Labour and Green agree Budget Responsibility pact

James Shaw says a Labour-Green government needs to allow itself "wriggle room" to deal with any fiscal surprises they might discover post-election. Photo: Lynn Grieveson

It will be steady-as-she-goes vs a pledge of being a safe pair of hands. 


The Labour and Green parties have announced the first major joint policy of their memorandum of understanding aimed at presenting themselves as an alternative Government in waiting and a "safe pair of hands."

They have announced a set of "Budget Responsibility Rules" that would commit them to running a sustainable operating surplus over an economic cycle and to returning net core crown debt to 20 percent of GDP by 2022 -- two years later than the current Government's latest plan. They also pledged to keep Government spending within its recent historical range of 28 percent to 34 percent of GDP, as seen over the last decade.

A Labour-Green Government would establish an independent body to set the terms of what constitued 'a sustainable operating surplus'.

"It's all about giving people certainty and confidence," Labour Finance Spokesman Grant Robertson told Newsroom before the Friday morning announcement.

"These rules are a clear and direct statement that we will manage the economy carefully and be held to account."

Green Co-Leader James Shaw said the two parties wanted to give voters a sense of what a Labour-Green Government would look like.

"In Government, we'll be a steady pair of hands. The Greens and Labour are very much on the same page about this. This is what a stable, responsible, alternative Government looks like," he said.

Robertson and Shaw said a Labour-Green Government would delay the return to 20 percent of net debt in order to invest to deal with current infrastructure deficits in transport, housing and water, and to restart contributions to the New Zealand Superannuation Fund.

Shaw said the decision to target the 20 percent net debt figure by 2022 rather than the Government's 2020 target was designed to give a Labour-Green Government room to cope with any surprises they might discover after the election.

"We wanted to give ourselves a little bit of wiggle room because we don't know what the Government has hidden," Shaw said.

Both Shaw and Robertson referred to the risks of a Government committing to fiscal targets that it set and monitored itself. They cited then British Labour Chancellor of the Exchequer, subsequently Prime Minister, Gordon Brown in their decision to set up an independent monitor.

Brown changed the definition of a sustainable surplus twice, Shaw said.

"Politicians have a way of interpreting things to suit their own circumstances," he said.

Robertson said the independent monitoring agency would not report to ministers and not be part of Treasury. It would have oversight of Government economic and fiscal forecasts, and would provide an independent assessment of those forecasts to the public. It would also report on the cost of opposition policies.