“Government is stuck in a fiscal holding pattern”

Bernard Hickey thinks that the Government is “stuck in a fiscal holding pattern” this term due to their commitment to Budget Responsibility Rules, which committed them to get net debt down to 20 percent of GDP and keep the budget in surplus across the economic cycle.

This fiscal straightjacket has been criticised by those who want the Government to launch into significant (and expensive) tax, benefit and social reforms.

Hickey (Newsroom):  ‘Let’s do this’ in a holding pattern

Jacinda Ardern’s first big economic speech of the year warned of global economic headwinds, but it lacked action in response, or a major plan to improve wellbeing. Instead, it exposed how her Government is stuck in a fiscal holding pattern before the 2020 election, when it hopes it can throw off its debt target and capital gains tax shackles.

The breakfast speech to a polite audience of Auckland’s business elite at the Hilton Hotel on the waterfront showed the Prime Minister at the top of her game. She is a smooth operator with a knack for a self-deprecating quip or an aside that can win over even the most sceptical audience.

“Our starting point for the Wellbeing Budget is that while economic growth is important, it alone does not guarantee improvements to New Zealanders’ living standards,” she said, going on to make a strong case to address our obvious wellbeing problems.

“An everyday New Zealander – hearing of the “rock star economy” while their housing costs are skyrocketing, or they can’t afford to send their kids to school with a proper lunch or their mental health is strained – tends to have their faith in the system and in institutions undermined.”

She went on to detail the plans and the priorities for the first Wellbeing Budget in May, and suggested it would help New Zealand cope with economic headwinds from overseas.

“It will ensure that those closest to the margins are protected and that no one is left behind,” she said.


How can that be true when Kiwibuild is behind schedule and there are massive infrastructure deficits in housing, health, education and transport, which can only be addressed with tens of billions of extra public investment. New Zealand’s population is growing five times faster than the OECD average and Ardern acknowledged in her speech that governments had encouraged population growth without investing in infrastructure to deal with it.

That’s what National had been criticised for (with some justification).

I asked Ardern afterwards if the Government was planning to respond to the slowing economy and higher unemployment by loosening fiscal policy with extra operational or investment spending.

She stuck to the usual line that the Government would keep operating within its Budget Responsibility Rules.

Ardern and right-hand-man and now-Finance Minister Grant Robertson agreed with Green Leader James Shaw shortly after her election as Labour leader to essentially sign up to the same fiscal settings as National had up until earlier that year.

They imposed those rules on themselves to stick with a campaign promise, made to promote Labour as fiscally responsible to combat attempts by National to portray them as loose with money.

Ardern and Robertson are playing a longer game here, but that is frustrating those who want rapid and meaningful reforms.

The only exception to this rule is the need to spend up large to cope with either natural or man-made financial disasters such as the Global Financial Crisis and the Christchurch earthquakes.

The irony is they need a new global financial crisis to give them the excuse to do what they need to do to make a real improvement in wellbeing.

So should the Government use its strong balance sheet to fix New Zealand’s massive infrastructure deficits? Yes should be the answer, but the timing should be now, not in two years time.

Unwilling to break its promise, it is now in a holding pattern and hopes voters keep the faith for long enough to give it a chance to throw off the shackles.

The Government has already committed to some extra spending – they boosted the Families Package, rushed in a tertiary education fees policy, and gave NZ First a $3 billion Provincial Growth Fund kitty. They will also end up with significant increases in teacher and nurse wage bills.

There are pressures to address what Labour had claimed was underfunding in health, but there seems to be no urgency there. They are now seem to be kicking the ‘mental health crisis’ down nine separate working group roads (see Mental health crisis -> 1 working group -> 9 working groups), and have stretched out their promised rebuild of the Dunedin Hospital (now due for completion in ten years).

Ardern has promised big in this year’s ‘wellbeing’ focussed budget, but has also promised small in debt targets, so Grant Robertson will have quite a balancing act to do.

Hickey sees this as a virtual holding pattern for the next two budgets, unless the world economy turns to custard and gives them an out clause.



  1. David

     /  February 10, 2019

    Hickey, aside from missing the policies you point out, is ignoring the colossal state sector pay rises and NZ First 3 billion re election fund. This government is splashing a lot of cash around, a lot, albeit not in areas that help much with the governments goals, and a lot of it cant be pulled back if things slow down and surplus quickly turns to deficit.
    NZ ranks at or near the top in numerous surveys, its pretty bloody great living here, the health service having 2 people I know experience it this week is frankly amazing. There are labour shortages everywhere and the rise in unemployment is probably Arderns dropping of work requirements on beneficiaries and the jobs are now filled by imports.

    • Corky

       /  February 10, 2019

      ”NZ ranks at or near the top in numerous surveys, its pretty bloody great living here.”

      I proved that again to myself this morning, cycling through the peaceful ambience of New Zealand’s suburbia. It annoys me something terrible that so many New Zealanders are ungrateful bastards.

      I believed Labour would pull out all stops to deliver generous budgets leading up to the election. Looks like I may be wrong.

      • Duker

         /  February 10, 2019

        There isnt the economic capacity to expand more during a boom period- look at the slower than expected Kiwibuild program .( which has a considerable new state houses running separately). Even the new hospital in Dunedin has to be run as 2 stages as the possible builders have recommended to stretch out the workers and materials required- and cost.
        Even National had its promise of 30,000 ‘more’ over 9 years version of Kiwibuild

  2. Blazer

     /  February 10, 2019

    Labour are condemned for what they don’t do now as well as for what they do…

    this..’They imposed those rules on themselves to stick with a campaign promise, made to promote Labour as fiscally responsible to combat attempts by National to portray them as loose with money.’

    That is National and its acolytes main weapon and despite reality ,National manage to own fiscal prudence in the minds of..voters.

    • adamsmith1922

       /  February 10, 2019

      Sorry they are loose with money which is why they are condemned. The PGF boondoggle and NZ First vote buying fund, the waste of free first year tertiary funding, The constant seeking to raise taxes etc, etc

      • Duker

         /  February 10, 2019

        The Student fees – which covers courses such as horticulture and trades etc- is a lot less than the Cost of buying 45% ( non voting) shares of Chorus for $950 mill (+ $100s millions more for free fibre) which was one of nationals boondoogles

      • Blazer

         /  February 10, 2019

        National borrowed more in 9 years than the cumulative total of ALL OTHER GOVTS in NZ history….such…brilliance!🤦‍♂️

        • Duker

           /  February 10, 2019

          Its covered up because the use the $40 bill Cullen fund to offset the extra borrowing – but the Cullen Fund is for the future, not to be borrowed against for the LAST 9 years

  3. Duker

     /  February 10, 2019

    “should the Government use its strong balance sheet to fix New Zealand’s massive infrastructure deficits? Yes should be the answer, but the timing should be now, not in two years time.

    Rubbish . The economy is at peak capacity NOW, even the planners and engineers to design new infrastructure are fully occupied.
    The Auckland CRL is about to start ‘to chose the builder’ delayed because Fletchers pulled out of the possible tendering.
    Hickey is usually a good read , but his life has been spent in financial journalism, not the real world, as cant even read the tea leaves with the slower than expected kiwibuild ramp up

    • adamsmith1922

       /  February 10, 2019

      Hickey seems to have lost the plot in recent times, consequently I find it hard to afford him much credibility.

      • In this article I thought there were hints of activism rather than commentary. He seems to be trying to shame Ardern and Robertson into being more radical.

        • PartisanZ

           /  February 10, 2019

          Good for him!

          If he is being an activist, he’ll have nothing in common with any other political commentator in this ‘grate’ country …

          I feel you may be ascribing way too much political influence to Bernard Hickey?

          If not ……. there’s hope for me yet!

    • High Flying Duck

       /  February 10, 2019

      So which is it – were the last government reckless borrowers, or did they leave a “very strong balance sheet” as both Bernard Hickey & Grant Robertson think?

      In fact just 6 months after the election (Apr 18):

      “One of the world’s biggest credit rating agencies says as Government debt is already so low, increasing it by a few percentage points would be unlikely to impact NZ’s overall credit rating”

      The borrowing after the CHCH earthquakes and during the GFC was well below that of other countries, and left NZ still in a very low debt situation. Govt. debt levels were also falling very quickly as at the election.

      • Duker

         /  February 10, 2019

        Thats because , as I have said earlier, they count nett borrowing, by Including as assets, Cullen and ACC funds. These are allocated for purposes other than general spending.
        As well its the Gross Amount ($80-90 bill) that has to be paid back and interest is paid on)

        Christchurch earthquake , was after EQC fund was depleted, re-insurance paid out, was under $10 bill call on government funds.( EQC pays a yearly premium for the right to call on government funding)
        There has been substantial funds paid to buy up land in the CBD , to protect city landlords property values ( The Frame) and of course give the lions share of rebuild profits to private developers

        The borrowing since the GFC ended – say before 2014- doesnt have an explanation

        • High Flying Duck

           /  February 10, 2019

          The borrowing is calculated as a % of GDP reflecting ability to repay and the size of the economy doing the borrowing. Net debt includes all Govt assets, and yes this includes ACC and the Cullen fund.
          The borrowing other than for the earthquakes, was for large scale capital investments, particularly in schools, hospitals and roading.
          This is being carried on by Labour (with different priorities), which has increased Government gross borrowings by $3.1B on the books last year, with an additional $6.5B in borrowings outside the Govt books – so $10b in borrowings in a year wit ha large operating surplus. They plan to do at least that again this year.

          Treasury would disagree with your analysis of National. This from 2016:

          “New Zealand’s fiscal outlook deteriorated following the Global Financial Crisis, and in late 2008 fiscal projections showed net government debt in New Zealand increasing from 5% of GDP to around 40% within 10 years, mostly reflecting permanently lower expectations for future tax revenue.
          The structural deficit peaked at 4% of GDP in 2011. These circumstances were compounded by the significant costs associated with the Canterbury earthquakes in 2010 and 2011. In 2011, the Government set an ambitious target to return the Budget to surplus by 2014/15, and began a period of fiscal consolidation. A surplus has recently been achieved, and net debt is now expected to peak just above 25% of GDP. The surplus was predominantly achieved by slowing the growth rate of nominal spending so that expenses-to-GDP declined. While there has been some adjustment to policy parameters on the spending side, most of the consolidation has been achieved through efficiency savings and reprioritisation. New Zealand’s fiscal framework – a combination of fixed nominal baselines for most expenditure alongside comprehensive top-down constraints on new spending through the Budget – provided effective tools for controlling expense growth.
          Nevertheless, the return to surplus is only the first step in fiscal consolidation and challenges remain to ensure these surpluses are sustained, and to rebuild the fiscal buffers that existed prior to 2009.”


      • Duker

         /  February 10, 2019

        HFD doesnt realise the strong returns of the Cullen fund , now worth nearly $40 bill – down a bit with the recent turmoil – allow the foreign ratings agencies to consider the NETT financial position.
        But stock market booms cant continue forever…. and of course English and Key didnt put any away for a rainy day after the GFC ended about 2013, thats was another $25 bill of borrowing alone in those years until 2017

  4. Gezza

     /  February 10, 2019

    Must admit I did a “that can’t be right, let me read that again, properly” when I quickly scanned the topics list this morning because I first read this topic heading as ‘Government is stuck in a fecal holding pattern”. True story.