Once again, last night at the ASB Great Debate in Queenstown, National’s economic management credentials came under question.
Ordinarily questioning National’s economic credibility would be like questioning the Greens’ sincerity on climate change or arguing that Te Paati Maori was not putting enough emphasis on the Treaty.
The Guardian-Essential poll published on Wednesday found 48 per cent of respondents thought National would be more likely to be effective in managing the economy, while only 24 per cent thought Labour would be.
But National has made a rod for its own back by lacking any convincing explanation for where it might find $3.1 billion to fund its proposed tax cuts.
They have produced a plan, but it has big holes.
Its revenue estimates are shaky; $715 million from a proposed foreign buyer tax which lawyers, tax experts and now economists believe won’t work; $594 million of so-called public service “back office” cuts which no one on National’s front bench will spell out and $702 million from ETS auction proceeds which Treasury says might not happen.
Those holes were reinforced yesterday with the release of a paper by three economists (Michael Reddell, Nick Goodall and Sam Warburton) who concluded that their best estimate was that National’s Foreign Buyer Tax would raise $210 million per year, compared to National’s estimate of $740 million.
“This leaves a significant $530 million (71%) per year gap in the costing of the Foreign Buyer Tax and the wider Back Pocket Boost policy,” they said.
They said National had advertised the plan as being fully funded.
“National has also pointed to a review by Castalia. The Castalia review provides no information, beyond that provided by National, that might substantiate National’s revenue estimates.”
Two most unlikely political players, ACT and the Taxpayers’ Union, have seen all this and concluded that now is not the time for cuts.
But despite the wall of professional criticism and the political judgements of ACT and the Taxpayers Union, National is ploughing on ahead.
“I’ll tell you about economists,” Finance spokesperson Nicola Willis said during the debate.
“You get six of them in a room there will be seven different opinions.
“And look, I respect the fact that economics economists have different opinions, but I stand by our process.”
Willis argued that there would be a significant demand from foreign buyers.
“I’ve spoken to real estate agents who are in this room who have told me that there is huge demand from people who want to buy expensive luxury homes in New Zealand and they’re going to come back and I’m going to tax them and I’m going to use that so that the squeezed middle working people get to keep more of what they earn.”
What is remarkable about Willis’ insistence that the cuts can be funded is that she cannot even persuade her potential coalition partner, ACT.
“Spending is the big issue. Introducing new taxes is not the path to prosperity for New Zealand,” said ACT leader David Seymour..
“We’re looking at the numbers again and again, and we are looking at the numbers. And we will put out our new alternative budget with the benefits of the new numbers on Tuesday, because people deserve that honesty.”
All of this delights Finance Minister Grant Robertson, who finds himself in the unfamiliar position of being the sober one at National’s fiscal party.
“We will also be making sure that we get the balance right,” he said.
“We’ll fully cost everything that we do, and we’ll make sure that at the end of the day, every New Zealander is given the chance to succeed as they have done over previous generations.”
Robertson has to be careful, though.
Willis has a point about his runaway expenditure.
This week’s Pre-Election Economic and Fiscal Update (PREFU) shows that the 2020 version of that document forecast core crown spending for 2022/23 to be $111.7 billion. It turned out to be $128 billion, a 14.6 per cent blowout.
The 2020 PREFU forecast 2023/24 core crown expenses at $116.1 billion. This week’s PREFU had upped that by 20 per cent to $139.4 billion.
Robertson has addressed this by tightening his spending allowances for the next three years.
The budget set those allowances at $3.5 billion a year, but he has set aside $1.8 billion of that to accommodate inflation and demographic cost pressures on the health system.
That leaves him with a spare $1.7 billion extra to spend on everything else. That would mean he has left room for around one per cent growth in government spending at a time when inflation is running at more than 2.5 per cent over the forecast period.
Willis, however, argues she can spend even less.
“We are going to cut the waste; we are going to reduce the back-room bureaucracy,” she said.
Pressed by moderator Jack Tame to spell out to be more specific about the cut, Willis said she would be cutting 6.5 per cent off all Government departmental budgets.
She singled out the Ministry of Social Development, the Ministry of Pacific Peoples and the Department of Conservation as particular targets.
But her proposals were moderate alongside those of her potential coalition partner ACT.
He said his party would reduce the total number of full-time equivalents in the public service from the current 62,000 to 47,000.
But the debate kept circling back to foreign house buyers.
Tame asked Willis what would happen to average house prices in Queenstown if the foreign buyer tax was imposed.
“The evidence from the past is that this will be a tiny fraction of the property transactions that occurred in the market, and it will occur at the top end of the market,” she said.
Greens Co-Leader James Shaw: “If it’s a tiny fraction of the houses, how are you going to raise enough revenue to pay for the tax cuts?”
Willis: “The market is still hundreds of homes.”
National’s foreign buyer tax has some distance to go yet before it stops being the main issue on the campaign trail.