National is promising a larger surplus and lower debt in its fiscal plan, unveiled this morning by leader Christopher Luxon.

But in a sign of the fiscally constrained times, the party can only get to surplus the same year as Labour, 2027. However that surplus will be $800m bigger at $2.9 billion.

Luxon and finance spokeswoman Nicola Willis are announcing the party’s fiscal plan - effectively a blueprint for a government’s budget - which tallies up the costs of what the party has been promising on the campaign trail, and whether deep cuts will be needed to pay for it.

National has come under pressure to release its plan, and Labour leader Chris Hipkins highlighted this point on Wednesday’s leaders’ debate after Labour released its plan that morning.

National’s plan shows it gets to its projected surplus by filleting new spending from its next three budgets. Those cuts come on top of the cuts that Labour announced it would do to its own budgets in August.

Prior to August the next term’s budgets all had net new day-to-day spending, known as an operating allowance, of $3.5b. This is the pool of new money governments use to fund the growing cost of public services, and any new things they want to do, like the removal of $5 prescription fees in the most recent budget.

In August, Labour cut two of these allowances to $3.25b in 2025, and $3b in 2026, meaning spending still increases each year, but not by as much.

National has cut these even further. Under National Budget 2024 would have an allowance of $3.2b, Budget 2025 would have an allowance of $2.85b, and Budgets 2026 and 2027 would have an allowance of $2.7b.

That saves the Government $3.3b over the four-year forecast period and $1.3b a year by 2027.

In 2027, core Crown expenses are expected to be $153b.

The biggest saving announced on Friday was $2b cut from the amount forecast to be spent on benefits over the four-year forecast period.

In 2019, Labour indexed benefits to wages, rather than CPI inflation, meaning benefit levels increase more quickly. New Zealand’s main benefit, superannuation, is indexed to wages too.

National wants to change this back, costing someone receiving the basic rate of jobseeker $33 a week by the end of the forecast period. The benefit payments will still go up, but not by as much.

The changes are trigger immediately, saving $40m by the end of the fiscal year, $195m next year, $452m in 2025, $616m in 2026 and $739m in 2027.

Willis said that despite the savings, she had kept “significant buffers” in the plan to deal with shocks.

“We have provided for significant buffers, with $9.9 billion of unallocated operating spending to ensure we can respond to cost pressures and changing circumstances,” she said.

Willis also took aim at Labour, who have repeatedly spent more than signalled in each budget, leading to a large increase in the size of the state.

“Labour’s plan does not have any credibility when they have failed to stay within their spending limits for every single Budget since they have been in office, nor when they have delayed the return to surplus three times in the last two years,” she said.

National has decided to match Labour’s pre-committed health spending, meaning it matches the Government’s health spending track. In Government, Labour has begun multi-year funding for health, meaning each budget signals what future health funding will be.

This system gives $1.43b to health next year, and $1.47b in the next two years under both National and Labour.

Willis has left $1b from the 2024 budget unspent. That money will go to any cost pressure increases needed next year, and any new policies National wants to fund.

That snowballs to $1.85b in the 2025 budget, $2.8b in 2026 and $4.14b in 2027. Those figures are cumulative.

This is more than Labour, which left $662m unspent from Budget 2024. This rises to $1.9b in 2025, and $3.1b in 2026. Again, those figures are cumulative.

National’s changes would mean smaller deficits in the years to 2027 and larger surpluses thereafter, which leads to faster debt repayments.

Net debt would be $97.6b under National in 2028, compared to $101.1b under Labour, a $3.4b difference.

Earlier Willis told the Herald she has set herself even tighter parameters than Labour’s finance spokesman Grant Robertson had allowed in his party’s fiscal plan.

Willis told the Herald she would ratchet down the growth in new spending even tighter, reducing the amount of deficits and borrowing in Labour’s plan.

“You will see in that fiscal plan that we will work within lower operating allowances than Labour are forecasting,” Willis said.

Willis promised to take a “very conservative approach to ensuring that there are significant buffers in the Government spending to allow for additional funding for frontline services, including capacity pressures in the future”.

Labour has left itself room to accommodate cost pressures too. It left $662m unspent for Budget 2024 rising to $1.9b in 2025, and $3.1b in 2026 - although those figures are cumulative. National’s test will be whether it can match or exceed those figures.

One area that will drive significant savings will be reversing a change Labour made in 2019 that indexed benefit increases to the inflation rate, rather than to wages, which National recommitted itself to this week.

Wages typically rise faster than inflation, and New Zealand’s largest benefit, superannuation, is indexed to wages rather than inflation. The change would see someone on the basic rate of jobseeker $40 worse off a week at the end of the forecast period in 2027.

That cost to beneficiaries would be a National-led government’s gain. National has not yet published costings for benefits policy, but an Act costing from May reckoned the change would save $166m from the 2024 budget, $391m from the 2025 budget and $552m from the 2026 budget - a large saving.

Act has since walked away from the policy, saying it will keep the existing formula for calculating benefit increases.

Hipkins has said National’s policy would drive more children into poverty, while Luxon has pledged to continue the Government’s efforts to lift 80,000 more children out of poverty by 2028.

Willis said the plan would see government spending as a share of the economy reduce too.

National Party leader Christopher Luxon. Photo / Greg Bowker 

Labour’s fiscal plan, released on Wednesday, showed a return to surplus (of $2.1 billion) in 2027 and net debt remaining under 30 per cent during the forecast period.

The plan includes Labour’s election promises - such as taking GST off fresh and frozen fruit and vegetables, and a pledge to train more doctors - but leaves scant headroom for new promises.

The health budget increases each year and in 2027 would be 17.5 per cent larger than this year.

Hipkins accused National of trying to bury the plan by dumping it on a Friday afternoon, a time governments of both colours have historically used to release something unpopular, owing to the belief that people are tuned into their weekend plans, rather than the news.

“The fact they want to dump it on a Friday afternoon after everyone’s gone to the pub shows that they’re embarrassed by it,” Hipkins said.

Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery and is a former deputy political editor. 

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.