19 July 2002

Jim Anderton MP

Leader of the Progressive Coalition

Parties can’t pay for promises

There will be job losses, sharp interest rate rises, tax increases and a fire sale of publicly-owned asset sales unless Labour and the Progressive Coalition form the next Government, Deputy Prime Minister Jim Anderton predicted today.

He released costings of party policies showing that every party outside government has made promises that cannot be paid for.

“Extra spending promised by the Greens reaches as high as $5.5 billion more each year, and by NZ First, $3.5 billion, assuming NZ First is not serious about increasing health spending by $4 billion,” Jim Anderton said.

“Most parties are making wild, open ended spending commitments that are very difficult to cost. That shows they haven’t bothered to think through their policies carefully.

“If the Greens, NZ First, National or Act are anywhere near government next week, families need to brace for:

- Interest rate rises.

- Petrol tax increases (up to $250 to fill an average car).

- Higher unemployment.

“Parties that can’t pay for their promises will break them. When the Green Party makes promises totalling $5.5 billion, and NZ First makes promises totalling $3.5 billion, they are setting up their own supporters for betrayal.

“The effects of putting in place promises that aren’t paid for will be to destroy jobs. I am not prepared to stand by and watch these parties attempt to destroy jobs by the tens of thousands.

“Interest rates will rise because of the deficits that would be inevitable. A 1% rise in mortgage rates adds about $52 per month to the expenses of an average $100,000 mortgage.

“If parties don’t say where the money is coming from, then they probably intend to take the money from somewhere unfair or unpopular. The ACT Party could only pay for tax cuts for millionaires by selling virtually every asset left in public ownership. Not just TVNZ and NZ Post, but electricity SOEs, state houses, and ACC. If the Green Party paid for its promises with a petrol tax, it would cost $250 to fill the petrol tank of an average car. Even if the tax was not raised from petrol, it has to come from somewhere.

“NZ First is in a class of its own, promising steep spending increases and tax cuts. It is likely that NZ First would sell even more assets to overseas owners than when Winston Peters was Treasurer. The deficit that would be run would be likely to increase interest rates substantially. A 3% increase in interest rates would cost the average homeowner around $150 a month more.

“During the leaders debate the worm clearly rose when party leaders promised to spend money and it dropped when they revealed where the money was coming from.

Parties have learned the lesson. They are promising the earth, but failing to say where the money is coming from.

“The lesson is that these parties are setting up their supporters for betrayal. They cannot keep their promises. If you can’t afford to spend $50 a week more on your mortgage, or $250 to fill the car, then you need to ensure that the Progressive Coalition is in government to work with Labour.”

Costings of National Party policy were released by Finance Minister Michael Cullen on Wednesday. Those conservative costings showed National will run fiscal deficits of $1.5 billion after abolishing the Super Fund.

Highlights of Party policies:

Act: $2,194 million to fund tax cuts and extra spending.

We have costed extra prisons and increases in defence spending at $100 million per year, as current costs for capital expenditure as well as extra running costs. In fact the costs would be likely to be three to five times this figure.

Act’s policies are likely to significantly increase overseas debt, leading to very high interest rates. Average families need to be able to afford to spend upwards of $50 a week on their mortgage, as well as finding the cash to send kids to school and to buy private medical insurance.

Alliance: Non-funded policies $839 million.

[Since costings were prepared, Alliance has announced new spending and new taxes including a carbon tax, land tax, and death duties. The new promises appear to be under-funded by all of the new taxes. For example, a universal child benefit is costed by Alliance at $500 million. A child benefit of $15 per week for the first child and $10 for following children would cost $662 million]

Overall, the Alliance policies are the least fiscally irresponsible - the Alliance is raising much of the income it says it would spend. However it is doing so by introducing what appear to be high marginal tax rates at relatively low levels of income.

Many policies have not been costed because of lack of clarity, such as “Condoms and lubricants will be freely available’ (Youth policy).

Green:Policy commitments are so open-ended, full costing is almost impossible. Potential unfunded promises reach $5,500 million.

No allowance has been made for the costs of much higher unemployment that would be likely to result from the Greens’ policy. The loss of 20,000 jobs could cost a billion in increased unemployment benefits and reduced taxation revenue, before the extra costs for health, prisons and social services are taken into account.

Greens say removing tax on the first five thousand dollars of income would cost $1 billion. It is more likely to cost $3 - 3.5 billion.

Our costings conservatively estimate $50 million to regain public control of rail network. However the Greens have publicly stated their commitment, which would make a negotiated settlement cost far more - TranzRail could demand whatever price it wished.

If the Greens deficit is financed from petrol taxes, average families will have to find $250 to fill the tank.

NZ First: Very vague on financial implications of promises. Total of $3,465 million in promises with no specific revenue initiatives at all.

NZ First says health is “a critical investment in New Zealand’s human resource - not a balance sheet item.’ That is fortunate for NZ First, since if it was on the balance sheet it would require another $4 billion a year to be spent to meet its commitment to increase health spending to 10 per cent of GDP.

NZ First could only intend to run huge fiscal deficits or sell assets. The inflationary implications of NZ First’s debt would produce a dramatic increase in interest rates not seen in New Zealand since the eighties.

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