National’s Paul Goldsmith and Labour’s Grant Robertson have gone head-to-head in RNZ’s finance debate.
In responding to Covid-19, governments worldwide have borrowed huge amounts of money at cheap rates. In New Zealand, debt is now at 31 percent of GDP; and is expected to peak at 58 percent of GDP in 2024.
As the world struggles to deal with the pandemic, what do the finance spokespeople for the country’s largest political parties have in store for the economy if they are elected?
Listen in as Robertson and Goldsmith tackle budget issues, tax cuts, housing, inequality and more during Morning Report’s finance debate:
Host Corin Dann started by asking Paul Goldsmith to explain the errors in his economic plan.
“Ah yes there was a regrettable error over the superannuation fund. Yes, we corrected that and the impact of it is that rather getting to net debt of 35 percent of GDP in 2034 we will get to 36 percent,” Goldsmith said.
“Look, there was a small error around the capital allowances that we did not pick up. And that’s it… What happened was that we made two changes to the way we were going to fund our ambitious $31b infrastructure plan. One was that we were originally going to take money out of the Covid fund. We’ve decided that we are going to put that money into immediate tax cuts from the first of December… We’ve (also) increased our capital allowances. Not significantly.”
Robertson said: “There are two problems with what Paul has said there. The first of those is that despite him saying they haven’t double counted … they have. Subsequently, what they have done is said ‘OK, because of that we are going to take more money out of the land transport fund to make up for the difference. That’s the fund that pays for the maintenance of our roads, the cycleways, the walkways that everyone wants … that will mean projects won’t get done in communities right across the country.”
Goldsmith responded by saying: “That’s just absolute nonsense, he’s acting like a trainspotter … the difference is that we have transformational infrastructure plan.”
Robertson retorted by telling Goldsmith: “These mistakes matter Paul, in the real world. If you are making mistakes like this in putting a plan together, in government those mistakes matter. This is a shambles, this plan, it’s chaotic.”
Dann then asked Goldsmith about National’s budget allocations for extra spending: “Your budget says you have $800 million allocated for extra spending. That is correct?”
Goldsmith said: “No, we have $1.8b for extra spending each year. We have allocated some of it already for education and health – a billion.”
Dann asked how he was going to make $800m spread across health, education, law and order.
Goldsmith: “Well, that follows the extra investments we have already allocated and announced in health and education.”
Robertson: “This is an example of the inexperience that is now in the National team, because Paul hasn’t funded are the basics … the things that are in his budget already are the extras. He’s not funding the basics.”
Dann moved the discussion onto debt, asking Robertson about the 15 years it would take the country to get back to “relative strength when it comes to our debt” under Labour.
Robertson pointed the finger at National.
“You cannot actually just reduce debt down when the discussion we have just been having shows that in order to do that you will fundamentally undermine public services. We do have a plan that keeps debt under control and balances with that investment in public services … the key actually to reducing debt is sustainably grow our economy.”
Goldsmith claimed there was “no plan from this government to get back to surplus ever”.
“Their only plan for growth is to add costs to businesses that we need to be growing jobs.”
Onto tax cuts, Dann asked Robertson if in fact there was an argument for stimulus into the economy – “doesn’t the short-term tax cut make sense?”.
Robertson said no.
“That’s because it is a complete sugar hit, it is not a sustainable investment. We’ve made a significant stimulatory investment in the economy through things like the wage subsidy scheme, through the other supports that we provided. As we move through the next couple of quarters and into next year, what we want to see is the investments in infrastructure, construction, R and D, and our small businesses.”
Robertson said the period of time in which a cash injection was needed was the period just ended – “and we did it via the wage subsidy scheme, via the supports we have had”.
He said it was those on low wages who would spend more regularly, and Labour’s planned minimum wage increase would give them $48 per week.
Goldsmith was asked why National’s tax cuts would only give low wage earners $8 per week.
“We are focused on the middle income New Zealanders – people earning $50-, $60-, $70,000 per year and putting $3000 in their hand over the 16 months from the first of December.”
Robertson said National had made a “fundamental misreading of the PREFU”.
“What it actually says in the short to medium term the New Zealand economy is doing better. The trouble us is further down the track … as the international economy struggles. That’s the investments we’re making now … at the end of the sugar hit – that’s when we’re going to need the investments.
Dann moved the debate on to housing, asking Robertson if the future “had to revolve around rising house prices for us to be economically successful”.
Robertson said: “It can’t. We have seen an extended period in New Zealand where housing and immigration have been at the core of economic growth. What we’ve done in this term is build the base for moving away from that… It’s about supply and it’s about massively increasing that. We’ve got 8000 new public houses coming on board, we’ve got the progressive home ownership plan, we’ve got the changes we’ve made to the national policy statement on urban development, we’re all going to change the RMA.
“All of those things will help on the supply side. On the demand side, we’ve got the ringfencing of rental losses, we’ve got the brightline test going out to five years, we’ve the ban of foreign buyers. All of those things have to come together but it ain’t going to be a quick fix.”
Dann asked if National would do “anything to curb the demand in housing, the speculative element in housing that is allowing a lot of New Zealanders to get extremely wealthy?”.
Goldsmith said: “The absolute focus needs to be on restoring the RMA effectively… The critical thing on housing is to focus on trying to reduce the cost of producing new houses.”
When Dann pointed out that house prices was about nine times the median income in Auckland, neither Robertson nor Goldsmith would say what that ratio should be reduced to.
Robertson said it should be significantly less than that and Goldsmith said the focus should be on reducing the cost of building homes.
Finally, the debate touched on inequality.
Goldsmith was asked what National would do help the communities who were struggling and would continue to struggle during the recession.
“The best thing we can do for that group is to give them the prospect of a job … the critical thing to affect a family’s wellbeing is to have a job and provide for yourself and your family,” he said.
Robertson was asked if Labour was seriously considering a social insurance policy that would give people a backstop if they lost their job.
“One of the ways you could fund that is through an ACC-style levy scheme. What we have committed to is to keep working … on it. Whether it would be implemented in the next three years or not, I’m not sure.”
He would seek a mandate on it, he said.
National would not consider a social insurance policy, Goldsmith said.
Finally, the pair were asked if they could recommit to a Treasury-mandated system that did accounts and budgeting in an election.
It was a yes from Robertson and from Goldsmith: “In theory, it’s a nice idea”.