Robertson and his radical plan for the Budget
By Richard Harman (author)
Finance Minister Grant Robertson yesterday unveiled what is the clearest indication so far of what the Ardern Government is all about.
The Budget Policy Statement Document, released as part of the Half-yearly Economic and Fiscal Update documents, was entirely produced in Robertson's office.
It is a political document.
And it puts its emphasis on addressing the disparities revealed in the Living Standards Framework dashboard which uses data from Statistics NZ general Social Survey.
It is not a document that could have come from the Lange Government or even Helen Clark’s Government; it is a radical break with traditional economic orthodoxy and in many ways is world leading as it attempts to use big data to define a holistic set of Budget goals that go well beyond the traditional economic indicators.
In a way, Robertson has seen in the data what Labour would want to see
Thus, he said yesterday, the emphasis in the next Budget would go on:
- Creating opportunities to transition to a sustainable and low emissions economy
- Supporting a thriving nation through the digital age
- Lifting Maori and Pacific incomes, skills and opportunities
- Reducing child poverty
- Supporting mental wellbeing with a special focus on under 24-year-olds.
Those are all issues that Labour campaigned on and which Ministers are currently addressing.
Last year, opening Labour’s election campaign, Prime Minister Jacinda Ardern outlined exactly what Robertson delivered yesterday.
“I will always maintain that a successful economy is one that serves its people. Not the other way around. And that means judging success differently,” she said.
"GDP rates and numbers on a sheet of paper don't always tell you much about the wellbeing of the people working to keep our economy going."
Robertson echoed that yesterday.
“For too long as a country we have defined our success solely on the rate of GDP growth,” he said.
"A sustainably growing economy is important, but it is only part of how we measure our success.
“If people are not healthy, or well educated or housed or connected to each other or if our environment is polluted or our rivers are too filthy to swim in our communities are fragmented, or trust in institutions is low then we do not have well being whatever our rate of GDP growth.”
The data from the Living Standards Framework dashboard is stark.
Maori perform worse than the rest of New Zealand on almost every indicator; particularly income and housing. Pacific Islanders are not so far behind Maori but perform worse on housing.
Otherwise, deprivation seems concentrated among younger people and solo parents of any ethnicity.
The data can sliced and diced and, but the overall picture is of a society where only some of its members are doing well.
Robertson’s approach won immediate support from CTU economist, Bill Rosenberg, who said fiscal responsibility was much more than balancing the financial position of the Government.
“Unions congratulate the Government for actively choosing to improve outcomes for Māori and Pacific people, and moving towards an environmentally sustainable economy while supporting working people through the future of climate change, technology and globalisation."
Robertson said the Budget priorities he outlined would be focussed on outcomes rather than inputs or outputs.
“We are asking agencies and Ministers how they can contribute to each of the five priorities,” he said.
"Under this process, we are developing initiatives across agencies and sectors breaking down the silos of government so that the entire government is focussed on the positive changes that we seek.”
Robertson in recent months has repeatedly reminded audiences when he has been speaking how important he sees the current rewrite of the State Sector Act which is being presided over by State Services Minister Chris Hipkins.
This work won't be finished until 2020, but along with the focus on the Living Standards Framework, it will be part of a radical new approach to what Government does and how it does it.
(POLITIK will be running an in-depth piece on this in mid-January.)
But Robertson also plans to embed the well-being concept in legislation which will see New Zealand, once again, leading the world in its management of its public finances.
The Policy Statement said: “This Government intends to amend the Public Finance Act to ensure that broader framing is used in the development of the Budget.
“Each year, the Government will be required to set out how its wellbeing objectives, together with its fiscal objectives, will guide its Budget and fiscal policy.
“To support this, the Treasury will be required to report on current and future wellbeing outcomes at least every four years. “
‘ Future governments will have flexibility to decide on their own wellbeing objectives, but will be required to explain how each Budget will contribute to those objectives.”
This is all being set against conventional overall economic forecasts which were also published yesterday in the Half-yearly Economic and Fiscal Update.
They showed that though growth will soften from 2020, the Government will be flush with cash and will be tracking well below its own Budget Sustainability targets by 2023.
The Operating Balance before Gains and Losses (the OBEGAL, usually known as the deficit or surplus) will fall to $1.7 billion million next year but then climb steadily back up to $4.1 billion in 2020 (election year) and then to $8.4 billion in 2023.
The forecasts have assumed future operating allowances of $2.4 billion for Budget 2019 and each subsequent Budget, but given that Labour's Budget Responsibility Rules set tight targets for the OBEGAL as a percentage of GDP, the Government doesn't have much room to spend up large.
Yesterday’s forecasts show they will not exceed the OBEGAL targets till 2022.
However, they will be within one per cent of their debt target --- 20% of GDP by 2023 --- till 2022 when debt begins to fall below it.
But obviously these forecasts are not set in stone, and the HYEFU document sets out a wide range of risk factors that could influence the forecasts.
These range from possible extra expenditure to address the shortage of teachers through to a new emergency services communication system; to settling claims that may arise from the Royal Commission into historical Abuse in State Care and a host of other Government activities.
Capital expenditure will now be accounted for within a four-year capital spend envelope rather than on an annual basis.
$13.1 billion has been set aside for the four years to 2022.
Of that sum, $9 billion has yet to be allocated, but there are major decisions to be made to defence procurement and risks attached to funding for the Auckland Central Rail Loop, Kiwbuild and hospital and school rebuilds.
The other risks facing the economy as a whole were outlined by Treasury Secretary Gabriel Makhlouf. These included:
- Rising international trade tensions
- Various political uncertainties, particularly Brexity, and the impact they might have on the global growth outlook.
- A possible tightening of US monetary policy.
- Heightened volatility in financial markets.
- Uncertain commodity prices.
- The impact of the fall in business confidence
- How households react to changes in interest rates
- Uncertainty about house prices
- The impact of capacity restraints on the economy
- Changes in weather conditions
- Future migration numbers.
For all that Treasury is forecasting growth to climb back to 3.1% by 2020 and then soften to 2.3% by 2023.
But Robertson is not placing as much weight on the GDP figures as his National Part predecessors.
He said the wellbeing measures were what people thought about in their daily lives.
“They are concerned about the mental and physical health of their friends and their family.
“They want there to be communities in which they feel safe and secure.
“So I think these are the very issues that New Zealanders care about.
“Of course we all care about having a strong economy to enable us to have choices.
“But if we only measure our success on the basis of GDP growth then we run the risk of having far too many people fall out or fall behind.
“We’ve seen high levels of GDP growth in recent years, but there are other social indicators and statistics that New Zealanders are not proud of.
“I think this approach gives us a much fuller picture of our success as a country.”