With 31 days to go until the election, Treasury’s Pre-Election Fiscal Update has unveiled a smaller ‘lolly jar’ than expected, which prompted National to rule out tax cuts before 2020 and Labour to rule out a higher personal tax rate in its first term.
Treasury revealed a smaller-than-expected bonus from economic growth over the next four years, with a net improvement in the Budget surplus of $300 million over the next four years – much smaller than the $1.5 billion many had expected.
National’s campaign manager and Finance Minister Steven Joyce reacted by saying this meant the Government would not be able to announce another family incomes package of tax cuts before 2020 unless there was an improvement in economic conditions.
Labour Leader Jacinda Ardern also acknowledged the PREFU had not delivered as much extra room for new spending promises, but that it had not affected the spending plans Labour had already announced.
She said Labour still expected to make future announcements around housing, education and health. But she also said she had decided today not to campaign for a new higher income tax rate, and that any Labour Government Tax Working Group would not look at introducing a new higher tax rate for high income earners. There had been some speculation that Labour would need extra revenue from a higher tax rate to pay for as-yet unannounced plans to bring forward a pledge for three years’ free tertiary education.
Not so many lollies to throw around
Treasury reported in its PREFU this afternoon that the Budget surplus in the just-completed 2016/17 year would be $2.1 billion bigger than expected, but this was whittled down by lower surpluses over the next three years totalling $1.8 billion because of a slightly slower growth forecast.
Finance Minister Steven Joyce said the Government would not be able to afford any increase in its family incomes and tax cut package unveiled in Budget 2017 until 2020 at the earliest, unless there was a significant improvement in the economy before then.
“The next opportunity (for a bigger family incomes package), unless economic conditions turn out to be significantly better, is in 2020,” Joyce told a briefing for media to release the PREFU, which is released for all parties to cost their policies a month before the election.
“We want to stay on our debt track. We don’t want to be borrowing for a family incomes package,” he said.
The smaller-than-expected surpluses over the four-year period puts Labour in a bind.
It had hoped a significant boost would give it the flexibility for more spending, potentially on an early introduction of three years’ free tertiary education. But it may now have to propose a new 36 percent top tax rate for those earning more than $150,000 per annum, given its commitment to running a surplus over the cycle and reducing net debt to 20 percent of GDP within five years.
Treasury forecast slower residential construction growth because of an easing housing market and bank mortgage lending constraints. It also pointed to capacity constraints and a higher exchange rate. However, it also forecast slightly lower unemployment and firmer real wage growth than in the May Budget because of a lower labour force participation and falling net migration.
Elsewhere on the election trail, Bill English donned some virtual reality goggles in Wellington, while Jacinda Ardern announced Labour would build 149 affordable and state houses in Palmerston.
New houses for Palmerston North
Ardern announced in Palmerston North this morning that a Labour government would build 149 new houses in the city.
“You are a vibrant and growing city and with that growth has come demand on your housing stock and we have not met that demand,” she said.
The policy proposes a 50/50 split between state housing and Kiwibuild starter homes, at an estimated cost of $275,000 for the Kiwibuild three-bedroom property.
The homes would be built on the state-owned land on Botanical Road, Crewe Crescent and Rugby street.
Jacinda said that the policy was aimed at the 140 families on the Housing New Zealand waiting list and the 500 homeless in the city.
“Instead of rebuilding those state houses, the Government has done nothing. We’re not satisfied with that and under Labour that won’t remain.”
In the past year, house values in Palmerston North rose 14.3 percent, well above the nationwide rise of 9.7 percent.
Renters’ report scathing
The announcement coincided with the release of the People’s Review of Renting report published by ActionStation and Renters United, detailing the experiences of over 600 renters. It found 70 percent of the 610 tenants surveyed said they did not have underfloor or ceiling insulation, 61 percent said they did not have effective heating and 52 percent reported their homes were not weathertight.
“Almost half the population rent, yet much of the debate focuses on home-ownership. This report highlights the experiences of renters, many of whom feel powerless, insecure and like second-class citizens,” spokeswoman for Renters United Kate Day said.
The key recommendations of the report include the introduction of a mandatory rental warrant of fitness, abolishing no-fault evictions, and requiring licensing of landlords and property managers.
The Greens welcomed the report and pledged to adopt its recommendations of a rental warrant of fitness scheme and a toughening up of tenancy tribunal powers to protect renters.
“With nearly half of New Zealanders renting, the grim findings of the review are a wake-up call about the true state of rentals in this country. Too many renters are festering in slum-like conditions under the thumb of landlords who have largely unchecked powers and ignore tenants’ complaints when it suits them,” said Green Party social housing spokesperson Marama Davidson.
“The Green Party is proud to support many of the recommendations in the report. We will implement a mandatory rental warrant of fitness, improve security of tenure for renters, support rent fairness and strengthen tenancy tribunal powers,” she said.
NZ First’s shocking electricity plan
A plethora of politicians have turned out at Te Papa to woo the cream of New Zealand business, Shane Cowlishaw reported.
BusinessNZ’s election conference will see appearances from all party leaders in the afternoon, while the morning has been taken up with political panel discussions on the economy, resources, and employment.
Tax dominated early discussion, including what impact Labour’s plans to potentially implement a capital gains tax and raise the top income bracket (which many in the room fall into) would have.
But the biggest gasp was reserved for New Zealand First’s Richard Prosser.
During the resources discussion, Prosser said the party would buy back the parts of electricity companies that had been sold off by National.
A representative from Mercury Energy asked him how he planned to fund that, considering it would likely cost about $11-12 billion.
NZ First would only pay what the companies had initially been sold for, Prosser said, without explaining exactly how it would do that.
Coming up…
August 23 – The final day for people to enrol to vote regularly. Anyone enrolling after August 23 will have to cast a special declaration vote.
August 31 – The first leaders debate on TVNZ.
September 4 – Then TV3 has its leaders on September 4. The leaders then travel from Auckland to Christchurch for the Press/Stuff debate on September 7.
September 7 – The Press/Stuff leaders debate will be held in Christchurch
September 11 – Polling booths open for early voting.
September 20 – The final leaders debate on TVNZ.
September 23 – The General Election.
October 12 – Winston Peters has said he will make a decision about which party he ‘crowns’ to be in Government by October 12, which is when the writs with the final election results are returned
