Bud­get­ing on pre­dictabil­ity Re­view

Her­ald po­lit­i­cal edi­tor Au­drey Young takes a look at what will be an­nounced on Thurs­day Si­mon Bridges They have also made a lot of prom­ises ... they are vig­or­ously at the mo­ment try­ing to lower ex­pec­ta­tions.

Weekend Herald - - News - ARDERN SAYS SOME OF AF­TER SIX Photo / Mark Mitchell WHILE THE

So far, noth­ing about her reign has been pre­dictable. From be­com­ing the coun­try’s youngest prime min­is­ter in 150 years, to her preg­nancy an­nounce­ment three months later.

But yet the word Jacinda Ardern set­tles on for her Gov­ern­ment’s first Bud­get is “pre­dictable”.

Though she doesn’t want it to be billed as bor­ing, she doesn’t ex­pect any­one to be sur­prised by it.

“There are no deep, dark Bud­get se­crets and there is some­thing good about pre­dictabil­ity,” she tells the Week­end Her­ald.

“We have been flag­ging for months now about the things we’ve thought were a pri­or­ity.”

She is sit­ting at the head of the huge ta­ble in her board­room, a meet­ing room next to the Prime Min­is­ter’s of­fice on the ninth floor of the Bee­hive where dis­cus­sions with ministers and party lead­ers have been held in the lead-up to the Bud­get.

Pre-Bud­get an­nounce­ments are gath­er­ing pace be­fore the for­mal reve­la­tions next Thurs­day.

What is clear is that this first Bud­get will be dif­fer­ent from the Gov­ern­ment’s next two. It’s more of a quan­tity bud­get, not nec­es­sar­ily the qual­ity bud­get. It is the one that will re­store base fund­ing from what it

The lux­ury that the in­cum­bent Gov­ern­ment has got is that the books are in damned good shape. Cameron Ba­grie

of­ten called nine years of ne­glect.

So is this Bud­get the res­cue mis­sion which will be fol­lowed up fur­ther down the track with re­views of base­line spend­ing?

“I think that is a fair char­ac­ter­i­sa­tion,” says Ardern.

She in­sists that qual­ity of spend­ing is top of mind, which means she is sure it will reach the peo­ple who need it and who have felt “squeezed”.

“But most of the Bud­get fo­cus tends to be on the way you use the ad­di­tional op­er­at­ing al­lowance rather than the core base­line fund­ing that sits un­der­neath it.

“We want to get our ser­vices back in a good place so that the con­ver­sa­tion is in and around the fact that these are re­ally de­pleted ser­vices, that we can get them in a good space, to then say ‘ac­tu­ally, are our health ser­vices world class? Are we keep­ing on top of those big de­mo­graphic changes and tech­no­log­i­cal changes?’

“But it is pretty hard to have that con­ver­sa­tion where you have peo­ple say­ing ‘ac­tu­ally my work en­vi­ron­ment isn’t safe right now’.”

She men­tions Dis­trict Health Boards, which are go­ing to get a shot in the arm from the promised $8 bil­lion ad­di­tional spend­ing in health over four years.

She also men­tions early child­hood ed­u­ca­tion in terms of un­der­fund­ing — de­spite the fact that ECE re­ceived $860 mil­lion in Labour’s last Bud­get in 2008 and $1.8b in Na­tional’s last Bud­get in 2017.

“That [fund­ing in­crease] was par­tic­i­pa­tion,” she says dis­mis­sively about those fig­ures.

“That doesn’t speak to the qual­ity of the ser­vices or nec­es­sar­ily whether or not you were fund­ing to keep pace with the costs they were ex­pe­ri­enc­ing.

“You could say the same for health. We’ve had pop­u­la­tion growth and an age­ing de­mo­graphic. It doesn’t mean you are keep­ing pace with the true costs.”

It meant that costs were passed on to users, the par­ents.

she is mind­ful of giv­ing peo­ple the cer­tainty of hav­ing a plan.

“This is the first step of a plan . . . as long as you don’t bill it as a bor­ing Bud­get.

“We have been bang­ing on about the ar­eas of need for years so, of course, that means there will be a cer­tain amount of pre­dictabil­ity about what we do.”

Ardern her­self has been de­liv­er­ing some of the Bud­get’s happy news and to­mor­row is ex­pected to de­liver some more to the ed­u­ca­tion sec­tor on spe­cial ed­u­ca­tion when she speaks at the Ed­u­ca­tion Sum­mit in Auck­land.

Labour promised $6b of ex­tra spend­ing on the ed­u­ca­tion sec­tor over four years, al­though $2.5b of that has al­ready been taken up to fund stage one of the uni­ver­sal free ter­tiary fees and train­ing pol­icy.

That means that there is only an ex­tra $3.5b for ad­di­tional ed­u­ca­tion spend­ing over four years — or an av­er­age of $875m a year, which will have to fund new mea­sures such as coun­sel­lors in schools, in­fla­tion ad­just­ments and pay in­creases.

The fees-free fund­ing was baked into the Gov­ern­ment’s books in De­cem­ber — and Ardern makes a plea about that event five months ago, the De­cem­ber mini-Bud­get.

“I wouldn’t want peo­ple to for­get that, “Ardern says.

The ef­fects of its cen­tre­piece, the fam­i­lies pack­age, won’t be­gin un­til July. “This Bud­get alone isn’t the com­plete sig­nal of where we are head­ing. The mini-Bud­get and the Bud­get to­gether is.”

Well she may be pro­mot­ing the mini-Bud­get, be­cause it was essen­tially Labour’s big­gest-ticket items this term, con­cen­trated in the

100-day plan: the fam­i­lies pack­age ($5.5b over four years), Ki­wibuild ($2b), re­sum­ing con­tri­bu­tions to the Su­per­an­nu­a­tion Fund ($3.3b), and the ter­tiary fund­ing pack­age ($2.5b).

All up, Labour’s

100-day plan will cost $4.9b over four years, as costed by Trea­sury in the mini-Bud­get.

the big­gest ticket items in next week’s Bud­get will be for coali­tion and sup­port part­ners.

The grandaddy of this week’s Bud­get an­nounce­ments, Win­ston Peters’ $900m over four years for For­eign Af­fairs, will de­liver 50 new diplo­mats and a $700 mil­lion boost in over­seas de­vel­op­ment as­sis­tance.

But even that pales com­pared to Shane Jones’ fund for re­gional de­vel­op­ment projects, $4b over four years.

The Green Party will get some big gains from the Bud­get, in­clud­ing the $100 mil­lion Green In­vest­ment Fund to stim­u­late the growth of low-car­bon in­vest­ments.

And Con­ser­va­tion Min­is­ter Eu­ge­nie Sage is to­day set to an­nounce the first of the boosts to her port­fo­lio ne­go­ti­ated in the con­fi­dence and sup­ply agree­ment.

years of deficits from the ef­fects of the Global Fi­nan­cial Cri­sis and Can­ter­bury earth­quakes, for­mer Fi­nance Min­is­ter Bill English de­liv­ered sur­pluses, and Fi­nance Min­is­ter Grant Robert­son has pledged to con­tinue with sur­pluses.

Si­mon Bridges, the new Na­tional leader, says Labour has Na­tional’s eco­nomic man­age­ment to thank for it be­ing so flush.

“De­spite their whin­ing about how hard it is to be a min­is­ter and do things, they’ve got $34b in new fund­ing that they can al­lo­cate over the next four years.

“But what is also true is that they have also made a lot of prom­ises . . . they are vig­or­ously at the mo­ment try­ing to lower ex­pec­ta­tions.

Bridges ex­pects to see more of what he calls “lazy spend­ing“in next week’s Bud­get, mean­ing uni­ver­sal in­stead of tar­geted spend­ing at peo­ple most in need.

Within that def­i­ni­tion, for ex­am­ple, he in­cludes the new win­ter fuel pay­ment of $700 for cou­ples and $450 for sin­gles, avail­able to mil­lion­aires aged over 65 as well as the needy, as well as a free year of ter­tiary study or train­ing, and child ben­e­fit pay­ments for all new­borns.

“It’s easy to spend other peo­ple’s money,” he says. “Grant Robert­son has the most en­vi­able books a fi­nance min­is­ter in the Western World can boast at the mo­ment.

“It is New Zealan­ders’ hard work and, if we do say so our­selves, the good eco­nomic man­age­ment of Na­tional that has got us to the po­si­tion of where we are.”

The Bud­get next week will set out more than $85b in op­er­a­tional spend­ing for the next year to run schools, hos­pi­tals, Gov­ern­ment de­part­ments and for public sec­tor pay rises.

Over and above the baked-in fund­ing for the 100 days poli­cies, the Gov­ern­ment has $34b in dis­cre­tionary fund­ing to spend over the next four Bud­gets, ac­cord­ing to the al­lowances it pub­lished in De­cem­ber, which may be ad­justed in next week’s Bud­get.

Back in De­cem­ber, it set it­self an ex­tra $2.6b al­lowance for this year’s Bud­get — but un­less it is just a one-off, it has to be al­lo­cated for fu­ture years as well.

The cu­mu­la­tive ef­fect of this $2.6b, and op­er­at­ing al­lowances of $1.875b for the fol­low­ing three years, is an ad­di­tional $21.65b. Na­tional’s equiv­a­lent fig­ure from pre-elec­tion up­dates is $17.53b, or $4.12b less.

Like­wise for cap­i­tal al­lowances, Labour has al­lo­cated $12.6b in new cap­i­tal al­lowances over four years for new schools and hos­pi­tals, trans­port and other in­fra­struc­ture, $1 bil­lion more than Na­tional.

But over­all, the Bud­get will al­lo­cate $42b for cap­i­tal spend­ing over four years, $10b more than Na­tional had been plan­ning.

Robert­son has had sev­eral sources for ex­tra spend­ing money than Na­tional.

The Gov­ern­ment stopped Na­tional’s tax cuts, which would have taken ef­fect in May this year, which freed up $8b for fu­ture Bud­gets.

It has iden­ti­fied $700m of spend­ing over four years as not worth con­tin­u­ing and has been re­al­lo­cated, and that climbs to $1.4b when es­ti­mated gains from the so-called Ama­zon tax, go­ing af­ter tax dodgers and multi­na­tion­als are fac­tored in.

The Gov­ern­ment cof­fers have had a $900m wind­fall higher than fore­cast in the De­cem­ber open­ing of the books.

And the slower debt track (get­ting net debt to 20 per cent of GDP by 2021-22, which is two years longer than Na­tional) al­lows Robert­son to bor­row more money if the econ­omy is grow­ing fast enough.

Gov­ern­ment wants to see the Bud­get framed in terms of ad­dress­ing un­der­fund­ing, for­mer ANZ chief econ­o­mist Cameron Ba­grie, now of Ba­grie Eco­nomics, dis­putes that, cer­tainly in terms of cap­i­tal spend­ing.

Ex­am­in­ing cap­i­tal in­vest­ment of the last Na­tional and the pre­vi­ous Labour Gov­ern­ments, he says it was a fairly con­stant 2.5 per cent of GDP un­der both Gov­ern­ments.

For op­er­a­tion spend­ing, there were tougher de­ci­sions to be made.

“New Zealand went through a dou­ble-dip re­ces­sion,” he said.

“We got whacked once be­cause the econ­omy blew up do­mes­ti­cally be­cause in­ter­est rates were ratch­eted up, and then we got hit by the GFC, and then we got knocked down again by the Can­ter­bury earth­quake.”

The books were not in great shape and tough choices had to be made.

“The lux­ury that the in­cum­bent Gov­ern­ment has got is that the books are in damned good shape so that pro­vides op­tions, and you are bet­ter to have op­tions than not have op­tions.

“Un­for­tu­nately be­tween 2009 and 2015, we didn’t have too many op­tions.”

Un­like Ardern, Ba­grie does not think the Gov­ern­ment has a plan that gives sec­tors un­der tran­si­tion enough cer­tainty.

“They don’t have a plan. They’ve got as­pi­ra­tions and they’ve got goals and the goals are ad­mirable,” he says.

“We know we’ve got ma­jor prob­lems in re­gard to in­come in­equal­ity, hous­ing af­ford­abil­ity, en­vi­ron­men­tal and cli­mate change is­sues need to be a lot more front and cen­tre,” he says.

“Every­body is with the pro­gramme . . . The only is­sue, how are we go­ing to get there.”

The longer un­cer­tainty rolled on, the greater chance that firms wrapped them­selves in cot­ton wool and did not in­vest.

“And the last thing we need at this junc­ture of the cy­cle is for busi­nesses to wrap them­selves in cot­ton wool.”

Ardern is mind­ful that busi­ness con­fi­dence is not what it could be and chang­ing per­cep­tions of Labour is a “per­sonal cru­sade” of hers.

Her mes­sage was that her Gov­ern­ment was “re­build­ing some strong foun­da­tions”.

“But I equally know that we have to demon­strate, whilst it is pos­si­ble to rein­vest in those core ser­vices, that it is eas­ier for some­one to ac­cess a hos­pi­tal when they need it or to be as­sured that their kids’ lo­cal school has ev­ery­thing they need to do the best job they can, that they also want to know that I’m go­ing to keep the econ­omy in check.

“That’s the bal­ance of this Bud­get and that’s what this Bud­get does,” says Ardern.

Grant Robert­son has pledged to con­tinue with sur­pluses to sup­port Jacinda Ardern’s “quan­tity” bud­get.

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