Budget 2022: The spending season gets some new rules from Grant Robertson
ANALYSIS: Spending, spending, spending. ‘Tis the season for politicians to get into it as an issue, while showing off their spending priorities, but also just how restrained they are.
As weird as it may seem, the public do generally seem interested in debt – in particular how any given Government is racking it up and how current and future generations might pay for it. While arguments over the level of debt are tough to follow because the numbers are so large they are basically abstract, general concerns over debt remain.
That’s a general political truth. But it is sharpening during this year’s Budget because the high level of inflation and general cost of living rises will be making many voters look more carefully at what the Government is spending money on. Whether they blame the Government for high inflation or not, a fair bit of everyone’s pay packet finds its way to Wellington and with a cost of living squeeze on, voters may be more inclined to ask where the money is going.
Just ask Minister of Finance Grant Robertson, who has released some new fiscal rules said to impose some fiscal restraint in this and future Budgets, while also allowing the headroom for continuing with Labour’s spending plans especially in longer term areas such as health, climate change, house and infrastructure. The message: Labour wants to start running surpluses in 2024-25.
* Finance Minister Grant Robertson says Government will spend more on health, climate change as he sets out new debt cap in first pre-Budget speech
* Labour still haunted by economic ‘loser’ tag
* Labour’s Budget means it will borrow less than National planned at the last election
* A focus on wellbeing does not change the reality of a slowing economy
Christopher Luxon’s big pre-Budget speech on Monday meanwhile, attempted to tie the high inflation rate to high levels of Government spending and set it in an economic context of too-much-Government. Luxon has also offered promises about line-by-line spending reviews and more general restraint once National comes into office. This comes from Luxon’s view that there is a good dollar and a bad dollar. A good dollar buys outcomes for New Zealanders be it in health, welfare, defence or whatever. A bad dollar is spent on programmes that don’t deliver much by way of outcomes.
Expect National to spend much more time hammering the Government not on money spent per se, but money spent with little to show for it. Inputs versus outcomes. This is classic stuff from Opposition, when it is easy to promise some kind of line-by-line spending review that will find magical money that is both unpopular and large in quantum. In truth much of the budget is made up of things that National won’t want to be seen cutting: health, education, and superannuation.
The new fiscal rules announced by Robertson had two main components – the first is a new debt ceiling of 30% of GDP. The way net debt is currently measured doesn’t include assets such as those in the super fund. That will change at the Budget – in line with many other jurisdictions. The second is that the Government will be required to run surpluses between 0% to 2% on average.
But if you consider that Budget surpluses – when Government takes in more in revenue (taxes) than it spends on ongoing expenses are good things – why the cap?
Well, Robertson says, having the cap means that the Government will be bound to keep spending money on long term projects, rather than wasting short term cash influxes on long term big spend ups or tax cuts.
In other words, the rules are framed to balance the books, but retain an elevated level of spending even if there is a budget windfall.
The rules themselves are non-binding. They are not legislated and are essentially the Government signing up to its own fiscal code of conduct if you like. Nevertheless, that can be an important internal constraint. Especially for Robertson, a man who wants to run Budget surpluses but belongs to a party where there are bottomless demands for spending on social programmes. It is also one that Labour can be held accountable for.
It is also a clever political play in the sense that Robertson wants to at least have some “rules” in place to show that Labour is not “addicted to spending” as Luxon is wont to say at every opportunity.
Now it will be up to each side to argue what constitutes a wise investment versus poor spending.