Grant Robertson, Minister of Finance and Minister of Sport and Recreation, in his Beehive office, Parliament, Wellington. Photo / Mark Mitchell
Grant Robertson, Minister of Finance and Minister of Sport and Recreation, in his Beehive office, Parliament, Wellington. Photo / Mark Mitchell
COMMENT:
Growing calls for the Government to spend more money to stimulate the economy could hardly be coming at a better time for Finance Minister Grant Robertson.
Suddenly the kind of election-year promises that might otherwise have seemed like cynical bribes will look like a prudent fiscal response togrim global economic outlook.
Robertson hasn't yet buckled to calls to unleash emergency spending. He has retained a more up-beat view of the outlook than most local economists.
He makes the case that new government spending from the last Budget only started to kick in on July 1.
And frankly it's track record on things like KiwiBuild doesn't give me confidence in its ability to engineer something this grand.
Regardless, here we are with a centre-left government heading into a fresh election cycle, replete with strong accounts that allow it to borrow and spend billions more than it has to date.
Now they've got almost every economist in the country - from the tweedy Keynesians to the bespoke suited commercial bank teams - advocating for some more fiscal stimulus.
Thing are getting a bit weird.
We've got a stock market that still regularly hits fresh highs. We've got unemployment at an 11-year low. We've still relatively got solid exports and economic growth.
But we've got interest rates at record lows and a Reserve Bank Governor talking about negative interest rates.
Adrian Orr remains pretty upbeat about the economy too. He says there is no crisis.
He says this is what the world looks like without inflation. We better get used to it.
Most of New Zealand's market economists are a gloomier than that.
Their tone shifted a couple of weeks ago as trade talks between China and the US broke down. Forecasts were trimmed, bets were placed on deeper rate cuts.
Markets were rattled by trade war escalation last week. Currency traders in Seoul. Photo / AP
An upbeat employment number surprised economists last week but they remain pessimistic about the short-term outlook.
They remain concerned about business confidence, pointing out the parts of the surveys that relate to "firms' own hiring expectations".
These have the best correlations with actual data over the years - and they point to rising unemployment in sectors like construction.
Economists also fear that monetary policy is losing its power to stimulate growth the closer the official cash rate gets to zero.
This week's double rate cut will help maintain momentum but where do rates go if we see a real shock to the system? What if stock market crashes or trade tensions spill over into a global recession?
Last week I suggested, facetiously, that this Government was stuck in the same boat as Trump - relying on interest rate cuts to pump the economy through the electoral cycle.
But our Government has more choices.
Trump is pretty much out of fiscal firepower. He went big and went early with tax cuts and spending his first year.
He's now riding the US Federal pretty hard to cut rates more aggressively.
In contrast, New Zealand has core crown debt levels under control at around 20 per cent of GDP.
Labour has also bought itself some room to move if things really turn bad - adjusting its own fiscal responsibility rules to allow a core crown debt expansion to 25 per cent of GDP.
That's potentially up to $15 billion - based on the additional 5 per cent of GDP available to them.
Which means Robertson can spend big if push to comes to shove.
The big dilemma will be how best to spend-up in a way that is efficient, timely and (if we are realistic about this political world) beneficial to his re-election chances.
There's no shortage of people calling for greater investment in infrastructure. Even the business lobby groups would like to see more of this kind of spending.
New roads. Will the Government restart stalled projects? Photo / File
A decision to progress one or more of the major roading projects that National had planned might go well with some voters. Not so well with the Greens.
As fiscal stimulus goes it may also be too slow to boost growth in this cycle.
Another options is to cut taxes.
Also ideologically unpalatable to the left, tax cuts would at least deliver a quick-fire fiscal injection.
They could be targeted at the lowest income band or even be delivered as a one-off tax rebate - a kind of state-funded bonus payment that is sometime called helicopter money.
Or we could see boosts to welfare - allowances and benefits.
That would play to Labour's base, not so well with conservative voters.
From a fiscal point of view, welfare money does goes tend to go straight back into the economy.
The Government may find other, more creative options. Even if they aren't talking about it publically yet, they must surely be looking at the options.
These are difficult political choices but clearly good choices to have.
Whatever happens, this Government won't be cutting spending in election year.
