Fiscal fight continued

Steven Joyce continues to push Minister of Finance Grant Robertson on expected net debt in relation to Labour’s pre-election fiscal plan. Joyce had been widely criticised for suggesting their was an eleven billion dollar hole in the plan. Robertson was adamant Labour’s plan was sound and accused Joyce was scaremongering.

Yesterday from Stuff: Economists see Government debt rising billions more than Labour’s plan

In Opposition Labour laid out a fiscal plan which would borrow around $11 billion more than National had proposed, but still cut debt as a share of the total economic output from 24 per cent to 20 per cent by 2022.

The plan formed a major point of contention during the election campaign, as National finance spokesman Steven Joyce was widely mocked for his claim that Robertson’s plan had a major “fiscal hole”.

But bank economists, who monitor the likely issuance of government bonds, are warning of pressure for Treasury to borrow billions more than Labour had signalled because of new spending promises.

The fiscal situation continually changes, but there was always a likelihood that spending would increase due to coalition bargaining.

ANZ chief economist Cameron Bagrie

ANZ has forecast that Labour will borrow $13 billion more than Treasury’s pre-election fiscal update maintained the former Government would over the next four years, although around $3b of that would go to the NZ Super Fund. This would see net Crown debt at 23 per cent of gross domestic product, 3 percentage points higher than Labour’s plan.

Outgoing ANZ chief economist Cameron Bagrie said the estimates for new spending were “conservative”, including an assumption that the new $1b a year regional development fund would come entirely from existing budgets.

“[S]pending pressures are all headed one way – and a lot depends on the economy holding up.”

BNZ senior economist Craig Ebert

BNZ has also indicated it expects borrowing to be stronger than Labour had flagged. Strategist Jason Wong said the half year economic and fiscal update would probably show “in the order of” an additional $2b-$3b a year in bond issuance in the coming years.

BNZ senior economist Craig Ebert said the figures were hard to determine so early in the term, but borrowing “could amount to a number of billion dollars” more than Labour had outlined.

“Some of this is taking place in a little bit of a vacuum still, because we’ve heard a lot of policies but it’s still a little unclear which ones have been confirmed confirmed, as opposed to just strongly proposed,” Ebert said.

ASB chief economist Nick Tuffley

However ASB chief economist Nick Tuffley now forecasts that unemployment will eventually fall to 3.9 per cent by 2021, while wage growth would gradually rise to 2.8 per cent by early 2020, on the back of both lower migration and plans to hike the minimum wage to $20 an hour by 2021.

Tuffley said based on its forecasts, and the assumption that Labour was able to stick to its spending plans, ASB was forecasting borrowing would be $1b higher than Robertson had signalled.

“Any slippage in [spending plans] will mean more debt issuance,” Tuffley said.

Joyce questioned Robertson about that in in Question Time yesterday, joining a patsy (question 1):

Tamati Coffey: What objective does the Minister have for core Crown net debt?

Hon GRANT ROBERTSON: As indicated during the Speech from the Throne, the Government is committed to reducing net debt to 20 percent of GDP within five years. Progress towards this will be set out by the Government during the usual Budget reporting cycle to the House, starting with the Half Year Economic and Fiscal Update, before Christmas.

Hon Steven Joyce: Has he seen amongst those reports the economic forecast from ANZ chief economist, Cameron Bagrie, who calculates that the Minister , in fact, won’t be able to meet his own Budget responsibility rule No. 2, to keep net debt below 20 percent of GDP, even with some rather heroic spending assumptions?

Hon GRANT ROBERTSON: I have seen those reports and I disagree with them.

Then in question 3:

Transcript (slightly edited):


3. Hon STEVEN JOYCE (National) to the Minister of Finance: Can he confirm core Crown net debt was $59.5 billion at 30 June 2017, and that it is his intention as Minister of Finance to increase net debt to $67.6 billion by 2022, as laid out in Labour’s pre-election fiscal plan?

Hon GRANT ROBERTSON (Minister of Finance): I can confirm that at 30 June 2017 net core Crown debt was $59.48 billion. I can further confirm that it is this Government’s policy to reduce net core Crown debt to 20 percent of GDP within five years. As the member knows, the exact dollar amount of debt in each year will be determined by the Budget process.

Hon Steven Joyce: I raise a point of order, Mr Speaker. That was a question written down on notice, and I don’t believe the Minister of Finance answered the second part of the question. He talked about something about 20 percent of GDP, but he didn’t actually answer yes or no to whether it was his intention to increase net debt to $67.6 billion by 2022.

Hon GRANT ROBERTSON: Speaking to the point of order, I’m not sure if the member heard the last part of my answer, where I did specifically address the question of what the exact dollar amount might be.

Hon Steven Joyce: He didn’t answer the question. Nobody is any the wiser as to whether, actually, he will allow net debt to get to $67.6 billion by 2022, as laid out in Labour’s pre-election fiscal plan.

Mr SPEAKER: Well, Speakers’ rulings are pretty clear in this area. I think somewhere around page 171 is the ruling that members cannot demand a yes/no answer, and I’m just about confident enough that the former Minister of Finance understands that these figures might be affected by growth figures.

Hon Steven Joyce: Sorry to prolong things, Mr Speaker, but actually it is possible to say whether it will be higher or lower or about that figure. It is a question on notice—it’s not a supplementary question—and I do think that the Minister of Finance could be a bit more specific as to that number, given that prior to a certain date in September he was actually accusing people of showing an affront to democracy for—

Mr SPEAKER: OK—[Interruption] All right, OK. I think where I’m going to leave it is that I might be slightly more liberal, as long as they are direct, on the supplementaries, if the member wants to drill down that way.

Hon Steven Joyce: Can the finance Minister confirm that the pre-election fiscal update forecasts net debt to reduce to $56.2 billion by 2022, meaning that his forecast of $67.6 billion is over $11 billion higher than in the pre-election fiscal update?

Hon GRANT ROBERTSON: I can confirm that those were the numbers in the pre-election fiscal update. What we have discovered is that those numbers did not take account of the need for increased spending in education capital expenditure, health capital expenditure, or a range of other areas.

Hon Steven Joyce: Is the Minister then saying that, actually, he expects to increase debt significantly higher than $67.6 billion because of his concerns about the matters he raised in the previous answer?

Hon GRANT ROBERTSON: The commitment of this Government has been that we will reduce net core Crown debt to 20 percent of GDP. The member well knows, from having prepared a Budget himself and being beside someone else who’s prepared Budgets, that the exact dollar figures for debt are never decided until later in the Budget process.

Hon Steven Joyce: Why doesn’t he agree with the ANZ analysis of 7 November that concludes net debt will be billions of dollars higher than he has forecast, and that he will breach his own Budget responsibility rule number 2 to reduce net debt to 20 percent of GDP within five years, particularly as he’s just told the House—

Mr SPEAKER: Order! The member’s finished his question.

Hon GRANT ROBERTSON: Because nothing that I have seen, in terms of the advice I’ve got to this point, would point to that, and because this Government is committed to reducing debt as a percentage of GDP—20 percent—within five years of taking office.

Hon Steven Joyce: If he doesn’t like the ANZ’s commentary, does he agree with the comments from the Bank of New Zealand on Monday, who stated that Labour’s election campaign budget was just too tight to be credible; if not, what does he think the BNZ has got wrong?

Hon GRANT ROBERTSON: What this Government has committed to is a set of Budget responsibility rules, and we will work within those. We made commitments before the election to address the social deficits in health, in education, and in infrastructure, and we will do that. I make no apology for having a slower debt track than that Government if it means that we build affordable houses, contribute to superannuation, and invest in our regions.

Hon Steven Joyce: Just to be clear, does he commit to meeting all the Government’s promises, including those in his coalition agreement and his agreement for confidence and supply with the Green Party, and also the Speech from the Throne, while increasing net debt by only $11 billion, from what it was going to be, over the next five years?

Hon GRANT ROBERTSON: I absolutely stand by those Government commitments and the Budget responsibility rules that we have put forward.

Hon Steven Joyce: Does he commit to meeting all the Government’s promises, including those in those coalition agreements from the Speech from the Throne, not in relation to a percentage of GDP but by increasing net debt by no more than $11 billion relative to the pre-election fiscal update over the next five years? A very specific question.

Hon GRANT ROBERTSON: The final exact dollar figures, as the member well knows from the Budgets he’s been involved in, will be decided later in the Budget process, but we remain 100 percent committed to our goal of reducing net debt to 20 percent of GDP within five years.


No doubt there will be continuing questioning on Government spending and deficits.

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41 Comments

  1. Corky

     /  November 16, 2017

    Labours weak link. A chain link that needs pounding every day. Once Grant is shown up as incompetent, Labour will fail. In fact the opposition may be beaten to the punch by a global economic downturn.

  2. Blazer

     /  November 16, 2017

    forecasts cannot be relied on.Former P.M, John Key was adamant even Treasury was hopeless at projections.Let the Natz bleat and moan,the public at large are not interested.Deficits should be all the rage these days if you listen to economist Steve Keen.

    • Partisanship aside blazer, it is common sense at this early stage that one cannot embark upon such a comprehensive spending exercise without dropping previously implemented programmes, increasing taxation or going into debt.

      • Corky

         /  November 16, 2017

        Economics 101.

      • Surely, even you must wonder at fiscal capability of a man whose ignorance was illustrated when he announced that the 5th Labour government had increased the minimum wage by an average of $1.00 a year when the figure was, in fact 68cents.

        • Blazer

           /  November 16, 2017

          I could spend all day here listing Nationals faux pas over the last 9 years.68cents U.S is what he meant.

          • High Flying Duck

             /  November 16, 2017

            If that’s what he meant, then he was out by even more and is even more ignorant.
            But why someone would talk in US$ about the NZ minimum wage increases is something probably only you – or the magnificent, unique and one of a kind Steve Keen – could explain.

            • Blazer

               /  November 16, 2017

              Steve Keen is not one of a kind.Listen to Michael Hudson,as well…and learn.

            • Blazer

               /  November 16, 2017

              0.68 USD =0.989086NZD
              US Dollar
              1 USD = 1.45454 NZD
              ↔New Zealand Dollar
              1 NZD = 0.687503 US

            • High Flying Duck

               /  November 16, 2017

              Blazer – Grant was talking about the NZ minimum wage rising by $1 per year under Labour.

              The actual average rise was $0.68c (in NZ$).

              If Grant was talking US$ he was actually saying the miniumum wage went up $1.45NZ per yr.- out by double the original error.

              He would have needed to say the minimum wage was up $0.47 per year to be talking in $US.

              Given the state of your own fiscal ability I’m starting to see how you see Labour and the Greens as being credible financial managers now.

              I’ve read Keen (and seen the videos). Also seen the rebuttals.

              I learnt.

          • Is he going to do all his Math in US currency? My pick is he can’t manage $NZ

      • High Flying Duck

         /  November 16, 2017

        Grant Robertson is the perfect choice as Finance Minister. He is going to spend the next three years talking about how all the billions of extra borrowing are not actually increases in debt and do not affect Labour’s fiscal responsibility commitments.
        Speaking unintelligibly is a critical part of that ‘conversation’, and is definitely Grants strongest asset.

  3. Trevors_elbow

     /  November 16, 2017

    Up, up and away – in my beautiful, my beautiful debt balloooon…

    Debt up. Interest rates up. Inflation up. Job growth down. Strikes up.

    Recipe set… just sit back and watch…..could get very, very messy

    • Blazer

       /  November 16, 2017

      in a world awash with unpayable debt,why be the odd one out!Sounds wonderful,spend now and pay later,much later when inflation and expansion in money supply ,makes future debt ,easily payable.If a house that was 200k 10 years ago is now 850k…you can see the leverage.

      • PDB

         /  November 16, 2017

        Problem with that is the fact that now is the time to pay down debt. National was going to do so whilst restricting new spending whilst the new govt will need to borrow a lot more to pay for greatly increased spending. Can only end in tears.

        • Trevors_elbow

           /  November 16, 2017

          Exactly…m

        • Fight4NZ

           /  November 16, 2017

          Now would be the time to pay down debt if it wasn’t 9 years of crippling neglect of hospitals, schools, rail, retirement funding, etc, etc, etc. while bringing in a couple of million people. Looks like a surplus though so lets just swallow that placebo and not question those we admire unreservedly.

          • Trevors_elbow

             /  November 16, 2017

            A couple of milliin people geez bol… mild exaggeration there

          • PDB

             /  November 16, 2017

            “crippling neglect of hospitals, schools, rail, retirement funding, etc, etc, etc.”

            You must be talking about Zimbabwe or else it is a massive exaggeration on your part.

      • Trevors_elbow

         /  November 16, 2017

        Ahhhh Blazer but you are one of the voices shiuting National ran up our debt as NZ coped withe the Labour induced recession and subsequent GFC. Your tune has changed…

  4. artcroft

     /  November 16, 2017

    The Greens have already mooted a solution. Set the printing press to “Hyper-inflation” and press “Go”.

    • Blazer

       /  November 16, 2017

      Proven to work. .in the past.

      • High Flying Duck

         /  November 16, 2017

        Where?

        • Blazer

           /  November 16, 2017

          In New Zealand.

          • David

             /  November 16, 2017

            The days of price and wage freezes & carless days. Can’t see too many putting up with that again…

          • artcroft

             /  November 16, 2017

            Please advise when NZ had hyper-inflation or even engaged in quantitive easing. Will be interesting to hear from the Left’s textbook of econmoronic fantasy.

      • Alan Wilkinson

         /  November 16, 2017

        Yep, they’ll get to $20/hr minimum wage no problem and their carers and cleaners and checkout girls will be worse off than before.

        • Fight4NZ

           /  November 16, 2017

          Which they will spend. Vibrant economy not relying on house prices and 2 dollar shops. GDP up. 20% debt threshold met. Look, see that things don’t happen in 1 dimension, there are inter-relationships. I know, so confusing.

          • Alan Wilkinson

             /  November 16, 2017

            Hyperinflation via spending and printing money takes no prisoners, F4.

            • Fight4NZ

               /  November 16, 2017

              Sure. And if I move to Zimbabwe I will make certain to report back.

            • Alan Wilkinson

               /  November 16, 2017

              If Labour delivers on its spending promises you will be able to report from here, F4.

            • In Monopoly one can ‘print’ money if the bank runs out. Labour is giving prisoners a Get Out of Jali Free card by wanting to end 3 Strikes, so it may well be doing the Monopoly thing of printing extra money if there’s not enough. When I have been playing Monopoly and we have done this, we just use scraps of paper-perhaps the Greens will also want to do this as part of recycling.

            • Fight4NZ

               /  November 16, 2017

              And all that said without a hint of wild exaggeration

        • Blazer

           /  November 16, 2017

          Hickey bought a house quite some time ago.As a scientist you should respect…facts.

          • Alan Wilkinson

             /  November 16, 2017

            I know. He had one while he was telling everyone else what a bad investment it was. I was being sarcastic.