Spending restraint is a lucky legacy
Before the 2017 election, Labour used to accuse National of a debt blowout of epic proportions. Social media was full of highminded harrumphing based on terrible analysis and misleading charts, which ignored the fact that debt rose after the 2008 global financial crisis because – unlike other, more cash-strapped Western governments – the National-led coalition government didn’t pursue austerity policies such as slashing welfare entitlements.
It kept spending because it could afford to in a downturn. It then swallowed whole the impact of the Canterbury earthquakes – precisely what sovereign balance sheets are there to do, all the better if the Government’s finances are already in good shape.
We can thank the previous Labour finance minister, Sir Michael Cullen, and a generation of both National and Labour finance ministers before him, for the fact that New Zealand has choices because its Crown debt levels are low.
Recognising both that financial markets get the jitters when left-leaning parties come to power and that the current strength of the government books has been hard-won, Labour and the Greens agreed before the election to ‘‘Budget Responsibility Rules’’ that very slightly relax the extent of the previous Government’s debt reduction goals.
Where National would have targeted net Crown debt to gross domestic product at 20 per cent of GDP by 2020, Labour aims to get there by 2022.
So far, nothing the Labour-led Government has done has compromised that target, and a resilient economy – sliding business confidence notwithstanding – has only made those targets easier to meet, by producing consistently higher than forecast tax receipts.
The Government has a little leeway to spend more than expected, within its own rules.
None of this has stopped National from launching its own accusations that the Labour coalition is now presiding over a looming debt blowout of epic proportions, just as falsely as Labour used to accuse National of the same thing. This isn’t political debate – it’s dopey tit-for-tat-ism.
Equally dopey are the cries from the Left that if the Government can afford new defence equipment, then it should be able pay nurses more.
Leave aside that the nurses have won a pay offer twice the size of the one their union initially recommended they accept.
Leave aside the fact that the $2.3 billion price of four new maritime surveillance planes is capital spending spread over a decade.
The fact is that no state spending decision is as binary as saying, ‘‘Pay for nurses versus a small but functioning air force – we can’t have both.’’ The Cabinet wrestles constantly with a far wider range of competing spending priorities than that.
Showing his stripes this week as a briefly serving Bolger-era former finance minister, Acting Prime Minister Winston Peters gave a fascinating insight into the role that NZ First appears to be playing in stiffening the Government’s spine against calls for an immediate relaxation of the Budget Responsibility Rules.
‘‘It’s not the debt,’’ said Peters. ‘‘It’s what you do with it. If your debt is for consumption, then you’ve got a problem. If it’s for production, for the growth of the economy . . . then maybe it’s a very sound answer. So any increased debt from here of that nature would have to be not for consumption but for production and increased wealth creation.’’
That’s not to say the rules can never be relaxed. New Zealand’s net Crown debt is already among the lowest in the OECD.
It is a political rather than an economic decision whether to stick with that target.
Doing so reflects a hard journey of 30-plus years to achieve public finances that give the country choices it did not have in the 1980s and 1990s. It reflects the breathing room required by a country highly exposed to global trade tensions and the potential for catastrophic natural disasters.
Said Peters: ‘‘It may be that [when] we’ve had three years to get on top of things, you may be right [that the rules can be relaxed]. But for the time being, I think it’s premature to make that stance.’’ BusinessDesk