Leading economist Cameron Bagrie says Labour's Fiscal Plan is transparent and achievable.

But it would be a "massive challenge" to deliver on the numbers as presented for the 2019 and 2020 Budgets when there would be nothing left for the cost pressures on Government after health and education increases.

He congratulated Labour for coming up with a transparent plan.

"On the one hand, good on them for putting number down and taking them out three to four years."


But he said there would be obvious pressure from areas such as law and order and core Government services other than health and education.

"There's just nothing really left to get thrown at the remainder of Government."

He said he would characterise it as a challenge for Labour.

"When I say it's a challenge for them to stick and deliver on the numbers as presented, it is a massive challenge.

"They have got absolutely no wriggle room at all in the 2019 Budget unless they decide they are going to reprioritise spending or maybe run a low operating balance or have a little more debt."

But he said there were also options to address that, including running a smaller surplus, cancelling some programmes, changing taxes or being less aggressive on repaying debt.

He was commenting after Finance Minister Steven Joyce waged fiscal war on Labour over its fiscal plan which was finalised last week after Treasury updated forecasts in the Pre Election Economic and Fiscal Update.

Just before the second leaders' debate, Joyce claimed Labour had made an error with their figures and there was a $9.4 billion "fiscal hole," because there was very little room for spending increases other than health and education. On average about half of new spending a government allocated each year was on education and health.


Labour's finance spokesman, Grant Robertson, said Joyce should apologise for his "patently false and cynical attack of Labour's fiscal plan."

"He has actively misled New Zealander in a desperate and disingenuous hit job and owes them an apology."

No economist or commentator has characterised it as a fiscal hole.

But some, such as Bagrie have pointed out the likely pressure points.

Fiscal furore Q & A

Steven Joyce says Labour has made a mistake with the figures in their fiscal plan? Have they?

No, but that doesn't mean to say there aren't things in the plan that are a bit unusual.

Does Labour have enough money to fund its election promises?

Yes. That is clearly set out in their Fiscal Plan. They have identified where they will spend more than National over four years and where they will get extra revenue from, which includes $7 billion more in borrowing.

So what is all the fuss about?

It is about the funding of areas of Government in two or three years' time about which Labour has not made any spending promises and which is not accounted for in the four-year spending plan already passed by Parliament.

What sorts of things does it cover?

Any public sector wage increase that have not yet been negotiated, or to fund new unforeseen costs pressures.

How are they normally funded?

Any new initiatives not already itemised by Labour or provided for in the baked-in increases are funded from the operating allowance. The Minister of Finance decides on an amount of money each year which is always rolled into subsequent years because things like pay rises are not one-offs.

How would Labour fund those?

Its operating allowance is budgeted as one-off amounts. It would have plenty in the first year, 2018-19 with $835 million in operating allowance to play with. But with only $879 million in the next year, the actual new allowance would be only $44 million for that year (or effectively zero in the context of Government spend that year of $114 billion). That wouldn't mean no spending on new initiatives, but they would need to be funded by efficiencies elsewhere as Labour finance Grant Robertson has said.

What sort of amount is involved?

While the allowances over a couple of years would be tight, the total amount over four years is not that much less than National's operating allowance once its election promises and inflation and demographic increases for education and health are hypothetically factored in. A three per cent pay rise for Police start in 2018 - 19 would cost about $33 million a year.

So what is the "fiscal hole" Steven Joyce has been talking about?

If the operating allowances as set out by Labour had been cumulative over the out-years and not a series of one-off allowances, the total of allowances would have amounted to $9.4 billion - Joyce added in a few other alleged "errors" to get to $11.7 billion. Joyce has called that a "hole" and implied the books are wrong. They are not.