Election 2023: The final $5b of the Covid fight, and the half spent quickly on other priorities

OPINION: The Public Purse is a fortnightly Herald column focused on the public sector and how taxpayer money is spent.

Finance Minister Grant Robertson is on the hustings, defending, for the sake of his Government’s future, and indeed the history books, his spending record.

There’s little doubt that he brought the country with him in the early days of massive pandemic borrowing and spending. But histories seek turning points, and the last $5 billion with which Robertson topped up the fund for fighting Covid may be one.

First, Robertson’s view. All is chaos when we enter the story: in early 2022 he didn’t know what new Omicron-battling measures would cost and there was a credible risk that they would outstrip the $2b remaining in the Covid Response and Recovery Fund (CRRF). So he added $5b to this envelope of funding, supposed to indicate what the Government was comfortable spending to fight Covid-19 and all of it factored into the Treasury’s fiscal picture, including long-term debt.

The Finance Minister has told the Herald many times that the CRRF was for response and recovery. He says this always included immediate response measures, such as in the health system, and other programmes that supported businesses, households and the wider economy.

He doesn’t accept that the top-up was an undisciplined and cynical way of lifting Government spending on all and sundry. Neither does he accept that roughly half of this $5b (all of it debt) was almost immediately spent on non-Covid priorities.

“As I’ve said previously, once the CRRF was closed in Budget 2022, the remaining funding was reprioritised, which is not an unusual occurrence. This was done in the context of the needs of the time and the Government’s fiscal position,” he said last week.

“By the time of Budget 2022″, Robertson emphasised, chaos had resolved to “sufficient certainty around Omicron and Covid costs to allow the CRRF to be closed...”

There is, however, another version of these events; it spans exactly 69 days.

On February 1 the Cabinet tipped an additional $5b into the CRRF and it took exactly 41 days for it to raid that kitty to pay for other things. It may go down as record speed for saying one thing and then doing quite another.

On March 14, the Cabinet agreed to an immediate three-month temporary reduction to fuel excise and road user charges (the foregone tax would starve the Land Transport Fund so money was needed to keep it whole).

The hefty $350 million cost was not something Robertson wanted to lever inside the allowance he’d already set for new spending in his upcoming Budget, which was heavily oversubscribed, documents show. So the Cabinet agreed the cost would be paid from the CRRF, or as the record shows: the CRRF would be reduced by the same amount to “offset the negative fiscal impact”.

The impetus for this spending was not Omicron, but the Government’s dimming popularity. By early 2022 New Zealanders’ chief concern was no longer Covid, but inflation and the upward-spiralling cost of living. Bank and consumer surveys repeated this finding. And critically, by early March, polling showed National had surged ahead of Labour for the first time since the pandemic began.

At roughly the same time Robertson and Revenue Minister David Parker also asked officials to quickly produce a plan for another expensive idea: a “cost of living payment”, or, more precisely, three such payments. (They didn’t meet the criteria for CRRF funding either; we’ll return to this later.)

On March 25, just 52 days after $5b was added to the CRRF, a joint Treasury and IRD report tackled options and preliminary costs for the cost of living payments, all of which easily topped half a billion dollars. The report noted: “If this policy is to be progressed a funding source will need to be identified. One way to deliver this payment without increasing inflationary pressures would be to fund it from the existing Budget 2022 allowance and reprioritising away from other initiatives.”

So the Treasury didn’t have the CRRF in mind as a funding source. On the contrary, it warned darkly (like the chorus in some ancient Greek tragedy) that any such scheme should be subject to the discipline of the ordinary course Budget process, where Government priorities are weighed against one another and constrained by a cap.

At this point, it is useful to remember that the system whereby the Finance Minister fixes an allowance for net new operating spending well in advance of the Budget provides a measure of restraint. It is possible for the Minister to raise this allowance, but if he does so, especially late in the Budget process, he looks profligate, and moreover he risks his ability to actually hold the line on his colleagues’ spending requests which invariably outstrip available money.

What to do? On April 11, just 69 days after popping that extra $5b in the CRRF, the Cabinet took a series of quick succession decisions: it closed the CRRF and “reprioritised” the $3.2b that remained.

It agreed to spend more than $800m on cost of living payments (a total of $350 per person earning income up to $70,000 a year). This decision also came on April 11. As did the decision to extend the March fuel tax cut by two months, at a further cost of $235m. Both plans were charged against the now-closed CRRF.

In addition, the Cabinet agreed to use a further $1b of the reprioritised CRRF funds to, “offset investments funded from the Budget 2022 operating allowance.”

Robertson says it is not unusual to treat such unused funding this way; after all, the operating allowance is a net number that always takes account of any savings or reprioritisation of expenditure that has already been budgeted for. Others, including former deputy chief economic advisor to the Treasury, Tony Burton, say it is an “abuse of process” to treat the unused remains of an emergency contingency as “underspend”.

The Covid Response and Recovery Fund was used for fuel tax relief. Photo / Duncan Brown

None of the spending – not the $350m for the March fuel tax relief agreed before the CRRF’s closure or the $2.35b redirected immediately thereafter – met the CRRF eligibility criteria Robertson agreed with the Treasury in August 2021.

“The future scope of the CRRF should be more focused on managing the immediate costs of resurgences and the public health response” the relevant document noted. To eliminate doubt, officials listed four examples of qualifying programmes: the wage subsidy scheme, the resurgence support payment, the short-term absence payment and the leave support scheme.” Robertson signed off on these tightened terms.

For clarity, $1.2b from the CRRF’s remains after closure were also set aside for immediate Covid-related health costs arising between budgets ($386m of this was unspent and offset general costs in Budget 2023).

But why pick through the details of the Covid fund’s last $5b now? Indeed, we cannot even describe it as the last of the Covid spending since billions are still being paid out on the Covid response, spread into “out years” and are otherwise deemed “underspends” and “reallocations” and used to plump spending elsewhere – Budget 2023, for example, and to “offset” between-Budget spending on Government priorities, like the further $1.5b that went on fuel tax reductions in the 22/23 fiscal year.

The short answer is that microcosms matter in writing history. It is through their detail that we understand the people who walk our political stage and, as Herodotus might say, that we come to know their deeds.

Kate MacNamara is a South Island-based journalist with a focus on policy, public spending and investigations. She spent a decade at the Canadian Broadcasting Corporation before moving to New Zealand. She joined the Herald in 2020.