How big is your fiscal hole, National?

Sunday, 17 March 2024

Finance Minister Nicola Willis has warned that a surplus is further away than planned

Vernon Small is a journalist and former adviser to Labour Minister David Parker

Opinion: Remember when National’s tax plan was rock-solid, and its architects assured us they understood numbers?

Remember when an external review by Castalia Advisors said the plan was “cautious and consistent” and the planned savings were “possible and plausible”.

It seems like only yesterday, but it was more than $5.6 billion ago.

This week, the void between National’s August 2023 numbers and the current estimates that the coalition government must work with got even wider.

And it’s not as if it wasn’t warned.

Back on the campaign trail, economists and commentators from Right, Left and Centre said there was a hole in National’s numbers – at the time, a relatively piffling $500 million.

These experts called – unsuccessfully - for the detailed costings model to be publicly released, but were faced down by prime minister-in-waiting Christopher Luxon and Nicola Willis.

It was a cynical suite of tax policies that offered tax cuts to many voters, while promising to raise a swathe of the funds from “foreigners living abroad”.

The first policy to go was the foreign house buyers’ tax, nixed by New Zealand First. It was the most controversial of National’s proposals, but we will never know now how little of the promised $3b it would have raised.

The foreign buyers tax was supposed to raise billions but was nixed

The estimated revenue savings from another measure - shifting benefit indexation from wages to inflation – has been revised from $2b to just $670m. Add $1.3b to the size of the gap.

Meanwhile, the cost of allowing landlords to deduct mortgage interest for tax purposes has blown out by $800m, from $2.1b to $2.9b.

Then this week, IRD numbers put the expected revenue from taxing overseas online gambling at about $150m over four years – some $550m less than National had counted on.

Some minor changes have narrowed the fiscal gap in the coalition’s favour.

A planned regulatory regime for online gambling is now tipped to collect almost $200m over four years, and the decision not to scrap Labour’s “app tax”, that imposed GST on the likes of AirBnB and Uber, has saved $206m.

But there are question marks elsewhere, such as the $2.3b budgeted for a “climate dividend” from the ETS, which the Climate Commission has warned is not a reliable nest egg until all the chickens have hatched.

Even setting aside that uncertainty, a gap of $5.6b has opened between National’s campaign rhetoric and the harsh reality of current forecasts.

If you generously discount the $3b revenue it expected from the foreign buyers’ tax, we’ve still seen a $2.65b hole open up since the coalition formed.

An early sense of just how credible this was will come when the Budget Policy Statement is released on March 27.

But there are other clouds gathering on Finance Minister Nicola Willis’ horizon.

For some time now, she has been sending clear signals that a return to surplus this term is out the window.

Chris Hipkins, Cushla Tangaere-Manual, and Kieran McAnulty on a caucus retreat in Martinborough. They’ve held back from going on attack but is that the right strategy, asks Vernon Small

This week she foreshadowed that Treasury expects growth over the next few years to be significantly slower than previously thought.

When growth slows, revenue falls and costs increase. But Willis is still sticking to her promise of tax cuts.

Gifted a seismic shift between what National campaigned on and realistic costings, you might expect Labour to be in full attack mode, taking no prisoners in an area where National traditionally claims superiority.

But no.

Labour leader Chris Hipkins and senior colleagues have been clear their strategy is to act “calmly and quietly”, taking a longer-term approach to the 2026 election – while revelling in the damage the coalition is doing to itself.

That has left the Greens and te Pati Māori to take the fight to the Government.

To be fair, a recently defeated government should never tell the voters they have made a mistake or go full-on “we told you so”.

But with this Government making a wasteland of its predecessor’s reforms, Labour’s low-key approach and its reticence to defend its record is letting National off the hook.

Former Labour PM Helen Clark this week made the point that when a party loses, but comes out all-guns-blazing, the commentariat slams it for not having absorbed the lesson of defeat, and that it is hard to get much media attention anyway.

“But that phase does end …” she said.

That phase must surely have ended as far as the tax package, and especially the tax cut for landlords goes. Because the Government is seriously vulnerable on the issue.

When the books are in the red, and when the cost of living crisis for low and middle-income earners was supposed to be the coalition’s priority, should the first big fiscal move be a $2.9 billion tax break for residential property investors?

Before the election, Labour argued its decision to phase out tax deductibility of mortgage interest payments was fair – because owner-occupiers could not offset their mortgage costs.

Even when Hipkins and his team are licking their wounds in defeat, they should remember that putting renters and first home buyers ahead of landlords is key Labour ground.

There’s a chance now for them to fold that into a wider attack on the principles behind National’s tax package as well as its self-professed expertise at “numbers”.

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