Deputy Prime Minister Grant Robertson is nothing if not ambitious. In his role as Finance Minister he is planning a budget which , he says, will focus on long-term issues like investing in the health sector and climate change initiatives at the same time as he manages debt down and gets the books back to surplus.
He told the New Zealand Herald’s Liam Dann he feels constant pressure “to make sure the spending we do is the right money in the right place at the right time”.
ACT leader David Seymour had a comment apropos of that observation:
“This was a Government elected to make housing affordable, help those less well off, reduce child poverty, and give us a kinder, more united society. On every front, it could not have failed more profoundly.”
That was reinforced this week as a government report showed that despite the government allocating an extra $1.9bn for mental health in 2019, there are ballooning specialists wait times for children and adolescents, and increased anti-depressant and antipsychotic medication dispensing for young people.
All mental health services for children and adolescents are short of at least a quarter of clinical roles.
Reports such as those reinforce what Treasury was telling its minister this week.
Some might read an implicit warning in the Treasury document, called The Investment Statement. This describes and states the value of the government’s significant assets and liabilities, how these have changed from the past, and how they are expected to change in the future.
“The experience of the past two years has emphasised the importance of a resilient balance sheet in supporting living standards,” Treasury Secretary Caralee McLiesh says.
“The strength of the government balance sheet prior to the COVID-19 pandemic allowed the Government to support the wellbeing of New Zealanders through an extraordinary shock. New Zealand’s fiscal response was large by international standards; this response has been critical in minimising unemployment, supporting a swift economic recovery, and preventing longer-lasting harm to living standards.”
The response to COVID-19 has seen net core Crown debt (net debt) increase significantly. Net debt was 19% of GDP prior to the pandemic and is forecast to peak at 40.1% in 2022/23. The Treasury considers that net debt continues to remain within prudent levels.
Even though net debt has increased significantly, the balance sheet remains resilient and government net worth has increased.
The government’s Financial and Social assets have grown, leading to higher net worth of $157 billion. This is an increase in net worth of $40 billion since the 2018 Investment Statement.
At the same time there has been an increase in the risk and complexity of the government balance sheet. The government has taken on new assets and liabilities as part of its COVID-19 response and the government’s exposure to interest rate risk has risen because of the Reserve Bank of New Zealand’s Large Scale Asset Purchase programme.
Treasury sees the need for striking the right balance between prudent debt and prudent investment, effective fiscal frameworks, and measuring and understanding wellbeing.
Point of Order cannot assess how far Robertson’s own planning for this year’s budget has gone, but some of his colleagues may be pressing him to spread some good cheer.
Political scientist Bryce Edwards, in a column last week, noted how the Labour Government has come in for criticism for its panicked pandering to opinion polls with petrol tax cuts and reduced public transport fares.
Edwards highlighted how TVNZ’s Jack Tame had been scathing, telling his Newstalk ZB audience that the recent petrol tax cuts were a kneejerk reaction:
“The truth is, petrol taxes would never have been cut if Labour had been well ahead in last week’s poll. They saw the poll numbers. They freaked out. They dropped almost $400m to try and win back some popularity.”
Tame argued that there are more targeted ways to relieve the cost of living crisis.
He calls the Government’s actions “cowardly”, “cynical” and “reactionary”, concluding:
“Once again, Jacinda Ardern’s Government has shown it’s more interested in doing what is popular than what is right.”
Tame’s point is that the petrol tax cuts went against the bigger and longer-term goal of shifting people off reliance on fossil fuels through higher prices. He argues that other crises such as housing see the Government only ever thinking about the short-term.
“In terms of evidence Tame is right. On Friday the Government admitted that the decision had been rushed into implementation bypassing the usual scrutiny of officials. Finance Minister Grant Robertson admitted that Cabinet decided to sidestep putting the tax cuts through a Regulatory Impact Analysis in which the proposal’s strengths and weaknesses, as well as alternatives, are considered by relevant government agencies. Instead, Cabinet agreed to a “post-implementation assessment”.
Edwards said the website Interest.co.nz asked economists for their view on the reforms:
“The policy didn’t meet the sniff test of the economists interest.co.nz spoke to, who characterised it as political, reactionary, poorly targeted, short-termist and interventionist.”
Of course, the counter argument is that the Government was listening to the public and being nimble in their response. Focus groups and market research would have given the Government a good steer on exactly what pressures were afflicting the public and how to address them.
“It seems that the Government has to resort to a reactive approach instead of being proactive because it lacks any real underpinning vision about where it wants to take the country. To have direction, political leaders need to have policy, values, and be embedded in a milieu of critical thinking and innovation.
“This is traditionally what a political party is. It’s a big think tank of on-the-ground policy development based on a vision of a particular sort of world that it wants to create. The problem for Ardern and her colleagues is that this is entirely lacking for them. There is no mass membership party feeding ideas and policies up from its base. In fact, the last Labour Party annual conference showed that the party barely has any debate at all, and certainly no real decision making powers like it used to.
“Without a useful anchor in society, the Labour Government is now just floating around, lost at sea, only reacting to events as they arise. It means the party and government have little chance of taking the country anywhere, and voters will eventually tire of its managerial approach. To sell itself based on its competence during the Covid crisis is not going to work again at the next election – especially since much of that competence has been more questionable since 2020”.
Gauged against this backdrop, the forthcoming budget could be a make-or-break document for the Arden government.
In the light of Treasury’s statement will Robertson go ahead with huge new investment plans? Or can he risk politically not tossing out some much-needed relief for New Zealanders tired of their dependence on food banks? Will it add up to the right money in the right place at the right time?
One thought on “Budget 2022: the challenge of striking a balance between managing the debt and spreading good cheer”
And the major health changes will be managed by the Ministry of Health!!!! God help us all
LikeLiked by 1 person