Jenée Tibshraeny: How hard would Grant Robertson have had to look to find $4b of spending to reprioritise?

Finance Minister Grant Robertson delivering a pre-Budget speech in Wellington. Photo / Marty Melville

OPINION:

Finance Minister Grant Robertson wouldn’t have had to look too hard to find $4 billion behind the couch to put towards this year’s Budget.

Robertson, in a pre-Budget speech on Thursday morning, said he identified $4b of previously allocated money, which he would reallocate to different initiatives via the May 18 Budget.

This means the Government could use $4b less debt or revenue than it otherwise would have to pay for commitments worth a set amount.

Or it could increase the value of its spending commitments by $4b, while issuing the same amount of debt or using the same amount of revenue as it otherwise would have.

Either way, finding $4b to reprioritise over four years isn’t much given the size of the Government’s books, and given how much has been made by both Prime Minister Chris Hipkins and his predecessor Jacinda Ardern of the need for reprioritisation to avoid government spending exacerbating inflation.

Indeed, one of the reasons economies around the world are grappling with inflation is that governments and central banks overdid their Covid-19 responses. They boosted economic demand all the while various restrictions (and then war) constrained supply.

Coming back to that $4b, it is small fry when you consider the fact that some of the whopper $81b allocated towards the Covid-19 response hasn’t physically been spent.

Of the estimated $55b allocated to Covid-specific appropriations, $36b had been spent by June last year – according to the latest available Treasury information.

Of the unspent $19b, $9b has been returned to the Crown’s main kitty, some for non-Covid use.

An additional $26b was put towards Covid-19 via existing appropriations. Because these initiatives weren’t accounted for with their own lines in the books (to keep the accounting simple and workable), the Treasury doesn’t know how much of this sum has physically gone out the door.

It plans to provide more information on this in June.

Another way to contextualise $4b is to look at how much cash is sitting in the Crown’s account with the Reserve Bank.

By the end of March, the Crown Settlement Account had nearly $36b in it.

The average amount in this account between 2002 and 2019, before the Government materially boosted its borrowing programme due to Covid-19, was $5b.

Against this backdrop, finding $4b over four years to reprioritise isn’t much.

The big pinch is that with inflation at around a three-decade high, the Government needs to find more money to cover the status quo; keep the existing level of public services as they are.

Yes, inflation also sees it receive more tax revenue as people pay more in GST, and wage and salary rises put workers in higher income tax brackets.

But finding $4b of spending to reprioritise is trickier when everything is simply that much more expensive.

The Budget is the document that will ultimately contextualise the figure.

The Government will likely increase its capital allowance by more than it suggested in its Budget Policy Statement, released in December, due to the cost of repairing or replacing infrastructure damaged by extreme weather events.

A question mark remains over whether it’ll stick to its plan to increase its operational allowance by $4.5b.

The more the Government commits to spending using borrowed money (rather than higher tax revenue and reprioritised funding), the more the Reserve Bank might need to do to curb inflation by raising interest rates.