Robertson and the new debt target: there is less to it than meets the eye.
By Richard Harman (author)
There is less to the Government’s announcement of new debt targets than many seem to think.
For a start, the new debt target range of 15 – 25% (as contrasted with the current 20%) does not apply till after the 2022 Budget. In other words, it is three years off.
But for those looking for clues to what may be in the next Budget, another of Finance Minister Grant Robertson's pre-Budget speeches yesterday provided some hints.
Meanwhile, the Labour Party’s much-criticised Budget Responsibility Rules which will have to be reviewed as a consequence of the debt target change are simply a Labour Party document which will form part of the party’s manifesto at the next election.
“We will be looking at those; we haven’t made those final decisions yet,” Finance Minister Grant Robertson told reporters after the speech.
In short, nothing has changed.
The Government will go through to the next election with the current fiscal, and debt targets and only the fiscal targets might change and apply before 2022.
The Finance Minister made the announcement of the debt target change to a packed conference room of over 700 private clients of the stockbroking firm, Craigs Investment Partners, in Auckland yesterday.
That he didn’t do it in front of a Labour sympathetic audience demonstrates how little impact he is expecting it to have on the demands from Labour’s left to relax the targets and have the Government spend more.
Those hopes were evident in reaction to Robertson’s announcement from the CTU.
"The announcement by the Minister of Finance that the Government was moving from a rigid 20% debt target to a range between 15% and 25% is welcome," said CTU Economist Bill Rosenberg.
"At a time when interest rates are low, it makes absolute sense to fund more of our much-needed infrastructure development such as hospitals, rail, roads, public transport and housing, from debt rather than current income.
“That would free up revenue to be spent on urgent priorities such as mental health, repairing public housing stock, education and training, and helping people out of poverty by implementing the recommendations of the Welfare Expert Advisory Group."
And to reinforce that yesterday, Bill Rosenberg, Economist and Policy Director for the New Zealand Council of Trade Unions (CTU) and Lyndon Keene, Director of Policy and Research, for the Association of Salaried Medical Specialists (ASMS) have released their annual analysis of what they argue the Government needs to allocate to health spending in the 2019 budget.
"Vote Health’s operational expenses would need to rise by an estimated $1,303 million, or 7.7%, from $16,972 million in the 2018 Budget to $18,274 million in 2019/20, to maintain the current levels of service. The $1,303 million is simply to keep up with population and cost increases including pay settlements," Rosenberg said.
The pair say that for the health vote to regain the spending power of the 2009/10 Health vote and pay for the initiatives and additional costs announced over that time, it would need to increase by $3.2 billion in the 2019 Budget to $20.2 billion.
Obviously, that is highly unlikely to happen.
Instead, Robertson explained how the Budget would fit into the Government's overall priorities.
“Our Government’s vision is for a modern economy that is productive, sustainable and inclusive,” he said.
“What do I mean by that?
“Productive means doing more with what we have, moving our products up the value chain, and producing things in new and innovative ways.
“Sustainable means meeting the needs of the present without compromising our ability to do so in the future, both in an environmental sense, and in an economic and fiscal sense.
“Inclusive means ensuring that all New Zealanders get a fair go, have a chance to contribute to our economy, and get to share in the benefits of growth.”
He said this would embrace an emphasis on institutions (such as through the Reserve Bank Act); changing investment priorities to encourage more productive and sustainable investments and more innovation.
“You’ll see in the Budget some more announcements around research and development as we continue to build around that,” he said.
There needed to be an emphasis on developing more international connectedness both with trade agreements and by increased and more diversified exporting; modernising infrastructure and delivering more inclusive work.
He told the audience that the Government was working on ways of getting more private sector investment into infrastructure, particularly as many local governments were hitting their borrowing limits.
“We will have something to say about that very soon,” he said.
“We hope that will enable us to package up some of those big infrastructure investments in ways that are attractive to private capital.”
Private capital may accommodate the infrastructure projects, but the Government will also soon begin to face a big bill to replace ageing military equipment; particularly the five RNZAF C130 Hercules transport aircraft which could cost $100 million each.
That may be an area where the increased loan limits have a role to play.
Ironically the latest Treasury’s monthly interim financial statements show that in the nine months to March 31, Government spending was $600 million below forecast.
Though there is persistent political pressure on Robertson --- including from within the Government coalition --- to spend more, he has managed to resist it so far.
And he was careful to point out yesterday that both Michael Cullen and then Steven Joyce had passed on to their successor governments low levels of Government debt and he intended to do the same thing.
In many ways, nothing has changed.