How National will fund its tax cuts: borrow like there's no tomorrow

Keith Ng has found how National is going to fund its tax cuts for the rich: a $12.8 billion increase in gross sovereign debt over three years. It's all buried in an innocuous-sounding phrase in the fine print to the fiscal strategy John Key released on Friday:

Gross sovereign issued debt is forecast to be approximately 1% higher relative to GDP than currently by the end of the forecast period.

Note "than currently", rather than "than currently forecast". Current debt is 25.3% of GDP; forecast debt is 19.1%. That one missing word means a difference of 7.2% of GDP, or around $12.8 billion - very close to the size of National's tax cuts and spending promises.

Now, this could be an innocuous mistake on Key's behalf. But Keith called him, and was fobbed off onto a researcher who could not be reached until morning. As one of his friends (who it must be said is a government spindoctor) said, if he'd had something so basic wrong, Key would have corrected him there and then. It also makes it clear why National has refused to release their projections in a budget-style balance sheet - because they can equivocate in words, but numbers don't lie.

I don't know about you, but I think there's only one word to describe a party which would indulge in Muldoon-scale borrowing to fund tax cuts for the rich: irresponsible. We've spent the last twenty years trying to kick that crack habit, at enormous social cost. Any party which would take us back down that path is simply unfit to hold office.

Again, this could be a mistake. But if so, its easily corrected; all National has to do is release their projections in a balance sheet format, where there can be no doubt about what the numbers actually are.

Update: Keith got it wrong - and yet, reading his retraction, also right. National's phrasing was deliberate, but the baseline is taken from 2006, when National would present its first budget if elected, not 2004, as Keith had assumed. This means gross sovereign-issued debt of 22.3% of GDP rather than the 20.2% Labour had estimated in the budget, or the 19.1% it is currently planning on. The difference is around $3.2 billion - not $12.8 billion as initially reported.

Of course, there wouldn't be this confusion if National had issued a proper balance sheet with its "projections"...

As a final note, the interest on National's proposed borrowing is around $150 million a year. That amounts to a medium-to-large policy, or to use the opposition's favourite currency, about 10,000 hip operations.

Update 2: Made the debt baselines clearer in the above.