Ng on Labour’s fiscals

Keith Ng blogs:

Here’s the simple truth about asset sales and the Super Fund: In the short-term, it’s just moving money around. It doesn’t spend it, it doesn’t earn it. It’s effect on our net position in the short-term is bugger-all. Anyone who’s telling you that it’ll significantly change our position in the next few years is, at best, pulling some kind of accounting trick.

The real difference is in the long-term, and it depends entirely on interest rates, SOE performance, Super Fund management, etc. Labour’s making a pretty modest argument for restarting contributions to the Super Fund, saying that it’ll earn 0.5% above the cost of capital. It’s such a mundane claim, I don’t see how it can be reasonably challenged. And on the SOE front, National’s argument has always been about the wider economic impact – on the sharemarket, etc. – not that the government will see a fiscal gain.

Keith is basically right here. He does miss one aspect though – it is also about risk. Borrowing to invest in the Super Fund is a risk. Is an extra 0.5% above risk free bonds worth it? Since May, the Super Fund has lost $2.6 billion dollars. If the Super Fund has been used to pay off debt, then it would have reduced interest payments by $1b or so.

Now of course over time the Fund may do better than the risk free rate of return. But hell in eight years it has only managed 0.5% better. And with world financial markets still gloomy, is this the time to start borrowing billions more to invest on international sharemarkets? The days of the massive growth in equities may be over.

Keith is right that on the fiscal side of the mixed ownership model, there won’t be a lot of difference either way. The reduced dividends will approximately equal the reduced interest on debt.Labour’s projections for dividends and capital look hugely optimistic according to one commentator. I’ll check them out over the weekend.

There’s also some strange spin going on. David Parker said that KiwiSaver changes is the biggest item of new “spending”. Which is technically true, since tax cuts are cutting revenue, rather than increasing spending. But Labour’s tax cuts (tax-free threshold, GST changes, R&D tax credits) are actually bigger than the KiwiSaver changes. In fact, it’s bigger than all of Labour’s new spending combined, including the ones which haven’t been announced yet.

It’s like they are petrified of talking about it because fiscally responsible is the new black. Unfortunately for them, it’s also the biggest, most expensive goddamn thing in their policy.

Keith correctly identifies Labour’s tax cuts for all as their largest commitment. ACT are not promising tax cuts until we get back to surplus (which they would do quicker by spending cuts(. National are not promising tax cuts at this election. Labour however is promising income tax cuts for everyone earning up to $150,000. 40 of the 43 Labour MPs will get a tax cut.

Their tax cuts for all is their fiscal albatross.