How Covid funds bolstered Budget ’22
$2b from last of recovery money used for cost of living buffers and other measures despite Treasury objections, writes
Finance Minister Grant Robertson padded Budget 2022 with $2.05 billion from the remnants of the Covid19 Response and Recovery Fund, contrary to his undertakings that the enormous pot of emergency money be limited to direct, pandemic-related spending and over the Treasury’s objections.
The Government took $1.05b from the fund and “reprioritised” the money to spend on the “cost of living payment” and extended cost reductions for motorists, both rushed into existence in light of surging inflation and polling that suggested a related ebb in the Labour Party’s popularity.
Although the measures were announced alongside the Budget, it was only very thinly reported — and little digested by the public — that the funding came, not through the Budget process, but rather from the CRRF, a twice-increased $61.6b envelope of money Robertson had previously agreed to limit in light of the Treasury’s concerns over scattershot spending.
This reprioritised $1.05b covered $814m for cost-of-living payments to those earning under $70,000 a year and a further $235 million to cover a two-month extension to the temporary reduction of fuel excise duty and road user charges.
The second $1b raided from the CRRF at Budget time was even more opaque and remained unreported.
Proactively released Treasury documents show the money was tipped directly into Budget 2022, against the Treasury’s advice, and uncounted in the Budget allowance and consequently obscured from New Zealanders as new spending.
Despite this, government documents show that in the early months of this year, Robertson asked the Treasury to help him divert the remaining few billion dollars left in the CRRF.
“We understand you are interested in reprioritising CRRF
funding that is expected to remain unallocated in order to alleviate pressure on the Budget 2022 operating allowance. We have previously advised you that we do not recommend using time-limited funding from CRRF to manage the impact of ongoing spending,” the Treasury wrote to Robertson in a March briefing.
Nevertheless, an April 11 Cabinet Paper documents that ministers hastily reprioritised $2.05b from the $3.25b remaining in the fund, meaning the money could be spent on government priorities.
Former deputy chief economic adviser to the Treasury, Tony Burton, said the Government’s move was an “abuse of process” as it is laid out in the Public Finance Act and that it had effectively turned Covid-19 emergency funds into “an election slush fund that will force the Government after 2023 to either put up taxes, borrow or cut spending”.
This is because the CRRF was
only a contingency fund designed for very specific one-off spending.
The money, as it’s been used through the Budget process, potentially creates a long-term spending commitment.
“Using the contingency as the Government has means they can spend more in the short term only, ie in the lead-up to the election. When the funding runs out they will have created an unfunded cost pressure,” Burton said.
The operating allowance shows only new, net spending, allocated for the Budget’s new policy initiatives or for cost increases in existing policy. Since the CRRF was an existing contingency, technically the operating allowance did not need to be altered in light of additional commensurate spending.
Burton said it amounted to an “accounting trick” to use the CRRF to avoid pushing up the operating allowance.
Questioned by the Weekend
Herald, Robertson insisted he did not game the Budget allowance: “It often includes savings, reprioritisation or revenue measures which can fund additional initiatives without increasing the amount of net new spending. That is what occurred here.
“We were transparent about this at the time. The management of the $1b was clearly shown in [the] Government’s Wellbeing Budget documents . . . ”. Robertson cited “Table 9 on page 85” of the Budget document.
Robertson further maintained that the CRRF “was always available” to both “respond to and recover from” the pandemic.
“From the beginning, there was a mixture of one-off and longerterm investments that also both directly responded to Covid-19, but also focused on how to move people and the economy forward after the significant shock to the economy and society arising from the pandemic.”
Robertson’s insistence on the CRRF’S broad purpose, however, is considerably at odds with assurances he gave to both the public and the Treasury.
“When we set up the Covid Response and Recovery Fund, the Government was clear that it was to be used for our response to keep New Zealanders safe and for immediate support to help the economic recovery,” Robertson said in a press release in July, 2020.
Furthermore, Treasury documents of August 25 and 27, 2021 make clear that, in light of the resurgence of Covid-19 and the need to add fresh funds to the dwindling CRRF pot, Robertson “agreed that the future scope of the CRRF should be more focused on managing the immediate cost of resurgences and the public health response”.
For clarity, the Treasury listed four examples of immediate Covidrelated economic support: the Wage Subsidy Scheme, the Resurgence
Support Payment, the Short-term Absence Payment, and the Leave Support Scheme.
National Party Finance spokeswoman Nicola Willis said the Finance Minister had been caught “red-handed” making a multibillion-dollar raid on “taxpayer funds explicitly set-aside for Covid response and recovery”.
“This set of facts makes a mockery of the minister’s claims that he stuck to his operating allowance in this year’s Budget. In fact, he showed a reckless disregard for the fiscal discipline needed to keep pressure off inflation,” Willis said.
Act Party leader David Seymour said that Robertson’s manoeuvring underscored the Government’s “terrible job” of economic management.
“This is a very good example of how New Zealand’s Government spending has been bent out of shape by the Covid event and they [the Government] haven’t properly thought about how to make that sustainable because it’s not.”
A final $1.2b from the CRRF was set aside at the time of the Budget for immediate Covid-19-related public health costs incurred between Budget cycles; the fund is now closed.
The CRRF rules, agreed by the Cabinet in 2020, stipulated that unused funds were to be “returned to the centre” when the fund was closed, meaning that New Zealand’s debt or projected debt would be reduced by that amount.
However, it appears that taxpayers will not see any projected debt reduced by unspent funds.
The CRRF was established in April, 2020, to respond to both Covid-19 and the related economic recovery. Its initial size was $50b, but it ultimately rose to $61.6b, as the Government increased it twice as funds dwindled.
Total emergency Covid-19 funding ultimately topped $73b, including an initial $12.1b package that predated the CRRF.
The Government has repeatedly used its emergency contingency for programmes that are either ongoing expenses ($515m has bought free school lunches through 2023) and or expenses that are only very tangentially related to either Covid-19 or its recovery (5 years’ worth of job creation through the $1.2b “Jobs for Nature” programme despite a chronic labour shortage).
The fund has also been tapped to pay for government priorities with absolutely no link to Covid or its recovery; these include $26.6m for cameras on fishing boats, and some $70m for the Three Waters Reform Programme.