Fiscal hole now cash mountain
As far as Government problems go, a surplus is a nice one to have. For the Labour-led coalition, this week’s news about a surplus of $5.5 billion in the Crown Accounts also has the happy side-effect of overturning a negative year-long narrative about Labour’s competence to run the economy following former Finance Minister Steven Joyce’s claim to have discovered a ‘‘fiscal hole’’ $11.7b deep in Labour’s budget.
From fiscal hole to money mountain in 12 months? While the picture is much more complicated, the headline image will convince most voters economic Armageddon has been postponed.
The surplus also reveals the highly subjective nature of ‘‘business confidence’’, which seems increasingly akin to a form of fortune-telling based on feelings rather than facts. Such surveys are unscientific, to say the least. The accounts show while business claims to be struggling with the new Government, companies and individuals are earning more and consumers are spending more, all increasing the tax take.
Even the Employers and Manufacturers Association acknowledges business confidence is ‘‘uncoupled’’ from the actual economy.
Soothsaying and mythology aside, what problems does the $5.5b surplus, which is $2.4b higher than projections in May, produce for the Labour-led coalition? Finance Minister Grant Robertson has carefully built a brand as a cautious steward of the economy, restrained by his own fiscal responsibility rules. He will not be moved by calls to cut taxes from the Right or to spend more on areas like poverty, transport and the environment from the Left. As centrist politicians everywhere are fond of saying, he has the balance about right.
Like anyone naturally cautious, he is concerned about the unpredictability of future events. A decade that has given us the global financial crisis, the Canterbury earthquakes, and even the recent Mycoplasma bovis outbreak, shows he is right to keep cash stashed for emergencies.
One of Labour’s political dilemmas is that it has a constituency that has waited nine long years for a decent pay rise. Nurses and teachers both expected more from this Government and it will be particularly tough to persuade the latter group its demands cannot be met. It is a bind for a Government whose $484 million offer to teachers is more than double the $215m offered by the previous government, yet is still not seen as generous enough. But the surplus leaves the Opposition with little new to say. Its attacks on a Government it previously claimed was weak or dysfunctional have been reduced to a repetitive message about ‘‘pain at the pump’’. In other words, should the Government cut taxes on petrol? This is something of a red herring. The low New Zealand dollar is a primary driver of rising petrol prices. Excise increases make up only around 7 cents of an increase over the past year of 39 cents a litre, government figures say.
Dropping a regional fuel tax that contributes to a spend of $8.4b on rapid bus, rail and light rail transport options in gridlocked Auckland would send a confusing signal in a week when the climate news was as urgent as ever. The Opposition’s love of roads and cheap petrol is short-term, populist thinking when we need more of the opposite.
‘‘A decade that has given us the global financial crisis and the Canterbury earthquakes . . . shows he is right to keep cash stashed for emergencies.’’