Government splashes emergency Covid money on free school lunches, despite Treasury warning

Finance Minister Grant Robertson. Photo / Mark Mitchell

The free school lunches programme draws on special Covid recovery funds for another two and a half years, despite Treasury's misgivings about depleting the emergency money reserved against a resurgence of the virus.

The Covid-19 Relief and Recovery fund (CRRF) is a $50 billion pot of money that was established in the early days of the pandemic to respond to the health emergency and its economic fallout.

It's been tapped for a wide range of Covid-19 related expenses, but the Government has also used it for a range of increasingly tangential "Covid recovery" spending, and just $5.1b remained in the kitty at last tally.

In a January email to Grant Robertson released under the OIA, Treasury officials pressed the Minister of Finance to consider whether an extension of the school lunches programme constitutes a Covid cost.

"Does the MoF agree that time limited funding for the Free and Healthy School lunches bid can be sought through the CRRF [Covid-19 Relief and Recovery Fund] rather than Budget 2021?" officials asked.

"We consider that funding for this programme aligns well with the scope of Budget 21 as it is a [Labour Party] manifesto commitment that requires funding prior to Budget 2022, whereas funding the programme from the CRRF conflicts with the messaging that the balance of the CRRF is reserved for measures required in the case of a Covid-19 resurgence with any measures requiring ongoing funding being funded from Budget allowances. The cost of the programme is around $125 million per annum."

As it happened, the Treasury had the cost of the programme wrong, likely because the Ministry of Education has been using an erroneously low figure.

A subsequent email from the Treasury confirmed to Robertson: "as we prepare our feedback to the MoE [Minister of Education], we would like to check if MoF [Minister of Finance] is aware of and comfortable with the quantum being sought from the CRRF for this initiative. This is because the amounts signalled in the A3 presented to the MoF in the bilateral [a meeting between Robertson and Minister of Education, Chris Hipkins] presented a much lower per annum cost of the initiative - around $125m per annum, rather than the roughly $250m per annum sought in the Cabinet paper."

Ultimately, $515.8m was allocated to fund an extension of the provision of free school lunches to school children until the end of 2023. The spending was made through CRRF rather than Budget 2021. In a Cabinet paper, Hipkins argued Covid funding was warranted because of increased privation amongst low-income New Zealanders.

National's shadow treasurer, Andrew Bayly, said emergency Covid funding has been used as a kind of "Government honey pot" with no concern for debt that is set to rise to 48 per cent of GDP.

"That's the biggest core issue. There is still considerable risk of an outbreak with these new [Covid] variants, and if that happens we'll be piling on even more debt."

In July last year, following a huge first wave of CRRF funded spending (including $216m to expand the lunch programme), Robertson issued a press release to announce that the Government had "set aside" the then remaining $14b in the Covid Fund.

"Government sets aside remaining $14b in Covid Fund," its headline ran.

"We will leave $14b in the Covid Response and Recovery Fund, which is now being set aside in the event, for example, New Zealand experiences a second wave," Robertson said in the release.

"The fund is not there to be used for any old project in the never-never. It is to provide support and stimulus to recover and rebuild from Covid-19."

The free school lunches programme has drawn on special Covid recovery funds for another two and a half years. Photo / George Novak

Despite this, the Government has continued to drain the fund for projects that are tough to relate to Covid. In 2021 such measures include the free school lunches, on-board cameras on commercial fishing boats, and close to $4b in infrastructure spending to help increase the housing supply.

Tony Burton, former deputy chief economic adviser to the Treasury, said the spending is worrying for several reasons.

"The first risk is playing out in Wellington water right now. Dedicated money was supposed to be put aside to maintain the water system. But that money was diverted away over the years for other reasons and the water system ended up in crisis… Politicians and bureaucrats have a habit of raiding otherwise dedicated funds if they can get away with it."

"That's happening now with the Covid fund. It was put in place to respond to an emergency. But it's being hollowed out, and if there's another outbreak we won't have the money to deal with it."

Ultimately, Burton said, we're losing the discipline of the Budget process, where bids for funding compete for consideration, and the process helps to prevent opening more "windows of spending" than the country can afford ongoing.

He said the Government is, "opening a huge number of spending windows through the emergency funding. And those will prove difficult to close... the risk is that we'll end up with a structural deficit."

Indeed, the school lunches programme is primed to expand.

The programme is set up to provide lunches, universally, in the 25 per cent of NZ schools with the highest concentration of socioeconomic disadvantage (as determined by the Ministry of Education's Equity Index).

The index, however, is recalculated for each school annually. In March, the Cabinet's Social Wellbeing Committee agreed that schools which move down the index into qualifying range will be invited to join the programme, while those which move up it, out of qualifying range, will retain the programme.

In addition, the programme includes schools which are technically ineligible for the programme (now 3 per cent of the total) but included because they are located geographically near eligible schools.

A recent Cabinet paper said this prevents "network instability caused by students changing schools to access the programme."

The reasoning is curiously at odds with the Government's direction that a free lunch is so stigmatising to needy children that it must be offered universally to all students in a school or it cannot be offered at all.