Opening the books has changed the election campaign trail


Finance Minister Steven Joyce speaking at Treasury's Pre-election Economic and Fiscal Update (PREFU)

Just for a change, no party leaders resigned today.

Nobody got pulled into an employment scandal, no big new polls came out, and no big speeches were made.

But the election campaign was changed profoundly. Why? Prefu!


Prefu, or the pre-election fiscal and economic update, is a legally mandated opening of the books by Treasury that happens before every election.

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The idea is that every party can get a good look at the government's accounts and treasury's projections so they can plan their policy.

But how did this change the election?

It cancelled the lolly scramble, or at least delayed it. Treasury projected that government surpluses - the money the government has left over every year - will be quite a bit smaller than expected over the next four years. This means both National and Labour have a bit less to play with for the rest of the campaign, as both of them have also promised to keep paying off government debt.

Finance Minister Steven Joyce at Treasury's Pre-election Economic and Fiscal Update (Prefu).

Finance Minister Steven Joyce at Treasury's Pre-election Economic and Fiscal Update (Prefu).

So the tax cuts are off the table then?

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Not quite. Finance Minister Steven Joyce told journalists at Prefu that the earliest the Government would be able to implement a second family incomes package - think tax cuts and Working for Families boosts -would be 2020, just in time for the next election.

Then about an hour later he sent out a press release saying not that 2020 was the earliest they could do it but that 2020 was when they would definitely do it. Do what? Joyce indicated a "simplification" of the tax system, along with another bracket shift so those on the average wage - predicted to be $65,700 in 2021 - weren't paying 30c in the dollar in taxes.

Because of how progressive taxation works, there's no way anyone on that wage would be paying an effective rate of 30c - even with current settings - but a bracket shift of a few thousand dollars would give them a lot more in the back pocket, with less of their income being taxed at that 30 per cent rate and more if taxed at 17.5 per cent.

What about the tax cuts from the budget?

They're still set to hit on April 1 of next year. Unless Labour get elected that is.

So Labour want to cancel the tax cuts?

Yes, Labour say the $2b the already-planned tax cuts will cost every year could be better spent on health and housing. And the 2020 cuts?

"Our view is that there is absolutely no room for such pledges at this time, given the investment we need to make, particularly in health, housing, and education," Ardern said after Prefu.

What were the lollies Labour had to cancel?

Labour insisted that all their current plans were still completely affordable with the smaller surpluses, and insisted no other plans had been scuppered.

But there had been talk around the traps about them possibly bringing their plan to make the first three years of tertiary study free forward from 2025 to some time in the late 2010s. That definitely seems like a tougher sell given the tighter surpluses - but not necessarily impossible.

Would they raise taxes to pay for it?

While a capital gains tax is still on the table, Ardern took the opportunity today to rule out any tax hikes on personal income, and the capital gains tax is much more about fairness in the property market than revenue raising. There had been speculation she might introduce a new rate for income over $150,000, but finally today said that was definitely off the table.

So what does that mean for the rest of the campaign trail?

Well both parties are eager not to box themselves in too tightly, but it basically means neither of them will have bucket-loads of money to throw around. Which doesn't mean that this won't be an exciting election, but it does mean it might be a somewhat prudent one. We'll have to wait and see.

This column first appeared in our email newsletter, Politically Correct. Sign up to get it in your inbox.

 - Stuff


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