Fiscal Rules Of National And Labour

Overview

This report analyses the fiscal rules announced by both the National and Labour parties this August. The report is intended to support working people to have conversations with whānau and friends in the lead-up to the general election about the difference between each parties’ approach, and their shared limitations.

National has framed its fiscal policy as a set of rules, while Labour has framed its fiscal policy as a set of objectives. For simplicity, in this report we use the term “rules” when referring to both parties’ announced policy. These are rules in the soft sense of the term, as the government always maintains the ability to break with the rules it sets itself, although there is usually a political cost in doing so.

Executive summary

On 9 August the National Party announced the “Budget Responsibility Rules” it says it will adhere to if re-elected. These are rules about the level at which a National government would tax, borrow, and spend. On 23 August, Labour announced its own fiscal objectives that it will pursue, as part of its broader Fiscal Strategy.

Both parties have set similar rules for the operating balance and government debt, and both parties have set soft caps on government spending. National’s cap on government spending bakes in further cuts to public services and/or transfer payments.

By contrast, Labour’s cap is meaningfully higher and would provide it with greater fiscal capacity to invest in public services and support the wellbeing of New Zealanders. By the 2029/30 fiscal year, the difference would be around $15 billion, which over time would mean better outcomes in key public services such as health and education.

Despite this important difference, both parties’ fiscal approaches share a limitation. By focusing attention on achieving narrow financial metrics of central government, the fiscal rules approach artificially restrains the government’s ability to support the broader economic and social outcomes that actually matter for New Zealanders – things like employment, poverty reduction, and modern public services and infrastructure.

In the NZCTU’s view, real economic responsibility requires the government to balance the task of managing its finances with other important objectives such as:

• Smoothing the economic cycle.
• Ensuring public services can meet demand.
• Delivering modern infrastructure that supports economic development.
• Working to eliminate poverty and economic insecurity.
• Urgently adapting New Zealand for the impacts of climate change.

Fiscal rules subordinate these economic and social outcomes to narrow financial targets. A more nuanced approach to government fiscal policy is needed, one that is sensitive to the actual need for public services and investment in Aotearoa.