Crown accounts surplus, more pressure on spending booost

From the Beehive (Minister of Finance Grant Robertson): Govt accounts in surplus, debt remains low

The Government’s books are in good shape with the accounts in surplus and expenses close to forecast, Finance Minister Grant Robertson says.

The Treasury today released the Crown accounts for the five months to November.

The operating balance before gains and losses (OBEGAL) was above forecast by $0.7 billion resulting in a surplus of $100 million.

The variance is due to lower than forecast Core Crown expenses and higher than forecast revenue.

“While the month by month results do tend to fluctuate due to tax timing changes, it is pleasing to see this positive result,” Grant Robertson says.

“The surplus and low levels of debt show the fundamentals of the New Zealand economy remain strong.”

Net debt remains low at 20.1% of GDP, while expenses were within 0.6% of forecast.

Net investments gains of $3.6 billion were $1.3 billion above forecast, largely because of favourable changes in market prices.

“Our careful fiscal management has resulted in low government debt, which alongside record low borrowing costs has given us room to invest an extra $12 billion to future-proof New Zealand,” Grant Robertson says.

“This package of infrastructure projects will provide further support to boost the New Zealand economy in the face of slowing international growth and global headwinds.

“It will also give certainty to the construction industry about upcoming infrastructure projects and will create more opportunities for Kiwis.

“We’ll be announcing the specific projects in the near future,” Grant Robertson says.

I think we can expect some election year spending announcements on top of the proposed large spend on more infrastructure.

It will be interesting to see if they adjust the personal tax rates – part of the reason for rising revenue is tax bracket creep.

Grant Robertson has been a relatively low profile and uncontroversial finance minister, with most criticism coming from the left who want a lot more Government spending.

Like: Borrow, build, hold says Green co-leader

Government should hold onto the houses it has pledged to put out on the open market, Greens co-leader Marama Davidson says.

The Government taking on more debt for public housing would open up more opportunities than fully funding existing programmes like the Auckland Housing programme.

Davidson said a reluctance to ditch the Budget Responsibility Rules and take on debt is the reason those houses aren’t being provided to low-income tenants as part of a mixed tenure development scheme.

“We’ve got low borrowing rates, we’ve got expensive land, the Crown can borrow money. It can hold onto more of the houses it is building right now.”

Stuff:  Green Party scrap Budget Responsibility Rules

The Green Party is ditching its commitment to the restrictive Budget Responsibility Rules, which set targets for lowering government debt and spending.

The Greens first signed up to the rules ahead of the 2017 election while teaming up with Labour.

Labour retained a commitment to the rules, while signalling it wanted to somewhat loosen them next term.

So they may not move much on this until after this year’s election, if Labour and Greens get back into government, and NZ First don’t demand most of the extra spending.

“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.

Really?

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.