Brian Fallow: Spendthrift Robertson — says who?

Without Grant Robertson's outsized operating allowances, we'd face real per capita spending cuts. Photo / Marty Melville

OPINION:

The belief that Grant Robertson is an irresponsible fiscal spendthrift has hardened into unquestioned dogma and unshakeable conviction on the political right.

For evidence of his addiction to spending, we are told, we need look no further than the unprecedented size of the operating allowances — or pots of new money — announced in last month's Budget.

When Christopher Luxon and Nicola Willis peddle this line, two explanations are possible.

One is that they don't understand how Budgets are arrived at. The other is that they do, but disingenuously pretend not to, in order to pander to the prejudices of their political base.

It is all about inflation, which affects both sides of the Government's accounts — spending as well as revenue.

The only parts of the Budget which are automatically adjusted for inflation are the transfer payments, that is, superannuation and most welfare benefits. They are indexed to growth in the average wage.

By contrast, the baselines for departmental spending do not assume any increase for inflation.

So, for instance, the Budget's forecast for health spending in the fiscal year which begins next Friday is $26.6 billion and it stays in the range $26.7b to $26.9b for the three following years.

It is the same story for education, law and order, defence and so on. Flat lines.

But the cost of living crisis affects public servants as much as the rest of us. Public sector pay rates increased more slowly last year than those in the private sector, according to Statistics NZ's labour cost index.

And it is costing more to fill up the tank of a police car, for example, or keep defence force personnel properly fed.

But if ministers want an increase in their budgets to cope with all that inflation, they have to fight for a share of the unallocated operational allowances — the very allowances the National Party likes to point to as evidence of fiscal irresponsibility.

The very allowances it wants to drain billions from to fund tax cuts designed to benefit the well-paid and landlords the most.

The operating allowances in last month's Budget are indeed higher than we are used to seeing: $5.9b for the new fiscal year, which is equivalent to about 5 per cent of the Budget, rising by a further $4.5b the year after and another $3b in each of the following years.

But that reflects the fact that we are confronted with inflation at a generational high of 6.9 per cent. The Treasury's fiscal strategy model does not expect consumer price inflation to be back below the 3 per cent top of the Reserve Bank's target band until the 2024/25 year.

In these circumstances, not to have historically outsized operating allowances would imply real per capita cuts in public spending.

Add tax cuts and it is a recipe for painful austerity.

It is also true that the fiscal year which ends next Thursday saw government spending grow faster than the economy which has to support it.

The reason, of course, is that it was the year Covid-19 reached our shores in earnest.

Health spending jumped from $22.8b in 2020/21 to $30b, with $6.8b of the increase attributed to the national health response to Covid.

On top of that there was $4.9b in wage subsidy, as Auckland was locked down, and another $4.3b in business support payments.

Between them those big-ticket — but hopefully one-off — items accounted for most of the $20.5b increase in core Crown expenses in the past year, and the associated $19b deficit in the operating balance excluding gains and losses (Obegal).

It saw a key measure of fiscal performance spike. The ratio of core Crown expenses to nominal gross domestic product (a proxy for the tax base) jumped to 35.4 per cent.

But even with that, and the 34.2 per cent recorded in the 2019/20 year which included the initial Covid-eliminating national lockdown, the average for the ratio in Robertson's first four years as Finance Minister is in fact marginally lower than the average for Sir William English's first four years. Robertson has averaged 32.3 per cent, compared with 32.6 per cent for English.

It is essentially the same number. So if you want to accuse Robertson of being "addicted to spending", you would have to attach the same epithet to English.

In the coming fiscal year the Treasury forecasts operating expenditure to fall to 31.6 per cent of GDP. The Obegal deficit is forecast to shrink to $6.6b, en route to a return to surplus — one year sooner than under English post-GFC — in 2024/25.

National Party leader Christopher Luxon and deputy leader Nicola Willis. Photo / Mark Mitchell

Whether that pans out will depend in large part on things beyond any government's control, like mutations in the virus which still has us in its thrall, or whether the economy is sideswiped by a severe global downturn, the odds of which are climbing by the day.

There is a genuine difference between the two main parties when it comes to capital expenditure, as opposed to the much larger operating kind, and therefore in gross debt measures.

There is a difference, for example, between borrowing to build state houses, because you object to Kiwis living in cars or emergency housing motels, on the one hand and selling off state houses and paying down debt on the other.

Similarly, Labour resumed contributions to the New Zealand Superannuation Fund which National had suspended. National argued that as it was running deficits, it made no sense to borrow to invest in financial markets, even though the returns the funds has achieved outstripped the rates the Government could borrow at.

If National has an alternative plan for mitigating the cost of superannuation to future taxpayers, given an ageing population, it would be good to know what it is.

And finally, infrastructure. The Infrastructure Commission says we spend around 5.5 per cent of GDP a year on public infrastructure.

But they reckon it would have to be more like 9.5 per cent a year for the next 30 years to catch up on the historical infrastructure deficit, adequately maintain and renew what we do have, cope with population growth, and meet challenges like climate change and seismic risk. Water that is safe to drink would be good too.

Little wonder the Treasury has revised upward its estimate of a prudent upper limit for government debt.