OPINION:
The good news is Grant Robertson's operating deficit for the year to June 30 being $9.3 billion less than he thought four months ago.
It means he's had to borrow around $1800 less per person than he might have needed to.
As at June 30, we now know government debt per person was just $12,000, or only $32,600 per household, at least according to Robertson's controversial new measure.
Using the old measure preferred by Steven Joyce, Bill English and Michael Cullen, Robertson would have had to report government debt per person of around $25,000, or $68,000 per household.
Either way, Wednesday's good news means we and our children each have around $1800 less to pay off from the Covid spend-up. Even better, much of it may just be inflated away, the way governments historically responded to their debts getting too high.
There are many factors behind the lower deficit.
Tax revenue was up, with Wellington taking over $100b in tax from businesses, workers and consumers for the first time.
Some came about from higher-than-expected corporate profits and wages. Inflation also pushed more people into higher tax brackets without their real wage improving. Rising prices have also increased how much Robertson skims off the top in GST.
Yet, despite high inflation over the last year, Robertson spent less on health, education, welfare, law and order, housing, transport and environmental protection than he expected just four months ago.
The delay in purchasing the Covid vaccine was one factor that helped defer $1.4b of health spending until this financial year. Another was ministers' failure to implement some of the big-spending policies they had previously announced.
Ideally, ministers would have expanded the capacity of, say, the mental health system over the last five years so that, as taxpayers, we'd be spending a lot more on it than we are.
Alas, money which could have done some good in such areas remains unspent or wasted.
The fact that fiscal policy is turning out to be tighter than previously believed means Robertson is not as much of an inflation villain as thought, but Reserve Bank governor Adrian Orr is a worse one.
It is now clear that the bank's loose monetary policy — perhaps motivated by the dual mandate Robertson and Orr negotiated — has being doing more to fuel inflation than fiscal policy.
The bank has now toughened its rhetoric, but its monetary policy committee (MPC) couldn't bring itself to increase the official cash rate (OCR) by the surprise 0.75 per cent its more hawkish members urged.
The MPC's decision to stick with the expected 0.50 per cent increase only fleetingly boosted the kiwi dollar, which quickly fell back. It remains at its lowest level against the Australian dollar since 2013. The currency incentive to head across the Tasman for higher wages hasn't been as great for a decade.
The MPC says our dollar staying low will push inflation higher than otherwise. Had the hawks on the MPC prevailed, it would have risen a bit more, immediately lowering inflation and the brain-drain risk.
The hawks also highlighted that a 0.75 per cent increase on Wednesday would have meant interest rates would probably peak lower next year than will now be the case.
The Reserve Bank isn't as transparent and accountable as it was before Robertson and Orr removed Orr's personal responsibility for price stability and OCR decisions in favour of the new, opaque MPC. Thus, unlike in the US, UK or Sweden, we can't know for sure who the hawks and doves were.
While speculation only, the hawks probably numbered Orr's more orthodox deputy, Christian Hawkesby, plus Victoria University of Wellington professor emeritus Bob Buckle and former BNZ chief economist Paul Conway, a newcomer to the MPC.
Similarly, a reasonable guess has Orr leading the doves, backed by former Westpac senior executive Karen Silk, Lincoln University professor Catherine Saunders and former union boss Peter Harris.
Whoever they were, blame the doves when you are paying even higher interest rates on your mortgage next year than if the hawks had prevailed.
Robertson is averse to any serious expenditure control and won't risk anyone crying "cuts!" after his election-year Budget in May.
On tax relief, he and Jacinda Ardern are right that National's plans, unless matched by expenditure cuts, would fuel inflation and higher interest rates. But so too would any election-year bribes Labour's pollsters demand.
To maintain credibility, Robertson will need to stick to the conservative fiscal line he took on Wednesday, when rejecting calls from National and Act on tax.
In any case, any extra cash that turns up is desperately needed for other things.
If work is not to grind to a halt, Robertson must find extra funding for the ill-fated City Rail Link in Auckland. Treasury says the consortium building it demands additional cash for the last two years' work. It says the claims are so complex it can't even provide an estimate of how much more Robertson and Auckland ratepayers need to cough up.
Even more urgent, Robertson must keep the pay of teachers, nurses, doctors, social workers, mental-health counsellors, police officers and military personnel at least somewhat commensurate with Australia and what they need for food, rent and groceries if they stay in New Zealand.
Increasing public-sector pay will be inflationary but Robertson has no choice, not least because he is a Labour Party Finance Minister, but primarily because the alternative is election-year industrial action and a brain drain in the very services for which voters hold him and Ardern most responsible.
The Beehive could loosen immigration policy to increase the supply of cheap labour. But that would hugely embarrass Robertson and Ardern, given that their advertised economic strategy has been to drive up wages, capital per worker and productivity by accelerating minimum-wage increases and restricting the supply of foreign workers.
Robertson needs the time between Budget day and election day to be as brief as possible.
He'll want to announce new spending for whatever itches Beehive strategists and Labour's pollsters say need scratching without in fact introducing the money into the economy and fuelling further pre-election inflation and interest-rate rises. We all know how it's done: issue a press statement announcing $1.9b more for mental health, with no idea on what it will be spent or even what it is meant to do.
Still, credit where it is due. Having to borrow $9.3b less is not to be sniffed at, and the alternative — the $19b deficit Robertson forecast in May — would have been much worse. Robertson's problem is that his political and economic tradeoffs from here will only get more complex.
Minister Andrew Bayly sat down with Tom Raynel to discuss his 2024, and what comes next.