Hon Steven Joyce
Associate Minister of Finance

17 July 2011 Media Statement

Labour would add $18.5b to net Crown debt

Labour’s tax theories would leave a huge hole in taxpayers’ finances over the next 15 years and add $18.5 billion dollars to net Crown debt, Associate Finance Minister Steven Joyce says.

“A financial analysis of Phil Goff’s tax and borrow ideas shows they are hugely hopeful and would in fact require taxpayers to borrow billions of dollars more.

“At a time when an increasing number of large countries are wrestling with severe problems caused by too much debt, Labour’s recipe for New Zealand would be to borrow more each and every year on volatile world financial markets.

“No wonder Trevor Mallard emailed colleagues on Friday urging them not to be dragged down into explaining the detail of Labour’s flimsy promises. The fact is they don’t stand up to any scrutiny.

“Putting the numbers through Treasury’s models, which are used to produce the economic and fiscal projections of every Budget, shows that Labour’s tax increases would raise around $21 billion of extra revenue out to 2024/25.

“Over the same period, they would forgo around $28.5 billion in revenue.

“That leaves a $7.5 billion revenue hole, on top of another $7.5 billion in extra interest costs Labour would have to pay on their higher debt. In addition, Labour would need to borrow billions more if it doesn’t proceed with the mixed ownership model for SOEs, pushing total net Crown debt $18.5 billion higher by 2024/25.

“And that is all on the assumption they could start a capital gains tax in 2013 and raise billions of dollars despite all their complicated exemptions and loopholes.”

Mr Joyce says the main reasons for the debt and deficit blowouts under Labour would be:

• They have underestimated the costs and overestimated the revenue from almost all of their promises.
• They have no basis for adding in $300 million a year from tax avoidance measures – on top of the $800 million a year the Government is already on track to obtain from Budget 2010 measures.
• They have failed to include extra interest costs on their higher borrowing.
• They have not factored in the need to borrow billions of dollars more to maintain the Government’s level of capital investment - in the absence of proceeds from the mixed ownership model for four State-controlled energy companies.

To make matters worse, they have hidden in their numbers an Emissions Trading Scheme based on a $50 per tonne price for carbon across the entire scheme. That would mean Kiwi households would have to fork out four times as much for the ETS as they do currently under the National-led Government’s more balanced scheme.

“And, of course, Labour has already admitted it will spend more. It is yet to announce its spending promises, but has railed against every decision this Government has made to contain spending. Any new spending would add even more to Labour’s debt each year,” Mr Joyce says.

“When you look through all the spin, it’s the same old Phil Goff and Labour: overestimate the revenue, underestimate the costs and borrow the rest.

“In stark contrast, National has a credible plan to balance the books and start repaying debt within three years. We are building on the encouraging economic growth figures released last week with a plan to take New Zealand forwards, not backwards.”

Costs of Labour’s tax promises compiled by Government advisors using Treasury’s fiscal strategy model. PDF FILE

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