Jones hints at debt challenges
By Richard Harman (author)
There was a hint yesterday of just how tight the Government’s capital budget is and how there will be pressure to extend its borrowing targets out at the same time as innovative ways are found to fund capital projects.
But Labour is partly hamstrung by its own ideological objections to the public, private partnerships which National had intended to use to build schools and hospitals.
Now that money will have to come from the capital budget.
But it will come at the same time as the coalition agreement commits the Government to a one billion dollar annual spend on the Provincial Growth Fund and replacing the Air Force’s Orions will consume $2.2 billion that will have to be accounted for in the next budget.
Speaking on TVOne’s “Q+A” yesterday Regional Development Minister Shane Jones was asked whether his $1 billion a year Provincial Growth Fund meant that the government could not get its debt target of 20 per cent of debt to GDP within the five years.
Share Jones: “That’s a reasonable question and probably the full answer for that lies with Grant Robertson. But he’s got five years to achieve that target.”
The fact that Jones agreed it was a “reasonable question” is a hint that ---- certainly within NZ First --- the viability of the debt to GDP target is already being debated.
The former Finance Minister, Steven Joyce, clearly believes that Labour cannot achieve what it wants to achieve with capital spending without changing the debt target.
Joyce asked Finance Miniswetr Grant Robertson in Parliament on Friday whether he could confirm he planned to increase net core Crown debt from $59.5 billion to $67.6 billion by 2022.
Joyce was quoting Labour’s own projection for debt in 2022 which was already $11 billion more than National was projecting in its Pre-Election Economic and Fiscal Update.
But Labour’s projection did not include the Provincial Growth Fund (which was only agreed during the coalition talks) nor did it include the money for the RNZAF Orion replacements which Labour appears to have mistakenly thought was already accounted for in the PREFU forecasts.
However, Robertson maintained that Labour could meet its targets.
“I can confirm that net core Crown debt was $59.48 billion at 30 June 2017, or 22.2 percent of GDP at the time. I can also confirm that the Government plans to reduce net core Crown debt as a percentage of GDP to 20 percent within five years of taking office,” he said.
“ I cannot confirm the exact dollar figure for 2022 at this time, as that is part of the normal Budget process, but the figure in the member's question is our starting point.”
And on Friday, in what was billed as a major economic speech, Robertson repeated the commitment to meeting the debt target.
“You will see when the Half Yearly Update is released that we are meeting our Budget Responsibility Rules, in particular, the commitment to reduce net core Crown debt as a percentage of GDP to 20% within five years of taking office,” he said.
There is growing scepticism – reflected in Jones’ guarded answer on “Q+A” --- that Robertson will be able to meet the debt target and also meet all of Labour’s manifesto promises and the additional costs agreed with NZ First in the coalition document.
There are already questions being asked about why Robertson is so determined to meet National's debt target --- albeit two years later --- of having the core crown debt go to 20% of GDP.
Already New Zealand is at the top end of the OECD’s debt to GDP ratio ladder.
The latest OECD statistics (for 2015) show that only Australia, Estonia and Luxembourg had debt ratios lower than New Zealand.
But if Robertson is unwilling at this stage to change the debt ratio it is obvious there is pressure on Jones to finance his growth fund in any number of innovative ways to keep it from undermining the capital expenditure accounts and therefore the debt targets.
On "Q+A" he referred to the fund getting into joint ventures, and he also said some of what it spent would come from the Government's operational spending allowances.
Last week it was revealed that overseas investors would get a fast track to approval to buy land if it was to be used to plant some of Jones' promised one billion trees and the purchasers committed to downstream processing in New Zealand.
“Inevitably we’ll have both a mixture of operational expenditure and capital, and in my view- I mean, I don’t want to get too hung up where the money comes from, but in my view, that’s a bloody good use of such funding,” he said.
This year's Half-yearly Economic and Fiscal Update on December 14 may answer many of the questions raised by Jones’ interview is being planned almost as a mini-budget.
Treasury has moved the location for the pre-release lockup from the usual Treasury conference room to the Beehive Banquet Hall – usually used only for the Budget lockup.
That alone demonstrates how much political importance Robertson’s budget forecasts will have.