Finance Minister Grant Robertson. Photo / Bloomberg
Finance Minister Grant Robertson. Photo / Bloomberg
COMMENT:
What a time to be a finance minister.
Grant Robertson must be the first since the 1970s to announce he's borrowing and spending billions more, and still cop widespread accusations of being too conservative.
Politically that's a very pretty good place to be and I'm sure he knows it.
As Westpac's economics team put it: "the Half-Year Economic and Fiscal Update was a damp squib in the sense that it will have little impact on our forecasts of GDP, inflation or interest rates."
In other words, it might look like a big spend-up but it doesn't actually shift the dial much from a macro-economic point of view.
Not many voters will be basing their opinion of today's announcement on what it does to their macro-economic forecasts.
The Government gets to make a pre-Christmas splash with surplus spending headlines, it gets another bite in the quiet news vacuum of the New Year when it announces the highly anticipated specifics of new transport spending.
And it still leaves plenty of fiscal headroom for voter-friendly acts of budget generosity later in 2020.
Even including the new spending, Treasury forecasts show net debt of 21.5 per cent of GDP in 2021/22, falling to 19.6 per cent in 2023/24.
That is well within the new 15 per cent to 25 per cent target range the Government announced in May and extremely low by global standards.
Today's announcement was "welcomed" by BusinessNZ, The Employers and Manufacturers Association and the Council of Trade Unions.
Getting the thumbs-up from these three in one afternoon is no mean feat.
The business groups will of course reserve final judgment until they see the specifics, but were clearly heartened by the strong focus on transport.
"The third rail main, rail electrification between Papatoetoe and Pukekohe, the airport to Puhinui link, the North Western busway and Mill Rd in Auckland; the route south from Whangarei to Auckland; the corridors in and out of Hamilton; and the road from Katikati to Tauranga."
The spending will inevitably give the economy a boost over the next few years.
"Treasury estimates that this extra capital spending will boost economic growth over the next few years – adding almost 0.3 per cent to the level of real GDP in the June 2021 year, peaking at 0.4 per cent of GDP in the June 2022 year," Westpac chief economist Dominick Stephens said.
But broadly, Stephens already had that level of government spending increase factored into their outlook ... hence the "damp squib".
He, (along with the EMA) also raised the downside risk that the Government may struggle to actually get the projects underway, and therefore spend the money, as quickly as hoped.
Still, today's announcement paints a stark reminder of what fiscally stimulating economic times we now live in.
Funding for more roads has pleased business groups. Photo / File
Around the world we're seeing a swing back to a more favourable view on government spending as central banks chase interest rates towards zero, with little impact on inflation.
After decades of austerity, it's hard to see anyone making much of case against this latest round of spending.
But we should expect to see it executed well, on projects that will deliver long-term dividends.
That is where this Government's legacy lies, not in its announcements.
