Grant Robertson massaging Chris Hipkins' shoulders when he was asked about preparation for the next leaders' debate. Photo / Dean Purcell
ANALYSIS
Finance Ministers of red and blue varieties like to give their budgets a torpid, focus-grouped name.
“Delivering for New Zealanders” was Steven Joyce’s. The last Bill English Budget was “Investing in a Growing Economy”. Grant Robertson, who took naming conventions to a new level, slapping the budget name on a range of branded budget collateral, went with “Support for today, building for tomorrow,” in Budget 2023.
With his Labour finance spokesman hat on, Robertson today released Labour’s fiscal plan, the blueprint of what would be Budget 2024, his seventh, and one which, on current polling, he is unlikely to deliver.
It tallies up campaign commitments, proving they fit within the amount of money currently set aside for future budgets, thus achieving the pedestrian goal these plans set for themselves.
There was no lofty title appended to this Budget, but Robertson almost gave it one.
“Not sexy stuff, but it’s the stuff governments have to do,” he told gathered media.
He was talking about cost pressures. Every year, even when inflation is under control, things get a little bit more expensive most years. Salaries and wages go up, more people collect superannuation, and the ageing population requires a bit more healthcare.
The debate in each budget is a squabble over the operating allowance, a Treasury term for net new spending. Each budget finance ministers must trade off spending this money on funding the increased cost of delivering services against the political benefits derived by using that money to fund popular new services, like removing the $5 prescription co-payment.
Robertson today was making a pitch for the less sexy part of the operating allowance. The amount of new money each year that has to be put onto a budget to keep the lights on.
This plan mostly does that, setting out increases of about $1.4 billion a year on average for each budget, a figure Treasury and Te Whatu Ora arrived at as the amount needed to fund cost pressures. Cost pressures in teacher pay are also included, as is funding for the environment and justice “clusters” of about $300 million a year.
This leaves about $662m unallocated in budget 2024, rising to $1.9b in 2025, and $3.1b in 2026 - although those figures are cumulative. Essentially, there is about $1b left over in each budget that Robertson will use to fund the cost pressures not mentioned in the plan (Defence etc.) and any poll-bumping goodies the Labour policy unit can think of.
That money, Robertson said, would be sufficient to fund the cost of standing still in other parts of the government not mentioned in the plan: Defence, part of the Education budget - that sort of thing.
Benefits like superannuation and jobseeker are adjusted automatically, so don’t count towards that figure.
So with the exception of the half a billion dollars a year put towards Labour’s GST policy, which is to economists the equivalent of running one’s fingers down a chalkboard, there’s very little to object to in the plan.
What it does not do, however, is neuter the attacks made against Labour this year that in a time of fiscal rectitude, the party lacks the discipline to stick to its spending commitments.
Now, the fiscal plan was never intended to do this. These plans are exercises in arithmetic more than anything else. You tally up what you plan to tax and spend, and see if it looks credible against the most recent Treasury forecasts (known by the acronym Prefu). Job done.
The fiscal challenge for Labour is, absent any tax increase, it needs to show hitherto unseen restraint to make its promises add up, and to get the books into a healthier state come 2027.
Prefu showed the Government could get the books back into black if - and it’s a big if - it is incredibly constrained in each of its next budgets. Its operating allowances this term will need to be much smaller than those last term. Meaning each budget will involve ugly trade-offs that cannot be resolved by simply spending more.
Economists are sceptical Labour has the guts to do this. Even Treasury cocked a mild-mannered, politically neutral eyebrow in the direction of Labour, in its most recent forecasts, noting, “In recent times, government’s final allocations have exceeded the signalled Budget allowance.
“If this trend was to continue and there was no corresponding offset from either an increase in revenue or a reduction in expenses, there would be an adverse impact on the fiscal outlook”.
Treasury backed this up by modelling the fiscal damage that would be wrought if the government had a third term of budgets similar to its second term. That scenario showed the Government never returning to surplus, staring down larger and larger deficits. Another few terms like this one and the Government would be veering towards insolvency. By 2037, the Government would be running deficits of 2.3 per cent of GDP, and growing, each year - not to respond to a crisis, but simply to keep the lights on.
This warning was parroted, in very muted, diplomatic language, by the Infometrics Chief Executive and Principle economist Brad Olsen who vetted Labour’s numbers. It all added up, Infometrics wrote, “although we reiterate Treasury’s message in Prefu that “significant trade-offs will be required”.
Robertson has recently taken umbrage at the accusation that consistently going over his operating allowance amounts to profligacy. Noting that, for example, the overspend of $300m this year was related to the Cyclone, and that the finance ministers of the Key-English Government themselves broke allowances three times.
The point has merit. There’s no sense blindly hewing to a budget when the conditions merit a change. Would National not have funded frontline public sector pay claims this term and watch as the country seized up with strikes? But Robertson’s pushback misses the frequency and scale with which he has broken his own commitments.
The last National government was extraordinarily fiscally disciplined. It ran two budgets with zero new spending. In the budgets where spending was increased, it was in the order of hundreds of millions rather than billions of dollars.
Robertson’s stronger point is the unsexy one, made above. There are very fair critiques to be made about the previous government’s unwillingness to budge in the way of very real cost pressures. Where Labour has, on occasion, been profligate, National was, on occasion cheap.
Robertson has arguably placed too little emphasis on the fiscal repair job needed post-Covid. English and Joyce arguably placed too much emphasis on it. Comfortably reaching surplus, the pair worked hard to make those surpluses even bigger, at the expense of growing demands for more social spending.
If English and Joyce were at one end of the spectrum, and term two Robertson at the other, Labour seems to be promising in its third term to be the “change” voters want to see. The pitch is back to basics, not austerity.
Labour’s challenge is that National too, has reinvented itself. It too, is reassuring voters it will not be as tight as the Key government could be, although only the party’s fiscal plan (which, to National’s shame, still hasn’t been released), will prove this conclusively.
Willis has her job cut out for her come Friday. Our public finances can be frightfully opaque. She would be very brave indeed to shave even a dollar from money tagged for health cost pressures. Labour will argue simply increasing health spending at a lower rate is a “cut”.
The trouble for both parties is that voters have good reason not to believe either of them. National’s critique of Labour is a fairly logical ‘leopard can’t change its spots’ one, while Labour’s critique of National is that can’t guarantee its spending promises will survive Act’s blowtorch.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
Act and NZ First killed the idea. Chris Hipkins has offered a way to bypass them.