The first leaders' debate on Thursday had barely begun
before Prime Minister John Key mentioned the way National had
managed the economy through the Global Financial Crisis and the
The more he emphasises the bad times, the more heroic a
surplus sounds - from an $18 billion deficit to a $297
million surplus four years later.
Finance Minister Bill English puts that down to keeping tight
control of spending with a focus on getting results from the
public service, such as more efficiency in elective surgery
and improving the quality of teaching, not just throwing
money at problems.
"Restraint is permanent," was his early catchcry.
He also had a head start on many finance ministers because
Labour had got net debt down to zero by the time it left
The GFC and earthquakes may have become tired references that
have almost lost their impact but they have defined English's
second tenure as Finance Minister.
His first stint was at the age of 37. For a brief six months
in 1999, he was nominally in charge of the Government's
finances - nominally, because Bill Birch had produced the
Budget that year.
English then had nine years to dream about what he was going
to do with all those surpluses if he got the chance again.
By the time it happened, it was more a nightmare than a
Runaway housing prices in Auckland and large increases in
government spending contributed to the Reserve Bank decision
to slam on the brakes to slow the economy.
New Zealand tumbled into a domestic recession seven months
before English got control of the Government finances.
And the global recession followed and then the Christchurch
earthquakes struck in 2010 and 2011.
Political partisanship was blunted through the worst of those
times as Opposition parties knew it was not time to fight the
One exception was personal tax cuts.
Tax policy says everything about a party's priorities and
Labour and the Greens bitterly opposed National's, which most
rewarded high-income earners, those who had missed out on
Labour's largesse for nine years on Working for
Families.While in Opposition, National promised cuts in three
tranches. Despite the books being in a sea of red, it passed
the first tranche as soon as it came to office in 2008.
English cancelled the second and third - although he insisted
they were delaying them, not cancelling them.
Today will see the first hint of personal tax cuts from
National since those "delayed" tax cuts.
But they will be a blurred outline of what might be possible
in a third-term National government, and aimed at low- and
Labour, too, in its alternative budget, has raised the
prospect of tax cuts but they would be in a second term, with
rising revenue from its capital gains tax.
National's motive is not so much to entice voters with a
prospect of tax cuts but to contrast it with Labour's
promised new taxes: a new top personal tax rate of 36 per
cent on income over $150,000 (the current top rate is 33c on
income over $70,000), increasing the trustee income tax rate
to 36c, and the capital gains tax.
The capital gains tax has not been terribly controversial
this election for finance spokesman David Parker because it
has been Labour policy for three years now and acceptance of
it is growing: a DigiPoll survey in June this year showed 41
per cent in favour and 35 per cent opposed. National believes
that is because most people don't realise it goes well beyond
property investors and farmers.
While the family home would be exempt, a tax of 15 per cent
would be applied to the capital gain from any other property,
shares and businesses at the point of sale - though not
yachts, art or jewellery.
There would be an exemption for small businesses deemed to
have been built up for retirement and the first $250,000 of
small business would be exempt. But exactly what it defines
as a small business would be left to a technical group to
come up with more detailed rules. It could lower house prices
by cutting incentives for property speculators who
effectively set house prices.
Labour's alternative budget estimates the tax would bring in
$425 million in the first term, and another $2.4 billion in a
The extra tax Labour gets from its new taxes on top of the
$32.6 billion new-spending allowance that National has
budgeted over the next six years amounts to $37 billion for
Labour to spend on its policies over six years such as
building 10,000 new homes a year, the Best Start payment of
$60 a week for children in their first year, free doctors'
visits for the over-65s and hiring 2000 new teachers to cut
One of its big commitments that sets it apart from National
is a decision to give $1 billion extra a year for education
and health to keep pace with inflation.
National has increased spending in both sectors to record
levels but increases have not necessarily kept pace with
inflation or demographic changes. It says its concentration
is on the quality of the service given to the public, not the
amount of money.
Another difference between Labour and National is their
general approach to markets. National puts more trust in
them: Labour is more ready to see failure. It is reflected in
their respective responses to getting new houses built.
National is promising to double incentives for newly built
homes; Labour is effectively promising to build them.
In power pricing, National would leave it to market forces;
Labour would set up a state body to control wholesale prices.
Labour would also give preferential tax arrangements for the
forest and wood products industry.
Labour's policy is not exactly reformist but it would require
the Reserve Bank to consider the external balance and give it
a new tool to control inflation - allowing it to adjust
KiwiSaver savings rates as an alternative to raising interest
rates. KiwiSaver would become compulsory under Labour as
Labour leader David Cunliffe has said it would be a bottom
line in any government he led that Labour holds the finance
- by Audrey Young