Higher spending is needed than allowed for under an agreed set of economic rules between Labour and the Green Party, the Council of Trade Unions (CTU) says.
The parties' agreement was announced today in a publicity exercise designed to calm any fears about how they will manage the economy if in power.
The economic rules were welcomed by BusinessNZ, whose CEO Kirk Hope said such cross-party agreements provided more certainty for voters and helped political stability.
But the CTU, which represents more than 320,000 union members in 31 affiliated unions, is concerned about the limit on new spending the rules impose.
"We support higher levels of Government activity and investment than these rules permit. There is an urgent need. Many countries who are more successful than us socially and economically have much greater government activity," CTU president Richard Wagstaff said.
"If an incoming Labour/Green Government is serious about fixing the problems we have in our education, health, housing and other public services, if it's going to correct the imbalances we have in terms of pay equity, if we are going to really tackle income inequality and our environmental challenges together as a nation, then it will need to be prepared to invest significantly. That will test these rules as they stand."
The set of economic rules were presented by Labour leader Andrew Little, finance spokesman Grant Robertson, and Green Party co-leader James Shaw at a business breakfast hosted by law firm Kensington Swan in Auckland, where the audience was made up of business leaders, bankers, economists, academics and NGOs.
The two parties said the new rules would give New Zealanders confidence about how the two parties would work together on economic issues.
But they are also an attempt to reassure voters who are unsure or sceptical about how the Greens could influence Labour's economic agenda.
The "Budget Responsibility Rules", which include a commitment to run surpluses every year, were developed with input from economists and experienced bureaucrats.
"The rules give people some certainty and some confidence about the sort of fiscal policy approach an alternative government would take," Robertson said.
Green Party co-leader James Shaw said there was still some uncertainty about what a coalition between a large and a medium-sized party could look like.
"And so what we're trying to do is provide some predictability and transparency about that."
At the last election, the Greens were the only party to get their policy costs peer-reviewed by economic groups. Despite this rigorous approach, its economic credibility remains one of its main barriers to power.
"Going right back to [former co-leader] Jeanette Fitzsimmons, we've always talked about needing to be responsible and accountable with public finances," Shaw said.
"But there is a perception problem. And today's announcement is just part of that work."
The rules were deliberately broad to allow for some disagreement and for each party to promote their own policies.
Labour has promised no new taxes if in power. But the Greens will lobby for a capital gains tax and a carbon tax.
The budget rules include a promise to reduce net debt by 20 per cent before 2022 - two years later than the target set by National.
Shaw said the later deadline was to allow for urgent spending on infrastructure, especially on housing and transport.
"There's quite a bit of catch-up to do, and so that just gives us a bit more room to make the investments that people want."
The two parties are also promising to set up a new independent costing unit which will check whether their economic rules are being met. It will also cost Opposition party policies - an idea previously championed by the Greens.
Robertson said a truly independent unit would prevent ministers from being "fast and loose" with the rules, such as by changing economic cycles so targets could be met.
1. Run surpluses every year, barring economic shocks or natural disasters.
2. Reduce net debt to 20 per cent of GDP before 2022.
3. Prioritise investments in long-term challenges, such as superannuation, infrastructure and climate change.
4. Keep Crown spending to around 30 per cent of GDP.
5. A progressive, fair tax system.