26 Sep 2023
Good afternoon and thank you for being here.
Thank you Sarah Sinclair and your team at MinterEllisonRuddWatts for hosting us here today in your beautiful offices.
Thank you also to my former colleague, the Honourable Simon Bridges, and your team at the Auckland Chamber. You do excellent work advocating for the businesses in this city.
Can I also acknowledge our talented National Party candidates: Nancy Lu who is running on the National Party List for this election, and Mahesh Muralidhar, who is running in Auckland Central.
They are campaigning hard, determined to see the election of a National-led Government that will put our country back on track.
If it seems like you’ve heard that catch cry enough already, let me remind you that in just 20 days time, the electioneering will be over. New Zealand will wake up to a result that will determine the direction our country takes for the next three years.
Today I want to speak with you about what’s at stake for our country’s economic future at this election. I’m going to describe the path National wants to chart, and the other, far riskier, alternative path that Labour would take us down.
First, let’s talk about the state of the New Zealand economy.
I don’t need to sugar-coat it in this room: it’s not in great shape.
We have the worst current account deficit in the developed world, meaning collectively we are living beyond our means.
High inflation, which Grant Robertson described in 2022 as a ‘temporary challenge’, is clinging on, now entering its third year outside the Reserve Bank target range. Domestic or non-tradable inflation is up at 6.6 per cent, food price inflation is up at 8.9 per cent and petrol is heading up over $3 a litre again.
With high sticky inflation comes high interest rates. The official cash rate has rapidly soared to 5.5 per cent and there’s a chorus of economists warning it will go higher still. Kiwibank, who just two years ago boasted two-year mortgage rates of less than 3 per cent, are now offering two-year mortgages at a standard rate of 7.99 per cent.
The growth outlook isn’t pretty either. The Reserve Bank is forecasting recession and Treasury is forecasting that on a per person basis we won’t see any growth for at least another year.
If you think that’s all a bit doom and gloom, then please take a breath, because now I need to talk about the state of the government books. Bear with me, because this is important.
The government books are in very bad shape.
I want to spend my time with you today talking about this this because getting the books back in order will be a core mission for the next National Government.
To understand the task that lies ahead of us you must first understand the size of the hole Labour has dug for us.
Labour is running one of the biggest deficits in the developed world. $10 billion in 2023 rising to $11.4 billion in 2024.
In the pre-election opening of the government books, Labour was forced to admit the return to surplus will be delayed for the third time, forecasting that the books won’t be back in balance until 2027 at the earliest, which, even it was achieved - and under Labour it won’t be - will mark the longest string of deficits since 1990.
It’s a far-cry from Labour’s 2017 promise that it would deliver a sustainable operating surplus across an economic cycle.
Year after year of big-spending budgets have blown debt out – New Zealand’s net government debt leapt from $5.4 billion in 2019 to $73 billion today, and is forecast to hit $100 billion by 2025. The cost of servicing that debt will by 2025 require more funding than we currently put into schools each year.
As a proportion of our economy, New Zealand’s debt will hit more than twice the level Labour targeted in their 2017 pre-election “Budget Responsibility Rules”.
Labour don’t like to talk about any of this. When they do - they blame COVID.
Don’t get me wrong - COVID has definitely contributed to New Zealand’s ropey books. But there’s more to it than just COVID.
The reality is that the Government is running bigger deficits now than it did back in the COVID year of 2021.
Labour has baked in much higher levels of Government spending into the future, continuing to spray the money hose on full boar, well after the COVID wage subsidies ended.
In 2024, Government spending will by $30 billion more than it was even during 2020 – the year of massive nationwide lockdowns and COVID stimulus. All up, Government spending is now 80 per cent more than it was in 2017 – that’s $1 billion of extra spending every week.
Labour’s vision is for government spending to stay high, and the tax take from New Zealanders to rise ever-higher to fund it.
While I appreciate the next number I’m about to talk about is an extremely wonky one, it’s a number Labour once cared about too.
In their 2017 Budget Responsibility Rules Labour noted that “for the last 20 years, Core Crown spending has been around 30 per cent of GDP and we will manage our expenditure carefully to continue this trend.”
So much for that.
Government spending as a proportion of the economy has gone from 27.7 per cent when Labour took office to 33.5 per cent in 2024.
The pre-election update showed government spending won’t get under 30 per cent, ever. And those are best-case scenarios. Labour’s talk of keeping government lean has given way to the reality of their insatiable appetite for spending.
This Government’s track-record proves it doesn’t have what it will take to get the books back in order over the next three years.
In fact, our team did an exercise of going back at looking at every Budget “spending allowance” commitment Grant Robertson has made since 2017, comparing the size of the spending envelopes he publicly aimed for with what he went on to spend.
He has broken every single signalled spending limit. Every single one.
What’s my evidence?
We studied the “Budget allowances” or new spending limits that Mr Robertson set for himself in manifestos and Budget forecasts, and we compared that with what he went on to deliver.
Every budget allowance he committed to in his 2017 fiscal plan? Broken. Every budget allowance he committed to in his 2020 fiscal plan? Broken.
Every budget allowance signalled for future Budgets? Broken.
In fact, we can’t find a single example of where Mr Robertson set a future Budget spending allowance and actually stuck to it.
This may all sound a bit removed from bread and butter, but here’s why it matters.
Because the next Government has a massive challenge on its hands to get our country’s books back in order. This is important to ensure we can withstand a future economic shock or a severe natural event.
Labour will soon present their fiscal plan. Some media and commentators will be tempted to take it seriously and to compare it with ours. But the truth is it won’t be worth the paper it’s written on.
Because while Labour will pledge restraint, their track record shows they are incapable of it. It’s important New Zealanders aren’t fooled into taking their claims seriously.
If Labour do get their hands on the purse strings they’ll already be straining to contain their existing promises, including expensive projects like $30 billion Auckland Light Rail, the $16 billion Lake Onslow Electricity Project, the hundreds of extra millions needed to make their GST policy work and the hundreds of millions needed for an Income Insurance Scheme.
That’s before you even start tallying up the inevitable spending demands of the Greens and Te Pāti Māori.
If a Labour-Greens-Te Pāti Māori coalition were to be elected, government spending would reach new highs. The strain on the already heavily indebted government books would be extreme - more than our fragile economy could handle.
New Zealand’s books are now in such bad shape that more broken spending promises from Labour could send our country into a debt spiral.
Eventually, the ratings agencies, the bond markets and foreign lenders would react and our children would be left to pick up the pieces.
I suspect Labour knows its big-spending agenda can only be funded by big taxes to match.
Labour’s MPs have looked over the manifestos of their future coalition partners and found much they agree with.
In particular, the Greens wealth tax proposals, that are so dear to them, are uncannily similar to those Grant Robertson worked on for months with his Treasury and IRD officials.
One Labour MP has recently admitted that Labour is already discussing potential new taxes.
The MP Grant Robertson would like to replace him in Wellington Central, Ibrahim Omer, was candid at a public event on Sunday night.
Candidates were asked about their views on wealth taxes and capital gains taxes and Mr Omer responded saying, “I think there is going to be a time for that. The Labour Party hasn’t given up on that. The Leader now, for reasons I understand, has put it aside, but it’s part of our discussion.”
Make no mistake, no matter what Mr Hipkins says this side of the election, if Labour gets their hands on the books then the way ahead is bigger deficits, more debt and more tax to pay for it all.
That path is one of massive risk for our country.
A wealth tax could put a wrecking ball through our already fragile economy, scare off the investors our country relies on and expose us to deep economic failure.
A better way is possible.
Later this week, National will publish our fiscal plan for reducing taxes, funding public services and infrastructure while stopping wasteful spending, improving value for government spending and getting the books back in order.
We have put our tax and spending commitments together very carefully.
National knows that New Zealanders don’t expect us to fix Labour’s mess in year one. But we must chart a better way forward and use the next three years to exert more control over spending and debt.
We will be honest about what the economic circumstances require of us: this is a time for extremely careful spending and a relentless commitment to driving more value out of every taxpayer dollar.
In the midst of a cost-of-living crisis we must also prioritise supporting New Zealanders and the public services you rely on. We can do this, by being careful and considered.
National stands on our track-record of responsibly managing New Zealand’s finances.
When Labour took office in 2017, they inherited a very tidy set of books from National. The Key and English Governments had returned the books to surplus, having worked extremely hard to bring things back in balance after the GFC and the Canterbury quakes.
Debt was back down to 5.9 per cent of GDP. Government spending which had peaked at 34 per cent of GDP in 2011, had been brought under control and was back down to 27.7 per cent.
How did the last National Government do it? Well first of all, they consistently stuck to their spending commitments. In fact, I went back and checked and I can report to you that during their nine years in office, the last National Government only exceeded their pre-election commitments in their 2016 and 2017 Budgets, and even then by only small amounts, and only because they had got the books back to surplus already.
National borrowed when it needed to support New Zealanders and then got the books back in order through sustained efforts to stop waste, to get more value from every dollar and to drive precious resources to the frontline where they can make the biggest difference.
National’s fiscal plan will commit us to doing that once again.
We will move carefully, with hard heads yes, but also with caring hearts.
We know how fragile New Zealanders are right now - their household finances have been pummelled by the cost-of-living crisis, high interest rates and high taxes. They need and deserve tax relief and we will deliver it.
At the same time, we know schools and hospitals need more funding and future budgets will need to make room for this.
The next National Government will meet these pressing needs while also charting a path back to balanced books and debt reduction.
Ours will be a steady path.
National’s fiscal plan will deliver overdue tax reduction to working New Zealanders, prioritise funding for infrastructure and frontline services; fund a small set of new policy commitments, and leave significant buffers of unallocated spending for future frontline services.
Our fiscal plan will deliver on these essential tax and policy commitments while reducing the size of future spending increases Labour has planned, reducing future operating allowances so we can reduce deficits and debt.
We are able to do this because we have been very careful about not to campaign on every new spending idea we would like to happen. We are up for the challenge of reprioritising money to better purposes. And because we back ourselves to drive better value in Budget after Budget, year after year.
After all, that’s exactly what New Zealand households and businesses are doing right now. It’s the least you should expect of your Government.
On the 14th of October New Zealanders will have a choice about the economic future they want. One way lies more spending, more debt and more tax. The other lies with National, with careful spending, lower taxes, less debt and the responsible economic management approach New Zealand needs.
National will get our country back on track.