Grant Robertson: shift from net debt 20% target to 15-25% range

One of the biggest talking points coming out of Minister of Finance Grant Robertson’s pre-budget speech to Craigs Investors Conference yesterday was a shift from a net debt target of 20%, to a much more flexible range of 15-25% dependent on economic conditions.

The 20% target was a feature of the Labour-Green fiscal responsibility agreement prior to the 2017 election.

Robertson 24 March 2017: Labour and Greens commit to rules for responsible financial management

The Labour Party and the Green Party have agreed to Budget Responsibility Rules, which will provide the foundation for sound fiscal management after the election.

“New Zealanders rightly demand of their government that they carefully and effectively manage public finances. We understand that and are committed to delivering this,” says Labour Finance Spokesperson Grant Robertson.

“These rules demonstrate how Labour and the Greens in Government will manage the economy prudently, effectively and sustainably.”

Under the Budget Responsibility Rules the Government will:
• Deliver a sustainable operating surplus across an economic cycle
• Reduce the level of Net Core Crown Debt to 20 per cent of GDP within five years of taking office
• Prioritise investments to address the long-term financial and sustainability challenges facing New Zealand
• Maintain its expenditure to within the recent historical range of spending to GDP ratio
• Ensure a progressive taxation system that is fair, balanced, and promotes the long-term sustainability and productivity of the economy.

The Government will establish an independent body to make sure the rules are being adhered to.

Since the Labour-Green-NZ First Government took over in late 2017 the target (and fiscal prudence) has been strongly criticised by people on the left who have been demanding much more spending for ‘urgent needs’.

Relevant section of yesterdays speech under Budget 2019 Economic Priorities – Fiscal sustainability:


We are reducing the level of net core Crown debt to 20 percent of GDP within five years of taking office. New Zealand has low levels of Government debt by international standards, but we remain vulnerable to shocks that are beyond our control, such as earthquakes and other natural disasters. We have made our commitment to keeping debt under control to ensure that future generations of New Zealanders are in a position to be able to respond effectively to any such shock.

This Government will prioritise investments to address the long-term financial and sustainability challenges facing New Zealand. This is apparent in the intergenerational wellbeing priorities we have identified in this year’s budget and restarting contributions to the NZ superfund and our focus on issues such as climate change.

We will maintain Government expenditure within the recent historical range of spending to GDP, which has averaged around 30 percent over the past 20 years. We are also focussed on the quality of spending, with Ministers running prioritisation exercises across their portfolios to identify spending that doesn’t fit with the Coalition Government’s priorities.

I am pleased to announce today that on the 30th of May the Budget will show that we are meeting these rules again, as we did in last year’s budget.

I know there has been some criticism of this approach – particularly around the debt target. For me it is a question of balance. We have made, and will continue to make, significant investments in our future, but we also know that the volatility of the world, be it economically or through natural disasters, biosecurity incursions or unexpected events, is never far away.

The Public Finance Act obliges Governments to outline their long-term fiscal strategies at Budget time. One of the key elements of this is the Government’s approach to debt.

People in this room will all have different views on what it could or should be. That in part depends on the levels of investment you believe the Government should be making and in what areas.

We also have to take into account capacity constraints at any point in time – like in our construction sector. With this in mind, I am comfortable with the 20% point that we have been targeting. But circumstances can obviously change.

Beyond the Budget Responsibility Rules, our fiscal intentions in this budget will signal a shift to a net debt percentage range, rather than a single figure. At this point we are looking at a range of 15-25% of GDP, based on advice from the Treasury. This range is consistent with the Public Finance Act’s requirement for fiscal prudence, but takes into account the need for the Government to be flexible so that it can respond to economic conditions.

Essentially, our current 20% target falls in the middle of the new range that will exist from 2021/22 onwards.

A range gives governments more capacity to take well-considered actions appropriate to the nation’s circumstances – circumstances that change over time. It establishes boundaries within which debt is kept to sensible and sustainable levels and where fiscal choices are driven by impact and value.

For example, a government may choose to move higher up the debt range to combat the impact of an economic recession, or where there are high value investments that will drive future economic dividends. At other times it may be prudent to reduce debt levels to the lower end of the range to provide headroom for future policy responses.

Grant Robertson: Budget 2019 Economic Priorities

Minister of Finance Grant Robertson outlined economic priorities for the 2019 budget, due next week, in a speech to the Craigs Investors Conference yesterday.

He is pushing the ‘wellbeing’ focus, mentioning it 15 times in his speech overall.


Budget 2019 Economic Priorities

In next week’s budget you will see investments to support our economic strategy.

This year’s Budget is different. There are three fundamental elements to the Wellbeing Budget.

First, a whole-of-government approach. This is about stepping out of the silos of agencies and working together to assess, develop and implement initiatives to improve wellbeing.

Secondly, a wellbeing approach means looking at intergenerational outcomes. We have to focus on the long-term thinking about the impacts of policy on future generations as well as thinking about meeting the needs of the present.

Thirdly, we need to move beyond narrow measures of success. This can be seen through the development of the Living Standards Framework Dashboard and from the Indicators Aotearoa New Zealand work led by Statistics New Zealand.

We have developed our Budget priorities on the basis of a wellbeing analysis. We looked at the evidence and got expert advice to assess where we have the greatest opportunities to make a difference to New Zealanders’ wellbeing. We have focused our efforts on those opportunities.

This approach has led to some significant and different programmes, like the $320 million investment announced last weekend to address domestic and sexual violence. This is the wellbeing approach in action. The evidence shows the long-term impact that domestic violence has, especially on children. We are taking a joined-up government response to start addressing this long term challenge. We have brought together eight government agencies, working with the community to take on this scourge that has such massive social and economic consequences.

From an economic perspective, our wellbeing analysis showed that we have some way to go in achieving our vision of a productive, sustainable and inclusive economy.

Productivity growth is a key driver of incomes both at a household and country level. Despite working longer hours on average than workers in many developed countries, New Zealanders’ incomes have for some time remains in the bottom half of the OECD.

In addition, the Government has set ambitious greenhouse gas reduction targets to meet the 2015 Paris Agreement goal of keeping temperature rise to no more than 1.5 degrees.

As a result, two of the priorities in this year’s budget are:

• Creating opportunities for productive businesses, regions, iwi and others to transition to a sustainable and low-emissions economy; and

• Supporting a thriving nation in the digital age through innovation, social and economic opportunities.

Come Budget day you will see targeted investments in these areas to support more productive, sustainable and inclusive economic growth.

Fiscal sustainability

Of course, fiscal sustainability is an inherent part of maintaining and improving intergenerational wellbeing and a sustainable economy.

That’s why this Government made a commitment to our Budget Responsibility Rules when we came into office.

These include:

Delivering a sustainable operating surplus across the economic cycle. The key word here is sustainable.

That means our surpluses will exist after we have funded our policy objectives, so that issues are not kicked further down the road for the next government or generation to deal with, as I discovered after coming into my role as Finance Minister.

We are, reducing the level of net core Crown debt to 20 percent of GDP within five years of taking office. New Zealand has low levels of Government debt by international standards, but we remain vulnerable to shocks that are beyond our control, such as earthquakes and other natural disasters. We have made our commitment to keeping debt under control to ensure that future generations of New Zealanders are in a position to be able to respond effectively to any such shock.

Thirdly, this Government will prioritise investments to address the long-term financial and sustainability challenges facing New Zealand. This is apparent in the intergenerational wellbeing priorities we have identified in this year’s budget and restarting contributions to the NZ superfund and our focus on issues such as climate change.

Fourthly, we will maintain Government expenditure within the recent historical range of spending to GDP, which has averaged around 30 percent over the past 20 years. We are also focussed on the quality of spending, with Ministers running prioritisation exercises across their portfolios to identify spending that doesn’t fit with the Coalition Government’s priorities.

I am pleased to announce today that on the 30th of May the Budget will show that we are meeting these rules again, as we did in last year’s budget.

Our Budget Priorities are focussed on the outcomes New Zealanders want to achieve and all Ministers and agencies will be collectively accountable for delivering them. And in their delivery, this Government will follow a disciplined fiscal strategy. The strategy gives the balance to be both a responsible manager of public finances and responsive to New Zealand’s intergenerational wellbeing needs.

We’ve prioritised spending that improves the wellbeing of all New Zealanders. This means tackling the big long-term issues, by investing in an economy that is more productive, sustainable and inclusive.

Come Budget day you will be able to see that this is not simply the same old Budget repackaged with softer edges and brighter colours. You will see a Budget that is new, with a more structured approach and a new, explicit emphasis on what we want to achieve for the long term for our country.