Budget 2022: the challenge of striking a balance between managing the debt and spreading good cheer

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?

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