National's finance spokesman Simon Bridges' numbers have come into question, although the Government hasn't said what's wrong with them. Photo / NZME
OPINION:
When Parliament's grounds are rebuilt over the coming months, the Speaker should consider installing a monument to the fiscal hole, which has become an indispensable part of our democracy.
Just as you can depend on an election following the dissolution of Parliament, so too can you be sure that when the opposition (be they Labour or National) releases a numbers-heavy policy, the other lot will cry "fiscal hole".
So it was inevitable, that more than a year from the likely date of the next election, after National released a tax cut plan on Sunday, Finance Minister Grant Robertson, wearing his party political Labour finance spokesman hat, raised concerns the cuts were poorly costed.
Robertson had no smoking gun. Christopher Luxon and Simon Bridges, though both currently suffering from Covid, have not yet fallen into a fiscal hole that has claimed many of their colleagues. Instead, Robertson noted National's model for calculating the cuts appeared to be old, and challenged the party to release the model.
All fiscal holes are not created equal, nor do all turn out to be true. Indeed, the most infamous fiscal hole, allegedly discovered in Labour's 2017 manifesto, turned out to be an error on the part of National.
Fiscal holes are not all the same either. The most obvious holes are those of arithmetic. If you think a policy costs $5 and you say you'll fund it by cutting another policy, well that's fabulous, but if it turns out that policy you planned to cut only cost $4, then you've got yourself a fiscal hole of $1.
Working out the cost of policies you plan to cut is pretty easy. Budget documents set out what Treasury thinks various things will cost in the future, and it helpfully publishes forecasts twice a year (as well as one extra forecast just before the election) to give everyone a rough idea of what money there is to play with.
So long as your proposed savings are taken from the most up-to-date Treasury forecasts, they're probably fine.
Most of Paul Goldsmith's fiscal holes were errors of this flavour. He took out of date numbers for spending that could be reprioritised and saved, which meant he didn't have as much money for new spending as he thought: fiscal hole.
Another kind of fiscal hole comes when a party screws up working out how much something will cost. This is distinct from working out how much money you've got to pay for it.
This kind of fiscal hole is politically fraught because it involves forecasting and modelling, which means your calculations are inevitably going to be politically contested.
If a party has a policy of giving free coffee to protest-suffering Wellingtonians (Mr Robertson, if you're reading this…), costed at $5 a coffee for 200,000 city workers, it opens itself up to the allegation that there'll be a fiscal hole if 300,000 workers take up the offer.
Labour went to war over this in opposition after allegations it has mis-costed a policy by presenting inaccurately low estimates of how long people would use a policy for. It took a case to the Broadcasting Standards Authority about the allegations (and lost).
This is the kind of fiscal hole we're currently dealing with.
National had promised an adjustment to the tax brackets, which will mean 3.2 million income tax payers will pay less tax. Because there's no way of knowing exactly how much each individual taxpayer will save in the next tax year, there's no way of working out exactly how much the policy will cost the Government.
If National wanted to be shifty, it could promise everyone an individual tax cut of a few hundred dollars, giving it a win in the minds of individual voters, but use woefully out of date information to calculate how much it would actually cost the Government. You're effectively giving away money to voters, without being upfront about what it would cost in terms of less money for services. This is essentially the allegation being made by Labour.
There is, however, a way of modelling a rough estimate of what such a policy would cost. IRD releases the number of people in each bracket and earnings data which breaks down the number of people who earn what, broken down into increments of $1,000. This means anyone who wants to can know how many people earn between $50,000 and 50,999.99, and how many people earn between $51,000 and $51,999.99 and so on and so on.
Using that data, it should be possible to get a fair estimate of the cost (although even this is just a ballpark - things can change; at the election, Labour thought its 39 per cent tax bracket would hit only 2 per cent of taxpayers - it ended up hitting about 3 per cent, nearly 50 per cent more).
The central allegation being made by Robertson is National's estimate is out of date and sloppy, and the cuts will cost the Government more than National claims, meaning a cut to services or more borrowing.
Robertson noticed National claimed the costs were from an updated 2019 Treasury model, which had since been updated. National hasn't helped things by wiping reference to the 2019 model from its website. He's now calling on National to release its figures.
"I'm calling on National to release its costing spreadsheet so it can be independently checked. This includes being able to tell whether National has used at-least-three-year-old numbers, or what updates it has attempted to make," Robertson said.
National says (and has shown this reporter) that the model used to calculate the cost of the cuts is the most up-to-date data publicly available. It comes from a set published by IRD in 2021, which is built on 2020 population estimates. It's the most up-to-date data in the public domain.
That passes the sniff test. If it's the best data that IRD has made public, then it's the most up-to-date data anyone could use. If there's better data out there, the Government should make it public.
National's rightly decided to include the cost of superannuation increases in its costings, and has also subtracted the increased revenue the Government would take in taxation from people spending their tax cuts (there's probably a stronger argument in debating that, if Robertson wished to).
There's an argument for releasing the model. Although at that point every teenager with a calculator is likely to find some problem or another. Some of those problems may be true, most won't be, and at that point, National would find itself defending so many allegations of innumeracy it would probably lose the argument in the eyes of voters anyway, regardless of the accuracy or inaccuracy of its costings.
Robertson's release is a clever one. He's alleging there could be a problem with National's model, not that there is a problem. He's effectively arguing National's fiscals are guilty until Bridges can prove them innocent, not that the party is innocent until proven guilty.
It's not the strongest argument. If the numbers are truly woeful, he should come up with more accurate ones for the sake of comparison.
National was wrong in 2017 not to back down from its untrue allegation of an $11.7 billion fiscal hole. It muddied the waters of the election and sowed seeds of doubt about Labour's costings when there was no real problem. This does not legitimate Labour now alleging there's a whiff of fiscal impropriety when there isn't one. Politics should not descend into parties disproving unproven allegations against their policies.
In the Pollyannaish view of this reporter, it might be nice if we actually debated the merits one way or the other of the policies themselves. Do we deserve tax cuts? Who should get the biggest tax cuts? Can services be maintained with lower revenue? These are greater questions than whether IRD's 2021 sheet using 2020 data is a reliable basis for a party's fiscals.
When the dust has settled, what this episode is a shot across the bow for National - and possibly for Labour.
It won't sink Luxon, and it won't sink Bridges, but it's a warning the panoptic fiscal eyes of Robertson and his office will run over every line of costing, and question every modelling assumption.
Labour has a small but loyal team of people who, having been bruised by the party's unfairly tarnished fiscal reputation opposition, have skilled themselves at costing policies. They're very loyal - and very good with a calculator. If there's a hint of miscalculation, they'll find it. National needs its numbers to be watertight.
But Labour should be careful too. For the first time in a long time, National's numbers look pretty good. Labour can't rely on National to do their work for them. Robertson needs to argue Labour's tax settings for their own sake, without relying on National's dodgy arithmetic to make the point for him.
National has another pickle. Labour and the Greens had proposed an independent costings unit, akin to what we see in many other countries, where political costings are checked by officials. This would effectively mean an end to fiscal hole debates as nothing bearing the imprimatur of the costings unit could be politically contested.
National torpedoed the idea, believing it would advantage Labour and the Greens, who still struggle to win voters around to their economic credentials. Since then, the party has fallen to numerous fiscal fumbles. It's tempting to think National would have second thoughts; indeed, the party should probably consider the amount of time it spends defending the costs of its policies relative to talking about the policies themselves.
But coming round to the idea now would be to concede defeat to Labour on fiscals, something Robertson would never let Luxon or Bridges forget. This makes it unlikely,but with a murky fiscal hole such as this one, which is difficult to prove one way or the other, it's easy to see the temptation for an independent modeller in the future.
They allege the Crown ignored Treaty obligations by not engaging with them.