The $11.7 billion hole?

Hamish Rutherford has a good piece looking at the debate over whether Labour’s sums add up. The TLDR version is that it is possible to argue Labour’s sums add up – but only if you believe that they will not announce any significant new spending in their first three Budgets (if elected).

The core of the arguments is over what is called the operating allowance in the Budgets. It is the provision that Governments make for future spending increases (or tax cuts).

Now these allowances are cumulative. If you increase say health spending by $800 million in year 1 you don’t take that away a year later. It gets added to the baseline.

The current allowance is $1.8 billion a year. Over four years that represents $18 billion of extra expenditure.

Now Labour has pre-allocated almost all of that in their fiscal plan. You might say, well that’s fine. But think about the reality. Do you imagine Labour in 2018, 2019 and 2020 is going to deliver a Budget speech saying hey there is no extra spending beyond what we announced in 2017? Grant Robertson’s Budget speech would be one minute long.

Labour’s record is of huge increases in the operating allowances when they were in Government. From 2004 to 2007 it was around $3 billion a year and in 2008 it was a massive $7 billion (which is why we had a massive deficit when tax revenue dropped away). It simply is not credible to think they will spend three years in Government (if elected) and not agree to any extra spending proposals.