labour s fiscal goals of paying down the current government s debt; rebalancing government revenue to discourage speculation and back innovation; investing for New Zealand s future; and guaranteeing service levels in health and education. The third section provides the fiscal tables showing how Labour s policies add up to restrained spending and reduced debt. It also provides an explanation of the major lines within those tables. The fourth section provides further detail on the major policies with fiscal impacts. The final section explains some of the changes and choices we have made following the deterioration in the government s fiscal outlook in Pre-Election Economic and Fiscal Update. 2

3 Highlights Labour will: Balance the Budget and run surpluses. Reduce debt faster than the current government. Pay off National s record debt by the end of our second term. Create fiscal headroom to allow the option of income tax reductions in the second term. Specific targets Labour will: Reduce Net Core Crown Debt (including the New Zealand Superannuation Fund) back to 3.0% by the end of Fiscal Year 2020/21. Limit new operating spending from new policies to less than the new operating spending allowances for future years projected in Budget 2014 plus the net increase in revenue resulting new policies. Use revenue tools to drive economic transformation by removing loopholes that encourage property speculation, while reducing taxation on innovation and investment. This will help achieve Labour s goals of reducing unemployment to 4% by the end of our first term and increasing wages. Target tax avoidance, particularly by multi-national corporations. Restore contributions to the New Zealand Superannuation Fund. Raise working capital for KiwiBuild. Re-direct funds from the current government s failed IES policy towards hiring an additional 2,000 teachers and modernise our schools for the 21 st century. Provide free doctor visits and prescriptions for children under 13, pregnant women, and people aged 65 and over, extend the Care Plus programme for people with chronic illnesses and extend Very Low Cost Access GP visits to a further 700,000 New Zealanders. Maintain and enhance public services that families rely on, particularly health and education, by reducing part of the tax cuts given to the wealthiest New Zealanders by the current government. Leave adequate fiscal headroom to allow for tax cuts, improved services, or faster debt repayment in Labour s second term. 3

4 Table of contents Finance Spokesperson s Statement... 5 Labour 4 and 6-year totals compared to current government... 8 How Labour s policies affect the Crown accounts... 9 Labour will reduce net debt back to the level the current government inherited by limiting new spending to what can be afforded while investing in economic transformation including through revenue reform building our assets by restoring contributions to the New Zealand Superannuation Fund & investing in KiwiBuild.. 11 maintaining and enhancing public services, particularly health and education, funded by reducing part of the tax cuts given to the wealthiest New Zealanders supporting families through our Best Start, education, and health packages and leaving options open for the second term Fiscal tables Line by line analysis of the fiscal impact of Labour s policies Explanation of significant lines in the fiscal tables Labour OBEGAL Labour net debt Net new spending by year Major capital policies Minor capital policies funded within the new capital spending allowance Net increase in revenue Net increase in expenditure Allowance for governing partners Major policies with fiscal impacts Capital gains tax Progressive top tax rate Trust rate adjustment to maintain alignment with top personal income tax rate Loss ring-fencing Clamping down on tax avoidance Backing business innovation R&D Backing business innovation Accelerated depreciation Universal KiwiSaver NZ Power Best Start package Education package Health package Restarting Cullen Fund contributions KiwiBuild Allowance to maintain service levels, especially in health and education Future announcement Accounting for the worsening of the Crown s debt track Changes from previous Fiscal Plan How announced policies were costed

5 Finance Spokesperson s Statement A strong, growing economy and budget surpluses underpin Labour s vision for New Zealand. We need enough jobs so that every Kiwi who wants one can get one. They need to pay well and be secure so our families and communities flourish. To get there, we need smart economic policies that help businesses grow and ensure that working New Zealanders get a fair share of the wealth they create. Many families have not benefited from the long-promised recovery. Inequality is rising in New Zealand. Homeownership is at a 60-year low and falling. The number of children living in poverty has risen by 40,000 under the current government. Rising inequality is bad for our economy and our communities. The Pre-Election Fiscal and Economic Update shows: Economic growth has peaked and will halve to 2% pa over the next two years. The budget surplus is about $0.5 billion pa less in out years than was predicted at the time of the budget. Exports, having already dropped from 33% of the economy when National was elected to 29% now, are forecast to fall further to 26% of GDP. National s promise to lift exports to 40% of GDP is now derided by commentators. Our external deficit rises to $17 billion (over 6% of GDP). Real wage growth is forecast to average less than 1% pa over the next three years. Interest rates, already higher than in Australia and most of our other competitors, are predicted to increase further. Exporters and manufacturers are still cutting jobs in the face of an over-valued dollar. Our economy is increasingly focused on housing speculation and commodity exports, the prices of which have plunged in recent months. For sustainable growth, we need an economy built on a diverse range of sophisticated, jobrich exports. That s why Labour has developed a series of policies to upgrade our high-value export sectors. We ll support forestry and manufacturing to create more, well-paying jobs. Monetary policy will be brought into the 21st century so that exporters aren t crippled by an overpriced exchange rate. We expect these policies will help drive unemployment down to 4% by the end of our first term. The Economic Upgrade, including universal KiwiSaver, Capital Gains Tax (excluding the family home), accelerated depreciation, industry training and KiwiBuild, will be at the core of the next Labour government. This will transform the New Zealand economy and support higher incomes and lower inequality. Through KiwiBuild, Universal KiwiSaver with Variable Savings Rate, CGT, and restrictions on offshore speculation, Labour will stabilise the housing market to restore the Kiwi dream of home ownership and direct more investment into the productive economy. Labour s policies also improve outcomes in housing, education, for children, and in health so that New Zealand is a fairer and more prosperous place to live. Underlying these policies are solid fiscal foundations. Labour s alternative budget, updated in light of the PREFU, shows we will run surpluses every year unless there is another significant international downturn or natural disaster. We ran nine surpluses in a row when last in government, left zero net debt, and have shown how we can do this again. We ll pay off National s record debt by the end of our second term, while meeting our election promises. We have put aside money to make sure the real value of spending in health and education isn t eroded by inflation and population growth. 5

6 Rising revenue from the Capital Gains Tax will create the fiscal headroom for the option of income tax reductions in our second term. Our commitment to running surpluses to pay down debt has meant making tough choices; not all the policies we would like to pursue can be funded. We have cut our cloth. Election time is a time to debate both fiscal and economic policy. This alternative budget shows how the numbers add up. Now let s have an election debate about Labour s economic and other policies. Hon. David Parker, Labour Finance Spokesperson 6

7 Graphs of how Labour balances the books and pays down debt In the next six Budgets, , the government plans to spend $495 billion. $32.6 billion ($1.5 billion per year, growing with inflation, accumulating) of that is unassigned money called the new operating spending allowance. This is the main way a government funds new spending. It is money the current government plans to spend; it just hasn t told New Zealanders how it would spend it. On top of that $32.6 billion available for policies, Labour will raise $4.4 billion in new revenue, through a combination of cutting down on tax evasion, introducing a new progressive top tax rate of 36%, earnings and tax from restarting the Cullen Fund contributions, and a capital gains tax (excluding the family home). This creates $37.0 billion of headroom for Labour s policies. Of that $37.0 billion, Labour will spend $4.4 billion on new operating spending policies such as our Best Start, Education, and Health packages. Another $1 billion is set aside for policies of our governing partners (note; many of our potential governing partners policies align with our own and/or are self-funding). This leaves $31.6 billion of remaining headroom. Of the $31.6 billion remaining, Labour will put aside $21 billion ($1 billion per year, accumulating) as an allowance for maintaining and improving public services. The primary purpose of this allowance is to meet cost pressures faced by health and education services due to inflation and demographic changes. A further $3.7 billion is set aside for second term policies. Leaving $6.9 billion headroom. Because the new revenue exceeds new operating expenditure, Labour will run larger surpluses, which will be used to pay down debt faster (see below). This will result in savings on interest (finance costs), totalling $0.9 billion. This will add to the remaining headroom, giving a total of $7.8 billion. Billions $ per year Billions $ per year /16 16/17 17/18 18/19 19/20 20/21 Unallocated new operating spending allowance Allocated Core Crown expenditure Billions $ per year Billions $ per year Billions $ per year /16 16/17 17/18 18/19 19/20 20/21 Net new revenue Unallocated new spending allowances /16 16/17 17/18 18/19 19/20 20/21 New net operating expenditure, partners allowance, reserve Remaining headroom /16 16/17 17/18 18/19 19/20 20/21 Public service allowance and Budgets Remaining headroom /16 16/17 17/18 18/19 19/20 20/21 Interest savings Remaining headroom 7

8 Of the $7.8 billion of remaining headroom, $2.1 billion will be invested in major new capital spending the resumption of New Zealand Superannuation Fund contributions and KiwiBuild. After these capital investments, $5.8 billion will be available for achieving Labour s target of paying down the current government s record debt by the end of our second term. Using the $5.8 billion to pay debt will make the debt reduction curve steeper, reducing net debt to $9.3 billion (3.0% of GDP) in 2020/21, rather than $15.1 billion (4.9% of GDP), as it would be on the current government s track. This will return net debt to the level that the current government inherited at the end of the 2020/21 fiscal year. Billions $ per year Billions $ per year /16 16/17 17/18 18/19 19/20 20/21 Capital investment Remaining headroom /16 16/17 17/18 18/19 19/20 20/21 Labour net debt Current government net debt Labour 4 and 6-year totals compared to current government Over the next four years, the current government plans $15.3 billion of new spending. Labour will spend $15.6 billion, offset by $2.0 billion in new revenue and $0.3 billion in interest savings for a net fiscal impact of $13.3 billion. Since Labour s net spending is less than in the current government s, we will be able to reduce net debt by $2.0 billion more. Over the next six years, the current government plans $32.6 billion of new spending. Labour will spend $32.1 billion, offset by $4.4 billion in new revenue and $0.9 billion in interest savings for a net fiscal impact of $26.9 billion. Since Labour s net spending is less than in the current government s, we will be able to reduce net debt by $5.8 billion more. 19/2 0 20/2 1 4 year total 6 year total 15/16 16/17 17/18 18/19 Current government spending allowances New net operating expenditure Public service allowance and Budgets Partners allowance Capital policies' impact on debt Labour spending New net operating revenue Operating policies impact on finance costs Labour total net spending Extra debt reduction with Labour

9 How Labour s policies affect the Crown accounts Labour will reduce net debt back to the level the current government inherited... The previous Labour-led Government made reducing government debt a central priority. In 2008, the New Zealand Government s net debt was less than zero for the first time in history. It increased slightly during the recession to stand at 3.0% of GDP at the end of Fiscal Year 2008/09. Since 2009, New Zealand s net government debt has increased, from less than $6 billion to $37 billion - from 3.0% to 15.2% of GDP. Much of the borrowing undertaken by the current government was necessary to pay for government services because the recession hit the tax take and the economy failed to recover as fast under National as had been forecast. The Canterbury earthquakes have led to billions of dollars of justified borrowing. But National also contributed to the debt unnecessarily. They cut income tax for the wealthiest New Zealanders during the recession, at a cost of over $4 billion so far. They have failed to make the required contributions to the Cullen Fund for the past five years, during which the Fund has made an 87% return. The Fund estimates that decision has cost it $4.3 billion in net returns. Fixing the current government s mistakes and paying down debt so that New Zealand is able to weather future economic storms will be a priority of the Labour-led Government. Labour will run larger surpluses and pay down National s debt faster. By the end of our second term, Fiscal Year 2020/21, we will have reduced net government debt back to 3.0%. Surplus 15/16 16/17 17/18 18/19 19/20 20/21 Labour OBEGAL, billions $ PREFU '14, OBEGAL, billions $ Labour OBEGAL, % of GDP 0.5% 0.9% 1.4% 2.2% 2.8% 3.1% PREFU '14 OBEGAL, % of GDP 0.3% 0.7% 1.1% 1.8% 2.3% 2.5% Net new spending policies impact on OBEGAL Capital policies impact on OBEGAL Net Impact on operating balance Debt track 15/16 16/17 17/18 18/19 19/20 20/21 Labour net debt including NZS, billions PREFU'14 - Net Core Crown debt incl NZS, billions Labour net debt including NZS, % of GDP 15.0% 13.7% 12.3% 9.8% 6.5% 3.0% PREFU '14 net debt including NZS, % of GDP 15.0% 13.8% 12.6% 10.5% 7.8% 4.9% Net new operating policies impact on net debt (negative means reduces debt) Major capital policies impact on net debt (positive means increases debt) Total impact of Labour policies on net debt (compared to PREFU '14)

10 by limiting new spending to what can be afforded Labour will keep our new spending policies within responsible fiscal limits. Budget 2014 allows for $1.5 billion of new operating spending each year (rising with inflation). In 2015/16 new operating expenditure is $1.384 million and the net impact of new operating policies is billion. In all outyears, new operating expenditure is the same or less than the allowance. By 2020/21, additional spending is $1.665 billion, partially offset by $327 million in additional revenue that year for net new spending of $1.339 billion, against the new operating allowance for that year of $1.656 billion in Budget Total operating account policies by year, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 BEFU '14 new operating spending allowance Net new operating expenditure by year Allowance for governing partners Net new operating revenue change by year Allowance to maintain service levels, especially in health and education by year Second term new operating spending allowances by year (unallocated) Net new operating policies by year Net new operating policies impact on OBEGAL (positive means increases surplus) Net new operating policies impact on net debt (negative means reduces debt) *Labour accounts for revenue reductions, such as tax credits, as negative revenue, not expenditure. This commitment to restrained net spending means Labour will be able to pay down debt faster than National, and our new policies won t put more pressure on inflation. while investing in economic transformation including through revenue reform The primary focus of Labour s revenue policies is using tax measures to enable economic transformation. Labour will close off tax advantages that promote speculation and clampdown on tax avoidance, particularly by multi-nationals. At the same time, we will cut taxes to facilitate innovation and investment, support savings and reduce power costs to businesses and families. The measures to discourage property speculation will help to shift money into the productive economy while the measures to discourage tax avoidance will mean that people pay their fair share rather than putting the burden on to others. These measures are expected to bring in $277 million of additional revenue in 2015/16, rising to $1.706 billion by 2020/21. The increase is principally due to the ramp-up of Capital Gains Tax revenue as that policy takes force. 10

11 First term initiatives to discourage property speculation and avoidance, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 Capital Gains Tax Trust rate adjustment to maintain alignment with top personal income tax rate Loss Ring-Fencing Other Anti-Avoidance Measures Total These measures are largely counter-balanced, especially in the initial years, by revenue reductions due to Labour s policies to back investment and innovation, and reduce business costs, while supporting savings. These measures are expected to reduce revenue by $215 million in 2015/16, rising to $626 million in 2020/21. The increase is largely driven by the R&D tax credit, and partially negated by the lower cost of Universal KiwiSaver over time. First term initiatives to encourage innovation and growth, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 R & D Tax Credit Accelerated Depreciation Universal KiwiSaver NZ Power (Net Impact) Total These policies form part of Labour s economic upgrade. They will help to stabilise the housing market, reduce business costs, boost our most innovative, productive companies, deepen the local capital pool for investment, and build a better future. building our assets by restoring contributions to the New Zealand Superannuation Fund and investing in KiwiBuild Building New Zealand s assets will be a core focus of the Labour Government. Restoring contributions to the Cullen Fund and KiwiBuild are part of that agenda. They necessitate carrying slightly more gross debt but that is offset by the assets created. Cutting contributions to the New Zealand Superannuation Fund (the Cullen Fund) stands out as one of the current government s most ill-timed and costly mistakes. They have failed to make the required contributions to the Cullen Fund for the past five years, during which the Fund has made an 87% return. The Fund estimates that decision increased net government debt by $4.3 billion. Labour will restore Cullen Fund contributions starting with payments of $750 million in 2015/16 and $1.5 billion in 2016/17, and returning to full contributions from 2017/18. This will help secure and sustain the future of New Zealand Superannuation. This means reducing gross debt slightly more slowly than projected in Budget 2014, but that is more than offset by the extra returns the Fund generates and the extra tax that it pays. In the outyears, Labour s required contributions to the Cullen Fund become less than those required under the late restart projected in Budget

12 In 2015/16, Labour s investment in the Cullen Fund reduces to net debt by $3 million. By 2020/21, as the returns on the additional contributions compound and outstrip the additional borrowing cost, the earlier restart of contributions reduces net debt by $724 million 1. Labour s KiwiBuild policy will build 10,000 affordable houses each year for 10 years and sell them to families. This policy is fiscally neutral over its life. The houses are sold and the building costs are recouped. But an initial capital pool is needed to fund construction. To finance this programme, Labour will commit $1.5 billion of capital, which will be used to build houses, then recycled as the houses are sold to pay for the next round of house construction. That will mean that reducing net debt slightly more slowly in the initial years of the Labour Government, but this will be more than offset over time by Labour s restrained spending and new revenue policies. At the conclusion of the KiwiBuild programme, when all the houses have been sold, the net cost to the Crown will be zero and the capital fund will be returned, eliminating the impact on net debt, but that will occur after the forecast period. Major capital policies, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 Labour NZS contributions PREFU 14 NZS contributions Additional assets in NZS Extra investment income (impacts on OBEGAL, but remains part of financial assets) Extra tax from NZS restart (impacts on OBEGAL) Additional borrowing due to earlier NZS contributions NZS restart - total impact on debt (negative means reduces debt) NZS restart capital impact on debt (excluding additional tax & investment income, counted in operating) KiwiBuild capital commitment KiwiBuild impact on finance costs KiwiBuild impact on net debt Major capital policies impact on OBEGAL (negative means reduces surplus) Major capital policies impact on net debt (positive means increases debt) The effect of the NZS on net debt is partially expressed on the operating balance sheet, through greater tax payments by the Fund and greater investment income for the Crown, and partially on the capital side of the ledger through greater financial assets in the Fund. Investment income is counted on both operating and capital, as it s retained by the Fund, but this double count is removed from our calculations on the total impact on debt 12

13 maintaining and enhancing public services, particularly health and education, funded by reducing part of the tax cuts given to the wealthiest New Zealanders The highest-income New Zealanders have received over $4 billion in tax cuts as a result of National s reduction of the top income tax rate to 33%. Everyone faced a GST increase but GST paid as a proportion of income is lower for people with higher incomes. Labour will introduce a new Progressive Top Tax Rate to reduce the size of the tax cuts that the highest-income New Zealanders are receiving. This will allow us to fund important policies while paying down National s debt by the end of our second term. The new Progressive Top Tax Rate will be 36 cents in the dollar on income over $150,000 a year. This will impact 2% of taxpayers, whose average income is over $260,000 a year. The trustee income tax rate will be raised to the same level to stop trusts being used as a tool to avoid tax (note that an exemption already exists so that disabled minors who are beneficiaries of trusts are not taxed at the trustee rate, as other minors are). The new Progressive Top Tax Rate will apply from October It will raise $198 million in 2015/16, with a full fiscal year impact of $279 million. This will increase to $350 million in 2020/21 as incomes rise. Revenue from new Progressive Top Tax Rate, millions $ 15/16 16/17 17/18 18/19 19/20 20/21 New Progressive Top Tax Rate Every year, health, education, and other public services need a non-automatic funding increase to cope with inflation, the growing population, and the effects of the ageing population. The current government has failed to put enough new money into health and education to maintain real spending levels. According to Treasury, the current government has failed to invest enough to maintain real spending levels in education in four out of six Budgets and in health in three out of six Budgets. Expenditure on health fell by 2.3% in real terms in Budget 2014 alone. In total, the real value of health expenditure has declined by 1.5% under the current government while education expenditure is down 2.3% in real terms. To maintain the real level of investment in health and education services, over $700 million a year is needed. The following table shows the additional funding in excess of what is projected in Budget 2014 that is needed to maintain the real value of health and education spending in future years. Increase needed to maintain real value of health and education, billions S 15/16 16/17 17/18 18/19 19/20 20/21 Budget Budget Budget Total required in first three Budgets Labour is putting aside $1 billion each year to meet these cost pressures in health, education, and other public services. This is a commitment of a billion dollars of additional funding each year so that the public services families will rely on won t be squeezed by inflation and demographic change. 13

14 Allowance to maintain real value of spending in public services, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 Budget Budget Budget Total allowance allocated in first three Budgets This is the first time that any government has allocated money in future Budgets, guaranteeing to maintain the real level of spending in vital services. It also means that when we announce new policies in these areas it will genuinely be an additional investment, not a cost adjustment in disguise. supporting families through our Best Start, education, and health packages On top of the billion dollar allowance, Labour has announced significant packages for young families, health, and education. Best Start: Labour has announced the Best Start package of policies that will give our children the best start in life. Labour will create the Best Start Payment of $60 per week during a baby s first year of life, commencing when Paid Parental Leave finishes and universal for all families earning under $150,000 per year. A Best Start Payment of up to $60 per week between the child s first and third birthdays will be targeted at modest and middle income families. This will replace the current Parental Tax Credit. Labour will introduce 25 hours of Free Early Childhood Education for New Zealand s three, four and five year old children, an increase from 20 hours. The policy will save all families with a three, four or five year old in ECE full-time or nearly full-time around $25 each week. Labour will restore the funding cut in Budget 2010 for centres with high numbers of qualified staff, and we will work with the sector to reinstate the policy of 100 percent qualified staff in all teacher-led services. Labour will extend the policy of Free Early Childhood Education for the most vulnerable children earlier than three years of age. Labour will introduce 26 weeks of Paid Parental Leave. This will provide around 26,000 families a year extra time with their new-born babies. The policy will be phased in over three years: 22 weeks from April 2015 and 26 weeks in July Best Start will cost $125 million in the first year, rising to half a billion dollars a year once fully implemented. (Note: these figures have been updated since the policy was launched in January 2014 to take account of relevant policy changes in Budget 2014). Education: The education package will see an additional 2,000 teachers employed. This will reduce class sizes for Years 4-8 from 29+ students per teacher to 26 and reduce secondary school classes from 26+ students to teacher to 23, as well increasing the number of special needs teachers by around 100. Additionally, the education package includes funding for new classrooms, a programme to ensure every schoolchild in Years 5 and up has an affordable personal digital device, a plan to update our schools for the 21 st Century, and additional funding for schools that agree not to ask their parents for voluntary donations, along with other smaller initiatives This education package will replace the current government s failed IES scheme. 14

15 The net cost of the education package begins at $94 million a year and rises to $141 million by 2020/21. Health: The health package is focused very clearly on keeping people healthy and giving them affordable access to care and medicine early on when they do get ill. It includes a bowel screening programme, an extension of the Very Low Cost Access programme to a total of 2 million New Zealanders, free GP visits and prescriptions for children under 13, pregnant women, and people aged 65 and over. It also extends the Care Plus programme to a further 250,000 people (bringing the total to 440,000) and makes prescriptions free for them as well. The cost of health package begins at $14 million in 2015/16 before rising with the implementation of the free doctors visits and related policies, reaching $290 million in 2020/21. (note: as is Treasury practice outyear cost pressures arising from these policies due to demographic change and population growth are not included in the policy cost they are met out of the annual funding increase) Billions $ 15/16 16/17 17/18 18/19 19/20 20/21 Best Start (revenue reduction) Best Start (expenditure) Education package (operating) Education package (capital) Health package Total Families initiatives and leaving options open for the second term. As Labour pays down National s debt, there will be fiscal headroom in our second term. Labour has not allocated the new spending allowances in our second term. Most of this will be needed to maintain investment levels in health and education. Any tax cuts in the second term will need to benefit the vast majority of New Zealanders and be fiscally sustainable while not cutting into the money needed to maintain our health and education systems. Unallocated new operating spending allowance in second term, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 Budget Budget Budget Total Unallocated new operating spending allowance in second term

16 Fiscal tables The following tables detail the projected fiscal impact of Labour s first term policies through the first and second terms of the next Labour-led Government. The projection through the second term assumes that first term policies continue and the Budget 2014 new operating spending allowances for those years is fully expended. It may be that those allowances aren t fully expended and debt is reduced more quickly or taxes are cut, instead. This is the most comprehensive forecast of the impacts of policies produced by any political party. Even with the resources of government behind it, National has not articulated how it will spend the new operating spending allowance in the next term; Labour has. Underlying these figures are Treasury s economic and fiscal forecasts in the Pre-election Economic and Fiscal Update (PREFU). The Labour forecasts simply show the change against those forecasts induced by Labour s policies. Although Labour s policies to boost economic activity and create jobs such as NZ Power, R&D tax credit, monetary policy reform, and industry upgrades will increase GDP more rapidly than forecast in PREFU, the conservative approach that has been taken is for these forecasts to use the same GDP forecasts and consequent fiscal measures as PREFU. Treasury forecasts of the Crown borrowing rate are also used for all calculations involving the impact of policies on finance costs and debt. 16

17 Line by line analysis of the fiscal impact of Labour s policies Surplus 15/16 16/17 17/18 18/19 19/20 20/21 Labour OBEGAL, billions $ PREFU '14, OBEGAL, billions $ BEFU '14 OBEGAL, billions $ Labour OBEGAL, % of GDP 0.5% 0.9% 1.4% 2.2% 2.8% 3.1% PREFU '14 OBEGAL, % of GDP 0.3% 0.7% 1.1% 1.8% 2.3% 2.5% BEFU '14 OBEGAL, % of GDP 0.5% 0.9% 1.3% 2.1% 2.5% 2.7% Net new spending policies impact on OBEGAL Capital policies impact on OBEGAL Net Impact on operating balance Debt track 15/16 16/17 17/18 18/19 19/20 20/21 Labour net debt including NZS, billions PREFU'14 - Net Core Crown debt incl NZS, billions Labour net debt including NZS, % of GDP 15.0% 13.7% 12.3% 9.8% 6.5% 3.0% PREFU '14 net debt including NZS, % of GDP 15.0% 13.8% 12.6% 10.5% 7.8% 4.9% Net new operating policies impact on net debt (negative means reduces debt) Major capital policies impact on net debt (positive means increases debt) Total impact of Labour policies on net debt Total operating account policies by year, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 BEFU '14 new operating spending allowance Net new operating expenditure by year Allowance for governing partners Net new operating revenue change by year Allowance to maintain service levels, especially in health and education by year Second term new operating spending allowances by year (unallocated) Net new operating policies by year Net new operating policies impact on OBEGAL (positive means increases surplus) Net new operating policies impact on net debt (negative means reduces debt)

18 Major capital policies, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 Labour NZS contributions PREFU 14 NZS contributions Additional assets in NZS Extra investment income (impacts on OBEGAL, but remains part of financial assets) Extra tax from NZS restart (impacts on OBEGAL) Additional borrowing due to earlier NZS contributions NZS restart - total impact on debt (negative means reduces debt) NZS restart capital impact on debt (excluding additional tax & investment income, counted in operating) KiwiBuild capital commitment KiwiBuild impact on finance costs KiwiBuild impact on net debt Major capital policies impact on OBEGAL (negative means reduces surplus) Major capital policies impact on net debt (positive means increases debt) Items on the capital allowance, billions $ 15/16 16/17 17/18 18/19 19/20 20/21 Canterbury health hubs (capital) Digital Devices (Capital Cost)* ,000 Additional Teachers (Capital Cost) Regional Development Fund (capital) Total new items on capital allowance Note: these smaller capital policies are being allocated on the new capital spending allowance, a pool of unallocated money analogous to the new operating spending allowance. The current government has made similar allocations for instance, for its regional roading policy. As the new capital spending allowance is assumed to be fully expended in outyears in the Treasury projections, assigning some of its funds to particular policies doesn t affect the debt track. 18

19 Fiscal impacts of First term operating expenditure/ revenue policies, billions $ Revenue 15/16 16/17 17/18 18/19 19/20 20/21 Capital Gains Tax New Progressive Top Tax Rate Trust rate adjustment to maintain alignment with top personal income tax rate Loss Ring-Fencing Other Anti-Avoidance Measures R & D Tax Credit Accelerated Depreciation Universal KiwiSaver NZ Power (Net Impact) Best Start Payment Abolition of Parental Tax Credit Extra investment income (impacts on OBEGAL, but remains part of financial assets) Extra tax from NZS restart Policy to be announced Net increase in revenue Expenditure 15/16 16/17 17/18 18/19 19/20 20/21 Paid Parental Leave - Expand to 26 Weeks Free Antenatal Classes Week Antenatal Assessment Hours Free ECE Extend Free ECE to vulnerable children under Increased funds for 100% qualified ECE centres Expansion of Well Child services Forestry & Wood Products Upgrade Bowel Screening extension Primary health boost Extend Care Plus to 250,000 more people Free GP visits and prescriptions for pregnant women Free doctor and prescriptions visits for First steps towards pay parity for nurses and caregivers working in the Aged Care sector, plus travel costs for home support and community carers Extend Rates Rebate to retirement villages Extension of Veterans Pension Accommodation supplement increase for Christchurch

20 Action on flood-prone houses; and area-wide rockfall protection structures % pay-out for bare land and commercial premises in red-zone Tackling School Donations ,000 Additional Teachers (Operating Cost) Other staffing initiatives Professional development Digital Devices (Operating Cost) Reading Recovery Food in schools Other education initiatives Savings - Cancellation of IES Restore allowances for postgraduate students Reinstate post-doctoral fellowships Training Incentive Allowance Adult and Community Education Living Wage for Core Public Service Youth Employment Package Establish Centres of Vocational Excellence (CoVEs) Digitial Upgrade - Skills and Productivity Digital Upgrade - Connectivity & Inclusion ACC - Increase 'Loss of potential earnings' rate from minimum wage to median wage ACC - Remove 'temporary non-earner when injured' loophole Eliminating violence against women Abatement reform Ministry for Children less disestablishment of Families Commission Other smaller initiatives Reprioritisation of current government initiatives Net increase in expenditure Allowance for governing partners

21 Explanation of significant lines in the fiscal tables Labour OBEGAL This is the sum of the Budget 2014 OBEGAL (ie. surplus/deficit) forecasts plus Labour s first term policies as they impact on the OBEGAL. Labour net debt This is the sum of the Budget 2014 Net Core Crown Debt including New Zealand Superannuation Fund forecast plus the impact of Labour s first term policies on net debt. Labour s policies affect the net debt track in different ways: Labour s operating policies reduce net debt because net expenditure is less than the existing operating allowances plus the net increase in revenue from Labour s policies. The capital commitment to KiwiBuild increases net debt over the forecast period. The earlier restart of NZS contributions increases net debt slightly in the first years before reducing net debt in the outyears. Net new spending by year This line is the sum of the net increase in revenue and the net increase in expenditure from Labour s policies, both announced and unannounced, plus the allowance to maintain service levels in each year. The box shows how that impacts on the OBEGAL and net debt. In the second term, it is assumed that the whole of the new operating allowance as described in Budget 2014 is expended in each year. Major capital policies This summarises the capital expenditure of Labour s capital policies that are not funded out of the new capital spending allowance (which the current government now labels the Future Investment Fund): KiwiBuild and the NZS contributions restart. The box shows how that impacts on the OBEGAL and net debt. Minor capital policies funded within the new capital spending allowance The new capital spending allowance is $955 million per year (accumulating), growing at 2% per year. The current government has taken to calling it the Future Investment Fund and pretending it is the revenue from asset sales but, in fact, it is a long existing budget line. The Crown s accounting of capital is more opaque than it is of operating spending but this allowance, like the new operating spending allowance, is set aside for increases in spending in outyears. Some of it is already allocated in outyears (for instance, half of the current government s regional roading projects cost is funded from the new capital spending allowance) but for the most part it is unallocated in future years. As the current government has done, Labour has allocated some of the new capital spending allowance to fund our relatively small capital initiatives, such as our Regional Development Fund. Because the Treasury model assumes the new capital spending allowance will be fully expended in outyears, even though it is not yet fully allocated, and Labour is not increasing the size of the allowance, just allocating a portion of it, there is no effect on the debt track. 21

22 Net increase in revenue This line shows the net operating impact of Labour s announced revenue policies. This includes the new Progressive Top Tax Rate, measures to close loopholes and stop avoidance, and tax cuts such as the R&D tax credit and the Best Start Payment. Net increase in expenditure This line shows the net operating impact of Labour s announced expenditure policies. The principal costs within this line are the elements of the Best Start package (for example, extending Paid Parental Leave to 26 weeks and Early Childhood Education subsidies) and the reduced revenue to the Crown as a result of NZ Power lowering power prices. Allowance for governing partners This is money set aside for the policies of other parties with which Labour will govern. No party has ever made a specific allocation of funds for other parties policies within its fiscal plan before but it is essential to fairly reflect our future fiscal track. It should be noted that most of the large policies of our potential governing partners are similar to Labour s and those that are not are often funded through matching new revenue. This means that just because there is $100 million set aside for governing partners policies in 2015/16 doesn t mean that their policies are automatically limited to this amount they may have policies that are already funded as policies within Labour s fiscal plan or they may be funded by revenue outside of our plan. 22