ERIC NESS - LABOUR, THE GREENS AND WELLINGTON’S MOST POPULAR $10.5 BILLION

There is a wonderful new expression floating around election-year economics: headroom. It sounds reassuring. Spacious. Comfortable. The sort of thing a real-estate agent mentions just before you discover the ceiling slopes down to one and a half metres.

Labour says it has almost $10.5 billion of future operating allowances still unallocated. Barbara Edmonds says that gives Labour room to deal with whatever comes next. Labour also says its announced programme fits inside the existing $2.4 billion Budget operating allowance and that the books return to surplus.

Excellent. Except quite a few people already seem interested in the spare room.

Labour wants some of that capacity available for the unexpected. Future pay-equity settlements may need some. Public-sector wage negotiations may need some. Health, education and defence will keep sending invoices. Then there is the possibility that Labour needs Green support to form a government, in which case coalition negotiations arrive carrying luggage of their own.

In Wellington this is called headroom. In most households it is called promising the spare bedroom to four different relatives.

No, Labour has not literally spent the $10.5 billion four times. That would be a much easier story. The more interesting issue is that several large future demands may all be looking at the same remaining fiscal capacity.

Pay equity is the obvious example. Labour has funded the immediate $4-an-hour increase for care and support workers, but the wider settlements still do not have a final price attached. Those future costs are intended to be dealt with through later Budgets as settlements are reached.

That may make perfectly good sense during bargaining. It is somewhat less soothing when you are trying to work out what the country’s books might look like in 2031.

“We don’t know what it costs yet, but there is room in the Budget” is not quite the same thing as “it is fully costed.”

And so Labour’s $10.5 billion starts looking like perhaps the hardest-working money in New Zealand. It is the buffer, the contingency, part of the capacity for future Budgets, a potential home for future pay-equity costs and the space meant to be available when something unexpected happens.

This money needs a union.

The promises have not stopped either. Labour has continued announcing policies since publishing its fiscal plan. Some cost relatively little directly, some are regulatory and some are to be funded through reprioritisation. Labour nevertheless maintains that its election commitments are fully costed and funded and that almost $10.5 billion remains unallocated.

That may be entirely correct. But election campaigns possess an unusual fiscal property: announcements multiply while the headroom remains remarkably photogenic.

Then we come to the Greens, and this is where the story changes.

The Green Party has its own extensive programme and its own way of paying for it. Its 2026 tax package includes a wealth tax above $10 million, a capital acquisitions tax, a higher company-tax rate for the largest companies and a bank levy. The Greens estimate their overall tax package would generate an additional $5.15 billion in 2027/28, rising to $5.73 billion by 2030/31 after their proposed tax reductions are taken into account.

Normally that would provide the obvious answer to the question, “How would Green coalition concessions be paid for?”

Except Labour has already complicated matters.

Labour’s stated tax policy is its targeted capital gains tax, and Chris Hipkins has ruled out virtually all of the additional taxes being promoted by Labour’s potential support partners. Its CGT applies to gains on commercial and residential investment property, with the family home, farms, shares, KiwiSaver and businesses among the exemptions.

So the Greens could arrive at coalition negotiations with both a shopping list and a tax plan.

Labour has effectively told voters it is not buying the tax plan.

That leaves the rather awkward question of who pays for the shopping.

Of course, the Greens would not get everything they asked for. That is why Wellington invented coalition negotiations. Some policies could disappear, others could be watered down, existing expenditure could be reprioritised and some proposals may cost considerably less than their original versions.

But the Greens have also been quite clear that their headline policies are intended to be priorities in negotiations to form a government. Those priorities include tax reform, energy reform and environmental measures.

So if Labour holds to its promise on additional taxes, the options become considerably narrower.

Any net additional spending agreed during coalition negotiations has to come from somewhere. It can come from existing spending being cut or reprioritised. It can consume some of the remaining Budget capacity. The Government can allow a smaller surplus. It can alter borrowing or fiscal settings. Or Labour can change a position it took into the election.

We cannot know which of those would happen because there is no coalition agreement yet.

The election has inconveniently insisted on happening first.

But this means Labour’s $10.5 billion is no longer merely an interesting accounting number. It could become politically valuable negotiating territory.

The Greens may quite reasonably say their own spending plans come with revenue proposals attached. Labour may equally say voters were promised those additional taxes would not be adopted.

At which point two perfectly costed manifestos can encounter one another across a negotiating table and discover that politics has developed an interest in accounting.

Coalition negotiations are where one manifesto meets another and both discover they have been admiring the same taxpayer.

Then there is Treasury.

Labour’s fiscal plan begins with Treasury’s economic and fiscal forecasts. Those forecasts are real. They are not imaginary money. But they are not a term deposit quietly earning interest until 2031 either.

They depend on economic growth, wages, company profits, employment, inflation, government expenditure and tax receipts behaving somewhere around expectations.

Treasury forecasts are a bit like weather forecasts with accountants: considerably more decimal places, but the weather still gets a vote.

Labour then proposes changing some of the settings surrounding that forecast. Investment Boost goes. Its capital gains tax comes in. Spending patterns change. Pay-equity legislation changes. Other policies follow.

Those decisions may themselves affect investment, consumption, employment, wages and future tax revenue. Eventually Treasury will have to forecast the finances again using the policies actually adopted by whatever government emerges after the election.

That is the part worth remembering.

Labour’s present fiscal plan effectively says: here are our promises, here is Treasury’s starting point, here is how we fund our programme, and here is almost $10.5 billion of future operating allowance still unallocated.

Fine.

But before becoming too comfortable with that number, perhaps we should establish how many jobs it may eventually be asked to perform.

If pay equity becomes expensive, there is less room. If hospitals require more money than expected, there is less room. If public-sector wage settlements run higher than expected, there is less room. If economic growth or tax revenue disappoints, the calculation changes.

And if a future Labour-led government needs to accommodate additional coalition spending while Labour keeps its promise on new taxes, there may be another claim on exactly the same room.

None of this requires a conspiracy, a scandal or anybody secretly hiding expenditure.

Arithmetic is quite capable of causing trouble without political assistance.

That is why I am becoming less interested in Labour’s projected surplus and considerably more interested in the $10.5 billion sitting behind it.

That is the flexibility. That is where unknown costs may end up. That is potentially where future pay equity goes. That is where unforeseen Budget pressures may go. And, depending entirely on the election result and subsequent negotiations, that may also be where some coalition compromises have to find a home.

Which brings us back to that lovely word: headroom.

Perhaps it is not really a spare room at all.

Perhaps it is simply Wellington’s most eligible $10.5 billion.

Pay equity has its eye on it. Future Budgets may need it. Unexpected costs would quite like it. And coalition negotiators may eventually discover its address.

Everybody appears interested. Nobody has married it yet.

And Treasury has not even confirmed what it will be worth by the time the wedding takes place.

Eric Ness is the pen name of a Northland-based writer behind Northland Current News, an independent commentary page focused on local government, public accountability and democratic process. Northland Current News examines council decisions, governance structures, public spending and the way decisions are made, with particular attention to whether the public is being given the full picture. The articles draw heavily on council agendas, minutes, official correspondence, meeting recordings and other publicly available material.