Applause for the Budget
By Richard Harman (author)
It was the endorsement of the Budget that Labour probably didn't need; the right-wing Taxpayers' Union saying Labour had delivered significant spending initiatives, yet kept to the prudent fiscal targets.
Just how significant those spending initiatives are will be debated but what was clear was that this was a conservative, orthodox Budget, most of which had already been announced.
It was not the assault on neo-liberalism that NZ First Leader, Winston Peters, has been calling for.
However yesterday in his Budget debate sp3eech he said the Budget was all that NZ First had hoped for.
“A little over six months ago, we made a decision to go with the Labour Party in a coalition Government, and today's speech by Mr Robertson reinforces the reasons why we did," he said.
“ We congratulate Mr Robertson and Prime Minister Ardern for today announcing our plans for a fairer, more prosperous future for all New Zealanders.”
But Peters’ enthusiasm was at the more energised end of the scale.
Most commentary has dismissed it as predictable, sober and responsible.
The law firm, Chapman Tripp, in a commentary, echoed many with its view that it had a “tick the boxes approach which will probably do the job the Government wants but without generating much political upside, or downside.”
National’s Leader, Simon Bridges, however, was curiously off-key with his summation of the Budget.
“It's a tax and spend, it's a borrow and hope Budget, and through what is really a special form of incompetence they're still managing to break nearly all of their promises,” he said.
There were no new taxes, the Government is within its promised debt track and though they didn’t specifically deliver the overall reduction in GPs fees they did reduce GP payments for many low income and pensioner patients.
More importantly, they delivered on the big promises to put more money into health and education.
The Prime Minister Jacinda Ardern summed it up by saying: “I hope it sends the message that we are prepared, that we've delivered a surplus because we're prepared for the horizon. I hope it says that we are thinking about more than three years, that whether it's growing jobs or protecting the environment, you need a plan. I hope it says that we know the basics are important, and I hope it says we have built the foundations for the future. “
But lurking in the background like a herd of unseen elephants were a whole list of uncosted commitments that the Government will have to address over the next three years:
- The full impact of Mycoplasma Bovis
- The purchase of aircraft to replace the P3 Orions
- Dunedin Hospital
- The public sector pay round, particularly the pay equity claims.
- The need to replace Scott Base in the Antarctic.
The much vaunted “reprioritisation” of spending seemed to be largely in education and irrigation funding but mainly in gains from clamping down on tax loopholes.
There were some losers.
Radio New Zealand did not get $38 million to establish a TV service but instead will have to make do with an additional $15 million.
The result is that the booming economy and the fiscal orthodoxy has meant Finance Minister Grant Robertson has been able to beat Treasury’s Half yearly and Fiscal Update surplus forecasts from December last year.
The projection then was for a surplus of $2.6 billion to June 30, 2019 but yesterday Robertson forecast that would rise to $3.7 billion.
Foreknowledge of that was presumably behind Winston Peters’ prediction that the surplus would be better than expected.
He was right.
What it says is how much Robertson is determined to keep Labour on side with the business and financial community.
The so-called “Winter of Discontent” of business opposition that greeted Michael Cullen’s first Budget in 2000 is still burned deeply into Labour's memory.
And Reserve Bank Governor Adrian Orr hinted at something similar happening now when he referred to surveys of business confidence by banks which showed their clients were confident about their own business but not the economy as a whole.
Both Andrew Little when he was leader and Jacinda Ardern campaigned on a very simple proposition in their bid to unseat the National Government.
They would restore health services and meet growing demand in law and order and education.
But health was their big one with constant tales on the campaign trail of an inability of people to access services.
Little even referred to his own brush with prostate cancer to dramatise the message.
And so, as expected the big ticket item in the Budget was health.
There is a commitment to injecting an additional $2.2 billion over the next four years to DHBs.
This is a 25% increase to that proposed by National in its last budget and will come as part of a 4.4% increase in DHB funding this year.
The CTU and the Association of Salaried Medical Specialists have said that for the current year there would need to be an immediate increase in DHB funding of $594 million to cover population and cost pressures.
The Budget has fallen short of that figure by only $44 million.
There is also a significant increase in assistance for low-income people, particularly those living in Housing New Zealand accommodation or receiving the accommodation supplement, to see their GP and Gold Card holders, will now get a free annual medical checkup.
And the biggest item of capital expenditure in the Budget is also for health. The Government is projecting to spend an additional $750 million on DHB capital investment.
That excludes any provision for the new Dunedin Hospital which Labour claimed during the election campaign could cost $1.4 billion.
Documentation attached to the Budget said: “Funding has been set aside in Budget 2018 for initial project management, resource consents and design costs for the redevelopment.
“Once a detailed business case is completed the Government will consider redevelopment options and their costs and funding options.”
Education also gets a big capital investment with $332 million allocated for new infrastructure including 200 new classrooms.
Operating spending will be up by $694 million over the next four years.
But there was also a clear signal that not all capital spending will be able to be provided by taxpayers.
Robertson in a media briefing said the Government had a range of financing sources for housing and urban development projects including PPPs, infrastructure bonds, special purpose vehicles and targeted rates.
There are some hidden obstacles ahead though.
There are the state sector pay claims and the overall call for pay equity within the sector.
"I am not the kind of negotiator who is going to put into the budget the exact details of what I have been putting on the table," said Robertson.
“But we have made contingencies.”
And there are also uncosted contingencies for things like the need to replace the P3 Orions.
But the big unknown is Mycoplasma Bovis.
There was no additional funding announced yesterday though clearly, some will be on its way once the Government makes a decision on whether to eradicate or control the disease.
There may also be fiscal and economic implications of any downturn on dairy production consequent on the disease.
In many ways, the disease is at present the biggest cloud on the horizon.
“There are a number of things on the horizon that are cost pressures that we have to face plus some unknown costs,” said Robertson.
“We enter this Budget not knowing the full extent of Mycoplasma Bovis, not only on farms and rural communities but on our budget as well.”
But the bigger than projected surplus does give the Government some wiggle room.
This will be a hard Budget for National to unpick. In many ways it’s probably close to the Budget they would have had to present themselves had they stayed in Government.
What it did was mark the end to the austerity imposed on the country by the GFC and the Canterbury earthquake and it enabled the Government to play catchup with the huge population increases that the immigration boom has boosted over the past few years.
Ultimately it was a Budget for the centre of politics.