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Labour's alternative Budget reprioritises $17bn over four years

Wednesday 19th July 2017

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A Labour Party-led government would rejig tax and spending priorities to redirect $17 billion over four years to build up public health and education, put an extra 1,000 police on the beat and boost low and middle-income households with targeted family and other payments rather than implementing the current government's tax cuts.

Published today, Labour's fiscal plan uses numbers from the Budget in May and overlays them with its own policy priorities to demonstrate it can spend far more on social services, low-income household relief and resumption of contributions to the New Zealand Superannuation Fund while still running Budget surpluses and reducing government debt.

"Unlike National, we do not believe a tax cut can be justified at this time," said Labour leader Andrew Little in the introduction to the document. "I do not believe that we can honestly say that a thousand dollar tax cut for (Prime Minister) Bill English and me should be a priority when so many other, more important investments need to be made."

Labour last week announced a families package that preserved the government's increased Accommodation Supplement payments, increased Working for Families entitlements for low and middle income households, and offered a 'baby bonus'-style Best Start payment for newborns and a no-strings attached 'winter energy payment' income supplement for people on low incomes while cancelling tax cuts National announced in May for introduction next April.

That left Labour with an additional $2.4 billion of headroom for new spending over four years, which is incorporated into today's announcements.

Key components include promising, over the next four years, to spend $8 billion more than National on health than was proposed in the Budget in May, $4 billion more on education, and $5 billion on its families package for a total of $17 billion reprioritised spending in the four years to 2022 in those three areas alone.

At the same time, Labour would restart contributions to the Super Fund, which National froze in 2009 in response to the global financial crisis and is not planning to resume until 2022. Labour would contribute $500 million in the current financial year, rising to $2.5 billion by 2022/23.

"It should be noted that incorporated into these figures are allowances for new operating spending totalling $0.9 billion, $1.8 billion, $3.2 billion and $4.1 billion in the - respectively - 2018/19, 2019/20, 2020/21, and 2021/22 fiscal years," the document says.

While Crown net debt falls more slowly than under the government's plans, it reaches Labour's target of 20 percent of gross domestic product by 2022 and government spending remains at around 30 percent of GDP, slightly higher than National's projections.

Labour's projected operating surpluses (known by the acronym Obegal) come in slightly smaller than National's by the end of the four year forecast period, at a projected 2.2 percent of GDP in 2021/22, compared to 2.6 percent of GDP in the government's Budget.

Capital spending items include immediate establishment of a $2 billion revolving fund for Labour's KiwiBuild policy, which it would use to build affordable homes for resale at cost to first-home buyers in a bid to ease the current housing affordability and supply crisis in the fastest-growing parts of the country.

Taking the heat out of house prices would also come from taking a "breather" on current high immigration settings, closing loopholes for property speculators and stopping foreign buyers from purchasing New Zealand residential property. The party also announced this week it would target $300 million a year in multi-national tax avoidance - a figure justified by evidence from Inland Revenue Department officials in recent select committee hearings and three times higher than the government's Budget estimate of additional tax available from better policing of foreign companies' tax compliance in New Zealand.

Labour remains committed to establishing a tax working group that will seek a "better balance between how we tax assets, wealth, income and consumption", having dropped its politically unpopular commitment at the last two elections to introduce a capital gains tax.

The plan is drawn up within the constraints of Budget Responsibility Rules signed by Labour and its primary political partner, the Green Party, earlier this year and follows the Greens' announcement at their annual conference last weekend of a $1 billion green infrastructure fund and a range of increases to social welfare payments and local income household relief.


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