Analysis: John Lennon read the news today, oh boy. 4000 holes in Blackburn, Lancashire. But that was 1967.
By the time I got to writing the news for Britain’s Sunday Times, 40 years later, my investigations showed there were 12,900 potholes in Blackburn. I checked with the council. ‘And though the holes were rather small, they had to count them all. Now they know how many holes it takes to fill the Albert Hall.’
Back then in 2006, local authorities across England and Wales faced a £1.8 billion shortfall in road maintenance funding, to fill those holes.
Here in New Zealand, the holes in parties’ election year costings have been almost as difficult to fill. Every three years, the parties race to point out alleged shortfalls in the other side’s policy pledges. “Show me the money,” John Key taunted in the defining debate of 2011. “Where’s the $14b coming from?”
In 2017, the finance minister Steven Joyce famously claimed Labour had an $11.7b fiscal hole in its planned spending.
Then the tables were turned on National. In 2020, Paul Goldsmith owned up to a $4.3b miscalculation of Super Fund contributions. And in 2023, Nicola Willis gave up even trying to pretend her numbers added up on the new foreign buyers and online gaming taxes she’d hoped would offset $14.6b in cuts to income tax and reinstating interest deductibility for landlords.
So far in 2026, the fiscal holes have been more the scale of Blackburn’s potholes than, say, Shane Jones’ beloved 300m deep open-cast goldmine that’s working through the fast-track consent process in Central Otago.
On the one hand, National campaign chair Simeon Brown claimed last month that Labour’s costing of its public transport fare cap fell nearly $1.6b short. That was complete rubbish. But it’s fair to say Labour costings were sufficiently vague that even Chris Hipkins and his MPs couldn’t defend their own $65m costing with any confidence.
While Labour equivocated about its $65m figure, the Nats quietly backed away from their own wild $1.6b figure. It had been like a schoolyard argument. It’s gonna cost billions! No, trillions! No, it’s gonna cost zillions!
A few days later, Willis took a halfhearted swing at persuading more susceptible voters of an $18.2b gap between Labour’s spending “intentions” and its planned increase in revenue. She called it, “Labour’s hidden bill”.
This was, said Labour finance spokesperson Barbara Edmonds, “as desperate as it gets”. But Labour’s attacks this week have been just as desperate, through its proxy, the Public Service Association and former candidate Fleur Fitzsimons.
// National, of course, had gazumped Labour with its election pledge to make KiwiSaver contributions mandatory, increasing to 6 percent for workers and 6 percent for employers. Willis and her wonks had calculated this would cost nearly $1.14b over four years, through more Govt contributions to more workers, a parental leave top-up, and a new ‘baby boost payment’ – reminiscent of her previous Back Pocket Boost, Family Boost and Investment Boost policies!
But it was in the last line of Willis’ costings that the PSA claimed to have found its fiscal hole: the costs to the Crown as a public service employer, gradually increasing its contribution to 6% of the salary of every public servant. National had costed this at an extra $84.3m in 2028/29, rising each subsequent year.
This doesn’t allow for the increased cost of employer contributions for publicly funded workers already in KiwiSaver as their employer contribution rate increases, Fitzsimons observed. Her team took previous Treasury forecasts for public sector wage growth, which of course don’t factor in the impact of National’s KiwiSaver spending pledge. Then PSA extended the costing out to six years, and concluded Willis had a $4.5b shortfall.
Like Simeon Brown before, this is a bit naughty. But it has, at least, elicited an acknowledgement from Willis that she is relying on public sector CEOs to rein in pay settlements and find further redundancies, to pay most of the cost of the increased employer contributions.
Departments will have to plan for their higher contributions, she told RNZ yesterday. “The additional cost will be able to be met from within future budgets so long as the government continues to carefully prioritise public money.”
This is important to understand, and it aligns with the Treasury advice last year when Willis announced the first increase to default KiwiSaver contributions. Ultimately, increases to employer contributions – whether in the public or private sector – will come out of the pocket of employees, in smaller pay rises.
Former Reserve Bank adviser Michael Reddell tells me: “Pretty much all economists will take the view that over any reasonable period of time, employees will pay for the total KiwiSaver contributions, not employers.”
// For all the rhetoric of fiscal holes, National and Labour are behaving in much the same way in costing their promises. They’re both fudging.
Essentially, the campaign pledges that Nicola Willis and Barbara Edmonds are making are being funded from the same three pots: departmental baselines (as above), fiscal offsets, and future operating allowances. So it’s a bit rich when Christopher Luxon accuses Labour of “unfunded spending”.
For instance, Labour anticipates the managers of the National Land Transport Fund will find the cost of its public transport pledge in the existing baselines.
And the party expects its fares cap will encourage more people to pay to travel on buses and trains up to the $10 or $20 weekly cap. So an additional $26m fare take from commuters will help offset the cost to the fund.
Similarly, National expects a reduction in public sector headcount and wage settlements will help offset the additional KiwiSaver employer contributions.
Examples of reliance on future operating allowances are – well, almost all the spending pledges. For instance, Labour says its promised $226m apprenticeship scheme will be paid for out of future operating allowances. National says the headline $1.14b costs of its increased KiwiSaver contributions will be met from future Budget operating allowances.
What this means is they’re spending money that they haven’t yet got, but hope to get from increased tax takes over the next few years. That’s okay, so long as it’s transparent, and as long as we and they both understand that if they spend tomorrow’s money today, there’s less to spend tomorrow.
The long and the short of it is, there are holes in both parties’ costings, because they’re banking money they don’t yet have and haven’t yet budgeted.
// There is one thing, in all this, on which the parties and pundits don’t agree. Would it help to set up an independent unit or Parliamentary Budget Office to cost parties’ election promises? The proposal was dumped by the coalition Govt last year.
Despite the increasing public support for such a unit, it’s not a straightforward solution. For instance, if National and Labour and every other party want to promise to fund their ambitious spending pledges out of future operating allowances, there’s not much any costings unit can add to the conversation.
Reddell, for one, says he’s deeply sceptical. No other small advanced economy has one, he says. “Costings units are a job creation scheme for economists and a public subsidy for a particularly nerdy subset of technocratic voters – a bit like the Concert Programme for a niche audience.”
He recalls the last election, when he and two other independent economists produced a report that drilled big holes in the costs of Willis’ tax package. “There is no sign it made any difference to the election result,” he bemoans. “The public wanted Labour out, and very few cared about precise numbers.”
Ultimately: “Parties make choices what to spend scarce resources on, and the public decide whether or not it matters.”
I asked independent economist Cameron Bagrie about this. He too has read the news today, oh boy. “I do not believe any party’s numbers will add up,” he says. “We live in a world of promise-me-nomics. Open the bag of popcorn because the fiscal hole election entertainment has started.”
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