Saturday, April 13, 2024

National promises spending cuts before Christmas

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Party delivers updated fiscal plan in last major policy release before polls open.
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A National Party-led government would deliver a pre-Christmas mini-budget to kick off 6.5% spending cuts that it would require from back-office or nonessential programmes, National finance spokesperson Nicola Willis says.

She made the pledge at the publication of National’s updated fiscal plan to deliver a $3.4 billion improvement in government debt levels and slightly larger fiscal surpluses than the Treasury forecast in last week’s pre-election economic and fiscal update.

National’s much-awaited “fiscal plan” is its last substantive policy announcement before early voting starts on Monday, ahead of Election Day on October 14.

The plan contains no changes to its previously announced “self-funding” package of income tax relief, including no change to the $764 million a year it expects to raise by 2027/28 from a 15% tax on the purchase of homes worth more than $2m by foreign purchasers.

National claims it will cut spending on the bureaucracy by $594m annually for the next four years to produce $2.376bn of savings over the period in a package of wider savings and a raid on funds generated by the Emissions Trading Scheme (ETS).

A further four-year saving of $2.119bn – a bit over half a billion dollars a year – is saved by “closing Labour programmes”. Lower spending is also achieved by indexing benefits to inflation rather than wages.

The total over four years of savings and revenue redirection is $8.384bn.

The half-billion dollars applied to tax relief from the ETS funds replaces the $500m that Labour had allocated in the pre-election economic and fiscal update (Prefu) to the National Land Transport Fund (NLTF).

National said it would scrap that but still find the same sum for roading investment by taking $2.1bn from operating allowances over the next four years and $1.6bn from the multi-year capital account.

National’s new spending allowances in the next four years’ budgets are shaved back to produce $3.3bn less new government debt by 2027/28 than forecast in the Prefu.

However, National allows itself $9.9bn of unallocated spending over the four-year period, giving “significant buffers” to allow a National-led government to “respond to cost pressures and changing circumstances”.  

The plan also envisages using private capital to pursue additional transport spending “with new cost recovery tools, like tolls and value capture levies, being introduced to cover the cost of these projects”.

“National will issue a new government policy statement on land transport, in line with the funding set out in this fiscal plan,” the document says. “Priority will be given to state highway improvements, road maintenance including fixing potholes, and the roll-out of a nationwide EV charging network.

“National intends to spend less on other areas such as coastal shipping, inter-regional public transport and walking and cycling.”

Willis said that net government debt had blown out from $5bn to a forecast $104bn since Labour took office in 2017 and that government spending had risen 80%.

“The country cannot afford another three years of it,” National’s leader, Christopher Luxon, said, announcing the plan at the offices of one of its campaign advisers, Topham Guerin.

National’s own forecasts show that net crown debt still peaks at almost that level – at $102.8bn in 2025/26 – but drops away faster in the following two years to be at $97.6bn in 2027/28, compared with $21.1bn in the Prefu.

That helps produce forecast budget surpluses of $2.9bn in 2026/27 and $1.8bn in 2027/28, compared with Prefu forecasts of $2.1bn and $400m, respectively.

In terms of new spending, National has allocated a $718m contingency “to cover a potential 1400 increase in the prison population over the next four years” as a result of tougher sentencing policies.

“Government spending over the forecast period is expected to decline from 33.5% of GDP to 31% of GDP by 2027/28,” National said.

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