Government needs to 'pull rabbit out of a hat' to afford all its promises, economist warns of rate hikes

An economist has questioned how the Government will afford all its promises after announcing its proposed billion-dollar transport plan. 

Independent economist Cameron Bagrie says it will lead to Kiwis facing rate hikes in the future to pay for everything.  

The Government unveiled on Monday a $20 billion transport plan which will see the Roads of National Significance project revamped with 15 new roads to be built.  

To help pay for it, motorists will face a $50 increase in vehicle registrations over the next two years. The Government will also move the entire vehicle fleet to paying Road User Charges - currently petrol vehicles are exempt. In major cities, congestion charges could also be on the way, forcing people who drive at busy times to pay. 

But questions are now being raised about how the Government will afford all of its promises around tax relief, returning to surplus and delivering on core government services and infrastructure.  

"We call it the impossible trinity and the Finance Minister has got three aims, wants to deliver the tax relief, wants to return to surplus, doesn't want to borrow too much money and wants to deliver on core government services and deliver on infrastructure. I think you can deliver two out of three," Bagrie told AM co-host Lloyd Burr.  

"It's going to be extremely difficult unless you can pull a rabbit out of a hat. So, one I think is ultimately going to need to go because otherwise we're going to see shortfalls on others and it's pretty clear what's going across the education sector, health, infrastructure, roading that we can't scrimp, we can't be too austere in those areas." 

It was revealed by the NZ Herald last month that transport officials had advised National it had undercooked its campaign costings by half, leaving a $24 billion hole. 

Bagire told AM on Tuesday morning the impact of the transport plan will see Kiwis paying more. 

"At the moment there is a funding gap that's been funded by temporary relief measures, but that's not sustainable over time, hence, over the coming years we're going to see a lot more charges, taxes, fees, whatever you like to call it whether it be directly out of government or indirectly out of local government," he said.  

"The government expects local government to throw a little bit more money into the tin as well and of course, what we know is that local government doesn't have an awful lot of money at the moment as well, so you can bet your bottom dollar this will add to rates pressure on the other side as well. So we're going to be paying more through an awful lot of mechanisms." 

The move by the Government to hike vehicle registrations, which will see them rake in an extra $660m hasn't gone down well with some members of the public, with one person calling it "ridiculous" and another saying it was a "money-making scheme".  

But Finance Minister Nicola Willis has defended the plan and ruled out any increases to GST during the Coalition's term in Government after the Opposition suggested it could be on the cards. 

Willis completely ruled out any increases to GST during the Government's term when she appeared on AM on Tuesday morning.  

"Yes, I can," she responded.  

"I saw my opponent on your show and heard her making up some fantasies about that and look having had some experience in releasing the policies of other parties, you've got to make sure they're right before you do it – and that one was completely off base."

Watch the full interview with Cameron Bagie above.