Robertson holds line on spending
Golobal situation worsening, says minister, but NZ already ‘ahead of stimulus curve’
The Government is already “ahead of the curve” with fiscal stimulus to counter slowing economic growth, says Finance Minister Grant Robertson.
The irony of calls for more government spending to stimulate the economy isn’t lost on Robertson.
He has worked hard to bolster Labour’s credentials as fiscally responsible and imposed strict Budget responsibility rules.
Now as interest rates fall closer to zero and the global economy slows, he is under pressure to loosen the purse strings and spend more.
But for now at least he’s holding his nerve, and has no plans to dramatically boost spending in election year.
“My argument would be that we already have, from a fiscal point of view, tried to get ahead of the curve,” he says.
“When we sat down to put together the Budget in May we significantly increased our proposed new operating spending and our new capital spending and brought that forward as well.”
“So $3.8 billion of operating per annum and $10b of capital spending from four-year rolling allowance.”
“That was our attempt to get ahead of the curve because we saw some long-term need and also because we could see what was happening in the global economy.”
Sitting down with the Herald this week, after speaking to a select crowd of finance industry leaders for a
event, Robertson was keen to try to cut through the pessimism that has dominated forecasts this year.
“I do think it’s important we don’t talk ourselves into a kind of winter gloom. I’m very optimistic about the New Zealand economy and I’m confident in the fundamentals.”
He says he’s keenly aware of the trade war fallout and slowing global growth.
“As policy makers we have to look ahead and prepare ourselves for a situation that might occur. But we’re not there yet.”
Robertson acknowledges that one of the issues for policy makers — both on the monetary and fiscal side — is that trying to get ahead of the curve can create an impression that things are worse than they are.
“We do have low public debt, we have surpluses out over the next four years, we have unemployment at an 11-year low. There’s still strong growth in the economy it’s just not at the levels we might have seen at recent years.”
The prospect of negative interest rates and other unorthodox monetary policy tools have captured the public’s imagination this year.
Despite being regularly asked to, Robertson remains cautious of straying into the Reserve Bank’s territory and undermining its independence.
“Adrian Orr [Reserve Bank Governor] said we live in very, very, very interesting times and I accept that we do,” he says.
“For New Zealand, we’re already in
uncharted territory when it comes to monetary policy, with an OCR at 1 per cent.”
On negative rates, he notes that there is a precedent for them in several countries now.
“The good news for New Zealand is that we’re some distance from that. Even that 1 per cent gives us a bigger buffer than other countries.
“I can’t influence the Governor’s decisions in that regard beyond the fact that we have a fiscal policy that is expansionary,” Robertson says.
“The monetary policy committee actually said that in their commentary: that in the first part of next year they see government spending playing a role in lifting the economy.
“That’s the part I’ve got to play and that’s the part I’ll focus on.”
Okay, but what if things do get worse? It wouldn’t be a stretch to spend up larger in an election year, I suggest.
“I’m not a big fan of election year Budgets,” Robertson says.
“We said in our first year we wanted to rebuild some of the social foundations that we felt had been undermined.
“Clearly there has been a deterioration in the global economy — even from May when we did the Budget,” he says.
“The Budget responsibility rules have always had that ability to be varied in the event of a significant
The Opposition is going to have to explain to New Zealand how they plan to pay for their promises. Grant Robertson
global shock. But I remain confident about the fundamentals and our ability to withstand the kind of cycle we’re in.”
Robertson says he hopes to stay on a consistent path that builds progressively to address long-term spending challenges — in areas like infrastructure and mental health.
“I in no way apologise for trying to tackle these big, long-term issues and it will take some time to get on top of them.”
Meanwhile, the Government looks set to face an opposition prepared to give the economy a fuel injection with tax cuts and spending on new roads.
“The Opposition is going to have to explain to New Zealand how they plan to pay for their promises,” he says. “If they keep promising to spend more and to cut taxes that doesn’t add up.”
Although he doesn’t quite rule anything out, it seems unlikely Robertson would consider tax cuts even if emergency stimulus was needed. Boosting infrastructure spending seems more likely.
Robertson points out the Government already has $17b of transport spending rolling out over four years.
A big programme of building schools and health infrastructure is under way.
And new roads aren’t off the table, he says.
“We’ve reordered the priorities. But there are number of large roading projects coming down the line as well.
“We’re keeping a close eye on the situation in the world,” he says.
“When most people think about . . . stimulus they think of things that lift productivity and deliver long-term benefits. There’s also the ability to do short-term things.
“But lets give the [May] Budget a chance to work as well.”