Robertson’s $1 billion window of opportunity

In one month, Grant Robertson will deliver the Budget. Budgeting is one of the toughest jobs in politics, but Robertson is lucky. He’s in the rare position of having one of the biggest Budget decisions taken out of his hands. New Zealand’s Public Finance Act (PFA) obliges the finance minister to publish a document with the Budget called the Fiscal Strategy Report. That document, alongside the Budget Policy Statement (which comes out before the Budget), sets out the long-term objectives for the government’s books. One of the things it forces a government to do is to set a target for the total level of debt it would like to carry in the long term.

This is what’s better known as our debt target. It’s a fishhook for finance ministers, devised by Ruth Richardson and put in her Fiscal Responsibility Act nearly 27 years ago. Despite the act’s repeal, the measure lives on in the PFA, forcing all governments to be upfront about how much they want to borrow and why.

The wording is clever. The debt target has to be set in accordance with what Richardson called the ‘‘principles of responsible fiscal management’’, the first of which is to reduce total debt to ‘‘prudent levels’’. It’s not even clear whether the target needs a number attached to it, or anything more than a commitment to be ‘‘responsible’’.

What the legislation doesn’t enforce is questioning whether debt levels should rise if, for example, the government faces an infrastructure deficit or needs to find a way to finance adaptation to something like climate change. The success of this public finance regime is one of many reasons why New Zealand has both incredibly low levels of public debt, and a looming infrastructure deficit. Government bias tends to be against investment. That isn’t always a bad thing, but it’s not always a good thing either.

Robertson’s great fortune in this Budget is that the requirement to set a debt target is relaxed. Richardson designed the act so that governments could be let off the hook during a crisis like the one we’re in now. So long as Robertson sets out a goal to stabilise the economy through the crisis, he’s not obliged to outline a fixed debt target. It’s a rare opportunity, but not a unique one. The last National government’s early fiscal strategy set a goal of stopping net debt hitting 40 per cent of GDP, with an aim of keeping debt at ‘‘prudent’’ levels. It wasn’t until 2012 that it put a number and date to its debt target: 20 per cent by 2020. This gives Robertson some cover to repeat the same trick.

He has said that Covid-19 volatility has made any strict numeric debt target an exercise in futility. Currently, the intention is to ‘‘stabilise net core Crown debt as a percentage of GDP by the mid-2020s and then reduce it as conditions permit (subject to any significant shocks)’’, and we’ve confirmed that, while Robertson intends to give an ‘‘update’’ on the debt track, he’s unlikely to select a fixed target.

Robertson was feted as a hero at a Council of Trade Unions event in Wellington last week – it’s not every day the deputy prime minister shows up to union drinks. Members briefed attendees on the tough social conditions faced by low-wage workers in sectors such as care and private security.

That wouldn’t have surprised CTU members a quarter of a century ago, when union member Peter Harris briefed Richardson on the consequences of putting a lid on debt. Harris called out the supposedly neutral language of the Fiscal Responsibility Bill, saying forcing the publication of long-range targets would limit finance ministers’ ability to tackle pressing problems and entrench austerity in the political system.

‘‘[T]he form of financial reporting envisaged under the bill will impose a bias on the decision process by respecifying the framework within which decisions are made,’’ he wrote.

Robertson has a rare opportunity to push against that orthodoxy. He can use the opportunity to make investments in building a better economy under the guise of Covid recovery. Not all of that is about debt, but a lot is. Transport, water infrastructure, and climate change adaptation are crying out for debt-funded investment – every percentage point added to our net debt target equates to $3 billion that could go into infrastructure.

His window is brief. No-one begrudges him not setting a numeric debt target at this Budget, but they might not be so forgiving next year.

It’s a tough political choice for Robertson. But those calling for him to reframe the way we talk about debt will be disappointed. All politicians are palimpsests, but underneath Robertson’s many layers he believes in the fiscal orthodoxy.

Robertson knows that he’ll have to select a target of his own, or have one foisted upon him by the Opposition. All the same, he’s been handed a golden ticket by the crisis.

It’s a tough political choice for Robertson. But those calling for him to reframe the way we talk about debt will be disappointed.