For three years Labour has campaigned against the coalition’s cuts. In August Barbara Edmonds described the latest round of public service savings as “disgusting and cruel because they’re arbitrary”. Chris Hipkins wrote that same month that “Cuts cost jobs, weaken services, and make the economy smaller, which is exactly what’s happened”, and last month he said “I’m not willing to leave our schools rotting the way they are now.” As recently as Monday, Labour’s campaign chair Kieran McAnulty was demanding to know “which schools, hospitals, roads or public services will National cut to make its promises stack up?”
The case Labour has made is that the coalition’s restraint is wearing down the public services people depend on. Edmonds said in a recent statement that “While families are paying more, National has been cutting the services they rely on. Thousands of public service jobs have gone, including jobs in education, health and other frontline services.” When Labour set out its fiscal rules in August, Hipkins promised that Labour would “get the books back into shape” without “making life harder for New Zealanders or cutting the services they rely on”.
Sunday’s fiscal plan sits awkwardly with all of that. Labour has adopted Nicola Willis’ fiscal settings almost wholesale. It keeps her $2.4b annual operating allowance and her 2028/29 surplus year, and its debt track barely differs from hers. By 2030/31 Labour plans core Crown spending of about 30.4% of GDP, against National’s 29.8%. On the fundamentals, there’s now remarkably little argument between the two major parties.
RNZ says today that Labour and the Coalition are “largely on the same track”. Independent economist Cameron Bagrie’s conclusion is that “they’re all pretty well the same”. Sam Sachdeva at Newsroom says that “in key respects, the party has stuck closely to the coalition Government’s own numbers”. Henry Cooke’s analysis in The Post similarly emphasises how closely Labour now matches National on the big fiscal aggregates.
What is harder to see is how Labour’s rhetoric about “rebuilding New Zealand” fits inside those strict limits. Labour says hospitals, schools and government services have deteriorated. It says infrastructure has been neglected. It says National’s cuts have damaged state capacity and weakened the economy.
In it’s earlier fiscal statement six weeks ago, Labour seemed ready to argue that a larger state was part of the answer. This changed yesterday, and now it proposes to enter government using Nicola Willis’ operating allowance while public spending continues to decline as a share of GDP.
That is Labour’s austerity problem.
Labour has adopted the squeeze
“Austerity” is itself a disputed description of what the Coalition has done. The Post’s editorial on Friday made a fair objection to the term: overall Crown expenditure has continued rising in dollar terms under National, including spending on health and education. Particular programmes and jobs have disappeared, but the Government has not literally been shrinking aggregate spending every year.
Inflation, population growth and rising demand complicate that argument. More dollars do not necessarily buy more healthcare or better schools, and a government can increase nominal expenditure while service provision deteriorates. The forward track is also much tighter than the recent past. Treasury says Crown expenses are expected to decline sharply as a share of GDP because of “tight future operating allowances” and savings decisions that bite increasingly hard over time.
Fiscal consolidation or a fiscal squeeze might therefore be more precise language. But Labour itself has spent the parliamentary term calling the practical consequences “cuts” and “austerity”, accusing the Government of hollowing out public services and creating managed decline. The important question is not what label to stick on the process. It is why Labour has now accepted so many of the constraints producing it.
The $2.4b operating allowance is the key. It sounds like a large sum until you consider what it is required to do. This is the additional ongoing money available in each Budget, and before it can fund new Labour priorities it must help absorb rising wages, school costs, Corrections spending, police costs, government IT contracts, inflation and population growth across the state.
Thomas Coughlan points out that Treasury’s last estimate was that roughly $2.5b in extra funding was needed each year simply to maintain existing public services at about their current level. Both National and Labour have gone below that, at $2.4b. As Coughlan puts it, the parties begin with allowances “already slightly lower than what is needed to keep the proverbial lights on”.
Labour then wants that money to do more. Coughlan argues that once Labour’s election commitments and future cost pressures are taken seriously, there is very little room for spending growth through much of the state beyond health and pay equity. He identifies education, police, Corrections and defence among the areas exposed to the squeeze, extending all the way to RNZ and arts and sport funding.
That is a remarkably austere outcome for a party campaigning against austerity.
Marc Daalder saw the problem back in August when he wrote: “Labour’s own allegations of National Party austerity raise questions about why Labour would embark on such a similar fiscal path.” McAnulty’s challenge to National becomes even more relevant now. If governments refuse additional revenue while insisting on tight expenditure limits, something eventually gives.
So what is Labour going to cut?
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“The vanished fiscal difference”
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