{"id":579717,"date":"2026-08-25T09:34:10","date_gmt":"2026-08-25T09:34:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/579717\/"},"modified":"2026-08-25T09:34:10","modified_gmt":"2026-08-25T09:34:10","slug":"the-number-you-missed-in-labours-fiscal-strategy","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/579717\/","title":{"rendered":"The number you missed in Labour\u2019s fiscal strategy"},"content":{"rendered":"

By comparison, the 2024 tax cut package \u2013 including all the income tax cuts, plus restoring interest deductions \u2013 was worth about $3.7b a year<\/a>. Labour\u2019s extra headroom basically says it will tolerate higher taxes worth three times that package each year. <\/p>\n

The most controversial part of the expenses promise isn\u2019t the promise itself, but the way it interacts with Labour\u2019s other pledge, which is to introduce no taxes beyond a capital gains tax, scrapping investment boost (and thereby increasing the tax burden on some businesses), and reintroducing a ban on interest deductions for residential landlords. <\/p>\n

Labour has said it\u2019s open to other taxes like a bed levy, but these would not contribute to Crown revenue and would instead go to councils. <\/p>\n

The first two of those pledges, when fully rolled out, give Labour about $2.75b in revenue \u2013 over half a percentage point of today\u2019s GDP. <\/p>\n

That means Labour has about two percentage points of tax promises it can announce before hitting the 33% ceiling \u2013 but, of course, Labour can\u2019t do that without breaking its promise not to introduce tax increases beyond the three the party has signalled.<\/p>\n

The vagueness is partly a function of the fact the spending promise has no date attached to it. But it\u2019s very hard to see how Labour would increase revenue to 33% of GDP with a capital gains tax alone.<\/p>\n

The full-fat CGT proposed by the Cullen group in 2019 was estimated to net 1.2% of GDP in revenue after a full decade of being in force<\/a> \u2013 the paper Labour has based its lighter 2026 version on suggests it would raise about 39% of the revenue of the original 2019 tax (another estimate put the figure at about 50%). <\/a><\/p>\n

That works out at about 0.45% of GDP \u2013 well shy of the roughly 2-3% headroom Labour has given itself, even if you include revenue from scrapping Investment Boost and banning interest deductions (which would have the effect of reducing CGT revenue).<\/p>\n

This headroom is the reason National is alleging Labour has secret tax policy up its sleeve \u2013 something to raise the ten-ish billion dollars between the new taxes it\u2019s announced and the 33% ceiling it\u2019s given itself. <\/p>\n

\"JamesJames Shaw and Grant Robertson agreed to Budget Responsibility Rules ahead of the 2017 election. Photo \/ Jason Oxenham<\/p>\n

The truth could actually be worse. <\/p>\n

One of the only ways the two promises can be consistent with one another is for the extra revenue to come from bracket creep \u2013 the process by which natural wage growth increases the portion of someone\u2019s income raised in tax. <\/p>\n

If Labour chooses not to reset the income tax brackets, then it will get most of the revenue necessary to get to that 33% ceiling from income tax increases, rather than the taxation of capital gains. <\/p>\n

This is perhaps the worst-case scenario as income tax is the one people tend to hate the most. <\/p>\n

The cliff edge will occur at about the end of the decade, when wage growth will mean someone earning the full-time minimum wage is likely to fall into the 30% tax bracket. <\/p>\n

Only a tiny sliver of these workers\u2019 pay will be taxed at 30% at first \u2013 but such a large number of workers entering the upper tax brackets will help generate significant revenue. <\/p>\n

The coalition is also letting bracket creep do its work. National\u2019s budget responsibility rules \u2013 its equivalent to what Labour announced today \u2013 actually don\u2019t have a revenue target; they only have a spending target, pledging to reduce core Crown spending to 30% of GDP and generically keep \u201ctaxes low\u201d. <\/p>\n

That means National hasn\u2019t given any indication of what they\u2019d consider another round of tax cuts. Labour has implicitly suggested that these tax cuts would occur when revenue rises to 33% of GDP.<\/p>\n

It\u2019s not a lot of money <\/p>\n

On the spending side of the equation, 3% of GDP isn\u2019t a lot of money when seen in the context of the broader increase in Crown spending over the last decade.<\/p>\n

Since 2016, spending on health as a share of the economy has increased by over 20%. We now spend 1.3% more of our GDP on health than we did a decade ago. <\/p>\n

Super spending is up 0.8% of GDP over the same period, and debt servicing costs are up by 0.7 percentage points.<\/p>\n

Collectively, those three areas have meant overall Government spending is 2.8% of GDP higher than a decade ago. That\u2019s a massive 10% increase in the share of Government spending, which has bought little more than simply standing still. <\/p>\n

Labour\u2019s change just creates headroom to do the same again. <\/p>\n

Three per cent of GDP \u2013 $13b \u2013 looks like a lot on its own, but in the context of rising super costs and the associated health costs of an ageing population, an increase in spending of that size isn\u2019t as much as you think. <\/p>\n

The reverse is also true. <\/p>\n

These figures expose the challenge National will have in keeping spending below 30% of GDP. <\/p>\n

Their ceiling can only be possible if you lift the super age, which gives significant spending headroom. <\/p>\n

Without it, super gobbles up more and more Government spending, leaving less and less for everything else. <\/p>\n

Treasury actually modelled what this could look like in a paper from 2024, and found that without changing superannuation, the current fiscal strategy would require serious real terms reductions in spending (even though spending would increase in nominal terms). <\/p>\n

Nats promise more debt reduction than Labour \u2013 Labour promises more investment than National<\/p>\n

One thing that has garnered less attention is the gulf between National and Labour\u2019s debt promises. <\/p>\n

Part of this might be because Labour has changed the way it will measure debt, reverting to the old \u201cnet debt\u201d metric, while National is sticking with the even older \u201cnet core Crown debt\u201d number. <\/p>\n

These measures calculate very different things \u2013 they\u2019re so different that Labour\u2019s 20% debt actually equates to tens of billions more debt than National\u2019s equivalent 40% net core debt target (separately, the coalition has a target to maintain debt within a range of 20% to 40% of GDP)<\/p>\n

What\u2019s the deal with these two metrics? They\u2019re both useful, but tell different stories. <\/p>\n

Labour\u2019s metric is simple: it is all of the Government\u2019s assets, including the super fund, minus all of its liabilities, which is mostly the debt the Government owes. <\/p>\n

The Labour metric is smaller than the National metric because the super fund is so large, it makes the net debt number look smaller.<\/p>\n

The merit of this number is that it is more internationally comparable as it\u2019s closer to how other countries calculate their debts.<\/p>\n

National prefers to use the net core Crown debt measure, which is larger because it excludes the super fund. <\/p>\n

The merit of this calculation is that because no Government is likely to sell the super fund if it got into financial trouble, it doesn\u2019t make sense to include it in our tally of assets. Our debt measure should be an indication of how much fiscal strength we have to weather a shock like an earthquake. <\/p>\n

Including the super fund in this calculation is misleading, advocates of the net core Crown debt measure say, because a Government would be unlikely to liquidate the super fund to fund an earthquake rebuild or another type of disaster \u2013 the super fund is for super, and so should be left out of the core debt measure. <\/p>\n

In today\u2019s terms, Labour\u2019s 20% debt ceiling by the net debt measure would only require the Government to reduce debt by a mere $8.8 billion. The target will be achieved by 2031 without the Government touching its fiscal settings. It\u2019s hardly much of a target, given how easy it will be to hit. <\/p>\n

National\u2019s debt target, by contrast, would require debt reduction worth just over $56b if it were to be achieved today. <\/p>\n

In reality, the current trajectory is for net core Crown debt to fall below 40% in 2033 \u2013 the same year, debt by Labour\u2019s preferred measure will be just 16.8% of GDP, thanks to the increased value of the super fund. <\/p>\n

In nominal terms, that means that in 2033, there will be about $20b (in 2033 prices) less debt by the net core Crown measure under National\u2019s target than under Labour\u2019s. By 2037, debt will have fallen below the 30% mid-point of the coalition\u2019s debt reduction target, at which point it will be about $130b lower than the 20% net debt target. <\/p>\n

Again, however, the opposite is also true.<\/p>\n

Because Labour is committed to running surpluses after 2030 and because it will hit its debt target in 2031, the party has committed to a programme of far more Government investment than the coalition, which will spend surpluses on debt reduction (the exact figures depend on just how long each party takes to hit its goal). <\/p>\n

Labour\u2019s plan implies that instead of spending surpluses on debt reduction, they\u2019ll be invested. <\/p>\n

The wisdom of this depends on whether you think the Government is likely to need that debt headroom in the next decade or so. New Zealand\u2019s historically conservative approach to Government debt is predicated on the fact that our shaky islands are prone to frequent and expensive shocks.<\/p>\n

Treasury\u2019s rule of thumb is to assume a shock costing 10% of GDP every decade.<\/p>\n

And 2030, the year the books are in surplus and the nominal debt starts tracking down will be the 10th anniversary of our last, most expensive shock. <\/p>\n

Correction: An earlier version of story used a $130b figure illustrating the difference between Labour and National\u2019s debt goals by the time National is expected to hit its debt target in 2037. This was based on target of 30%, which is the mid-point of the coalition\u2019s debt target range of 20-40%. National\u2019s debt target is to reduce debt below 40% under the net core Crown, which makes the difference between Labour and National\u2019s targets smaller. <\/p>\n","protected":false},"excerpt":{"rendered":"By comparison, the 2024 tax cut package \u2013 including all the income tax cuts, plus restoring interest deductions…\n","protected":false},"author":2,"featured_media":579718,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[31389,28430,9092,24744,45621,89,16392,16426,37078,78,6721,27699,13489,15220,16427,14771,130,3556,111,43,139,4061,69,4762,30503,4499,14040,656,66412,10809,8225,1361,223,86662,13797,6436,1533,197],"class_list":["post-579717","post","type-post","status-publish","format-standard","has-post-thumbnail","category-new-zealand","tag-abandoned","tag-admission","tag-against","tag-amount","tag-announcing","tag-attack","tag-borrow","tag-christopher","tag-fiscal","tag-in","tag-labour","tag-labours","tag-leader","tag-line","tag-luxon","tag-missed","tag-more","tag-national","tag-new-zealand","tag-news","tag-newzealand","tag-number","tag-nz","tag-party","tag-promises","tag-small","tag-spend","tag-strategy","tag-suite","tag-sunday","tag-target","tag-that","tag-the","tag-truly","tag-used","tag-well","tag-will","tag-you"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/579717","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=579717"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/579717\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/579718"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=579717"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=579717"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=579717"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}