Spreadsheet Troopers: The Battle Rages On

National aggressively points the finger at Labour while admitting $2.6b in mistakes under its breath.

Did you enjoy your weekend of dorky people with dueling fiscal spreadsheets and confused reporters trying to play umpire? Me neither. The latest as at 5:46pm Sunday is that National has another, newer spreadsheet, which says the cost of Labour’s policies is $15.6b. Its earlier spreadsheet said the hole was $17.2b. Labour says $3.6b.

First, notice that National has admitted to blowing out its previous costings by billions of dollars. The total of National’s conceded mistakes is $2.6b. This is the $1.6b difference between its two overall figures, plus the $1b Labour has allocated for an as-yet unannounced policy that National did not know about when it did its first figures.

So National tacitly admits to $2.6b in mistakes. When there was a hint on Saturday that Labour’s figures had a $400m error, there were newspaper headlines specifically proclaiming it to the nation. But oddly today there are no headlines today lambasting National for mistakes totaling over six times as much. Nothing much on last night’s news, either. No doubt this is partly because of the cunning 5:46pm Sunday release of National’s new spreadsheet. Ever feel like you’re getting played, o fourth estate?

Remaining disputes: NZ Super Fund

This is the biggest dispute between the parties, worth about $6.8b ($6.1b in contributions, and another $0.7b in whether to count the performance of the increased NZ Super Fund investments as income or not). National says borrowing to put money in the Super Fund is still borrowing, and Labour disagrees because it is investing the money, not spending it.

Here both sides have been relying on accounting jargon to make their cases. National, for example, is technically quite right to say that “net core Crown debt” is a measurement that specifically excludes the NZ Super Fund. That measurement, however, dates from an era before we had a sovereign wealth fund like the NZ Super Fund. So the last Labour government took to also presenting measures such as “net core Crown debt plus NZ Super Fund” to give a fuller picture of the government’s finances. Nobody made a big stink about that at the time, and Labour says is simply continuing that uncontroversial practice now.

So both sides have a technicality-based argument. How do we judge between them?

I judge these technicalities on the basis of which figure tells us the most about things that actually matter. National’s approach has been to put “debt used to increase sovereign investments and wealth” in the same basket as “debt used to pay salaries because we forgot to collect enough tax revenue.” In business terms, it is like treating cost blowouts and a leveraged growth strategy as the same thing. But credit rating agencies treat these two things quite differently. The big issues with debt are its impact on: (1) our ability to borrow more money; and (2) the interest we pay on the debt we already have. If debt levels get too high, financiers may get nervous about lending the government more money, and may charge us higher interest as a result. What impact does borrowing $6.1b over four years and using it to generate more than $6.1b in assets have on our credit worthiness? Certainly no negative impact. If anything, it would lead to New Zealand looking like a better credit risk as its overall financial picture looks more rosy. S&P is not so stupid that it simply reads the line called “Net core Crown debt (excluding NZ Super Fund)” and assumes it represents everything there is to know about New Zealand government finances.

In putting two unlike things together to try and rhetorically maximize the size of the “hole” National is, willfully or otherwise, misleading the public about the impact of Labour’s proposals on New Zealand’s credit worthiness.

Residual disputes: Other

There are, of course, many other areas of dispute, many of which are impenetrable to everyday folk. Free dental care for pregnant women: $15m or $32m? No idea. Pay parity for aged care workers: $90m or $250m? Pass.

There also is the headache-inducing question of how to account for asset sales, which operates on an even higher level of dorkiness because it involves people quoting the Generally Accepted Accounting Principles at each other. On that one, David Farrar’s reasonable suggestion is to basically take the whole thing out of the equation for being too complicated, which (I think) would decrease National’s stated revenue, but not Labour’s, by $3.6b in sale proceeds and decrease Labour’s revenue but not National’s by $0.9b in dividends.

But there are two disputes it is worth specifically mentioning. One is Labour’s policy to close tax loopholes, which it says is worth $620m. National’s estimate, on the other hand, is that this policy is worth exactly $0. National’s claim here that closing tax loopholes is completely impossible is defeatist in the extreme.

Then there is the Highway-for-Rail-Loop swap in Auckland. Labour says it will fund the Rail Loop by canceling the Holiday Highway project. National says that doesn’t cut it because the cash from canceling the Holiday Highway won't be physically saved until a year or two after their spreadsheet runs out, and therefore treats the Rail Loop project as more ordinary debt. This is unreasonable. “My spreadsheet doesn't make it that far” is a pretty bad excuse for ignoring a specific, promised, costed, easily deliverable saving. Even if the money is not saved **in cash** until say 2016, it is easy to account for it in these indicative figures with a “reduced transport liabilities” item. National is burying the silly-buggers stuff in the notes and hoping the reporters will only read the headline numbers.

So what can we take away from all this:

  1. Forecasting government revenue and expenditure is really, really hard.
  2. There is room for these figures to be massaged enormously.
  3. John Key will not be using the phrase “$17b hole” any more, because his own party has publicly admitted it was wrong.
  4. In a “debt that credit agencies look on poorly” sense, Labour’s policies will result in increased debt of between $1b and $9b over the next four years. (The first figure accepts most of Labour’s costings but applies David Farrar’s solution to the asset sales / dividends thing; the second figure accepts National’s costings but excludes the NZ Super Fund contributions because they are a different form of borrowing.