National’s proposal yesterday for an infrastructure bank will have the effect of cheating the Government accounting system to make it look like it is reducing debt.
It will have the political impact of answering Labour charges that the only way National could meet its ambitious debt targets would be to cut services with an austerity campaign.
Instead, the debt would be loaded onto the infrastructure bank which, being a Crown entity, would sit outside the calculation of core crown debt.
That would take the pressure off to pay the debt back quickly.
But ultimately, what National is proposing does not mean that the taxpayer would take on less debt; it would just be differently accounted for.
National Leader Judith Collins said yesterday the bank would take over the borrowing of Crown Infrastructure Partners, New Zealand Green Investment Finance Limited, the residual holdings at Crown Irrigation Investments Limited and loans made by the Provincial Growth Fund.
“The bank would hold a normal amount of equity capital,” she said.
“Existing capital from organizations such as Green Investment Finance would be reallocated to the bank.
“These equity contributions will be used to leverage capital raised in national and international bond markets.”
Collins said she had already announced that a National Government would invest in New Zealand’s largest infrastructure program.
“This includes $31 billion to upgrade our transport networks and declog our cities, $4.8 billion to fix our schools and further upgrading for our health care infrastructure,” she said.
“This election will determine the country for the next generation will inherit.
“The legacy. I will leave the next generation is an upgrade to New Zealand transport, education and health care infrastructure.
“Both sides of the political divide will need to borrow as we move through this crisis.
“I am determined that New Zealand will borrow and spend wisely.”
In February 2018 Treasury advised the Government on the possibility of borrowing from an “external” lender $1.75 billion to fund 1400 new Housing New Zealand houses.
In advice to the Minister (Phil Twyford) Treasury said If Housing New Zealand were to raise the money through external debt it would be recorded in Total Crown Borrowings, but not net core Crown debt.
“However the credibility of the current net debt definition depends on the Crown not using intermediaries to borrow or enter into obligations that do not offer other advantages, over and above the impact on the net core Crown debt target,” Treasury said.
And in another report in August 2018, Treasury said external borrowing would undermine the usefulness of the core Crown net debt indicator
In another paper it argued that borrowing externally would also increase the costs of that borrowing to those entities compared to the money being borrowed by Treasury’s Debt Management Office.
“Estimates for the cost of Housing New Zealand borrowing currently under consideration vary, but could cost between 30 to 60 basis points more than government borrowing through the DMO,” it said.
“ In dollar terms, this works out to be $3 – $6 million per annum in costs that could be foregone, for which there is little benefit.”
National’s State-Owned Enterprise and Associate Finance spokesperson, Andrew Bayley conceded that the Government could borrow very cheaply.
Instead, he brought up the impact on debt ratios as a reason for external borrowing.
“Why should the government can borrow and fund everything?” he said.
“It’s an approach that just blows debt ratios out of the water.”
Despite this, NatIonal’s Finance spokesperson, Paul Goldsmith, rejects the proposition that the purpose of the bank is to remove the debt from the Crown balance sheet.
“That’s not the purpose, that’s not the driver,” he told POLITIK.
Goldsmith has previously said National hoped to reduce core crown debt as a percentage of GDP to 30 per cent within a decade.
But recently he has moved back from that position slightly.
“The difficulty with being too definitive is that the sand is moving under your feet all the time,” he told POLITIK ten days ago.
Meanwhile, Collins has said the target was not set in stone.
But its mere original existence left the door open for Labour to claim that National could meet it only by making substantial cuts to Government spending with an austerity programme.
Finance Minister Grant Robertson was using that argument yesterday when he launched Labour’s proposal to increase the tax on incomes over $180,000 a year by six cents in the dollar to 39 per cent.
“Our plan stands in contrast to a chaotic and desperate National Party who are simultaneously promising large uncosted policies and talking about a debt target that will require $80 billion of cuts to essential services like health and education,” he said.
If Collins is now able to dodge that claim, any hopes that National might have had that Labour would impose savage tax increases and leave the door open for new taxes were dashed by Robertson yesterday.
His three per cent increase stands in stark contrast to Michael Cullen’s three per cent increase in 1999.
That was imposed on incomes over $60,000 ($99,000 in today’s money).
But it was Robertson’s firm rejection of any other taxes which seemed to end a long era of Labour talking about the need to use the tax system to deal with inequality.
“I’m a realist, and I’m a pragmatist,” he said.
“This is our tax policy, and that’s what we’re putting out there.
“And we are saying that we will not be implementing any new taxes or any other additions to income tax.”
That would seem to be a pre-emptive rejection in any future coalition arrangement of the Greens tax policy which is for a one per cent wealth tax on assets over $1 million and an increase in income tax to 37 per cent on incomes over $100,000 and 42 per cent on incomes over $150,000.
However, that may be academic at present with a leaked poll yesterday suggesting the Greens were well below the five per cent threshold to get back to Parliament.
The UMR monthly poll taken between August 25 and September 2 had Labour on 53 per cent; National, 29 per cent; ACT, 6.2 per cent; NZ First 3.9 per cent and the Greens, 3.2 per cent.
Those results show Labour and National each up one; ACT up 0.3; the Greens down 2.2 and NZ First down 1.2 per cent on the July UMR poll.
The overall conclusion is that on that polling, Labour would be able to form the first single-party Government since MMP was introduced in 1996 with 72 seats and a massive 28 seat majority over National and ACT combined.
That would mean that the only certainty out of yesterday would be a three per cent increase in tax for people earning over $180,000 — which just by chance happens to be $16,039 more than an MP earns.