Tougher than that

Michael Reddell Fiscal policy

Thomas Coughlan has a column in the Herald this morning, under the heading “Nicola Willis is just the right amount of Tory”. To this centre-right voter it isn’t obvious Willis is (or sees herself) as any type of Tory, but what Coughlan seems to be suggesting is she is just right if the aim is to hold office, and never mind the large structural fiscal deficit the government inherited from Labour.

It isn’t an uninteresting column, and this post is just about one snippet where I don’t think the author is quite right. Here it is

The simple maths looks about right: $3.5 billion is 25 per cent higher than $2.8 billion and the CPI has increased by about 25 per cent since Budget 2018 (depends a little on your precise reference point). But that isn’t the right way to look at things: it misunderstands how the operating allowances work. And it doesn’t come even close to meaning that Willis is splashing the cash just like Grant Robertson was doing in his first Budget.

There are two things Coughlan seems to have overlooked. First, a big part of what the operating allowances cover is cost pressures on existing government spending programmes. Some increases, eg to welfare benefit rates, are done automatically by statute, and so don’t count against the operating allowance. But most other things do – new programmes of course, but also many of the spending implications of population growth (very rapid at present) and general inflation.

One way of looking at this is to compare the two operating allowances (2018 and 2023) with the total government (core Crown) operating expenses in the year just ending at the time of each Budget.

Grant Robertson gave himself an operating allowance of $2.8 billion in 2018 against an estimated final level of operating spending then for the year to June 2018 of $81.7 billion (3.5 per cent of that spending). Willis by contrast talks of an operating allowance of (probably just under) $3.5 billion against estimated (at HYEFU) spending in the year to June 2024 of $140.3 billion (or 2.5 per cent of that total). National was very vocal about the increases in spending under Robertson, but they went into the campaign not promising to get rid of many programmes (and needing most of their spending savings to finance promised tax cuts). The programmes still cost, inflation is still a thing, and the population keeps growing.

But this year’s story is even tighter than that simple comparison might suggest. Inflation is not something under control of the Minister of Finance – we have the autonomous Reserve Bank for that – and so from any one year’s Budget perspective inflation (as forecast by Treasury) is just one of those things the Minister of Finance is stuck with. In the early 2010s, one thing that made Bill English’s zero operating allowances less extreme than they might have seemed was that inflation was very very (and surprisingly) low. In the 2018 Budget – Robertson’s first – Treasury forecast CPI inflation for the year to June 2019 at a mere 1.5 per cent. By contrast, at least in the HYEFU the Treasury forecast for inflation in the year to June 2025 was 2.5 per cent (and in the BPS last week that forecast was still 2.2 per cent). Willis faces more cost pressures just from inflation than Robertson did in his first year, and that chews up not inconsiderable amounts of the operating allowance.

So it seems quite unlikely that the room she has given herself (all nominal) will do anything close to justifying Coughlan’s claim that this Budget will be “one of the more generous right wing Governments in New Zealand history”. Core Crown expenses as a share of GDP will almost certainly be dropping.

I’m no fan of this government’s fiscal policy – and the apparent indifference to the deficit, and the spooky scare stories about not being Ruth Richardson or Tony Abbott (both mentioned in the article) – but on the numbers the minister has given herself and the general inflation pressure Treasury is forecasting it hardly looks like being all that generous, even by National Party standards (one could make a case for not in effect being that much different than Steven Joyce’s Budget in 2017). That is neither surprising nor inappropriate coming off the back of six years of very large increases in government spending. And after all in 2018 (fairly or not) Robertson and Ardern were banging on about making up for “9 years of underfunding”, a very different narrative to Willis’s now. But the big difference from Steven Joyce in 2017 is that he was running surpluses, and Luxon/Willis apparently are content to keep running deficits.

But….there is the nagging question of what specifically are ministers deciding they don’t want to spend money on that Labour was spending it on (over and above the savings they are now exacting from departments, but on which the promised tax cuts have first claim). We don’t know. Do they?

10 thoughts on “Tougher than that”

  1. I’m not sure if David Seymour’s new Ministry of Regulation has a brief to also look for unproductive government programmes (or even whole entities) to prune?

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    • Very simply, the Labour government was corrupt. Legal corruption where you paid friends and family members wages or consulting in government employment or government projects for zero outcome. Targets were intentionally removed to blind the public or government watchdogs from the tens of billions wasted in corruption payments.

      Just by setting targets and measuring, Luxon has put in measures to reduce wasteful & corrupt spending quite dramatically. When you are being watched, corruption spendup tends to fall by the wayside.

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  2. Thomas Coughlan is a Labour cheerleader, and also seems to be a fanatical neo-Marxist. Previously, I heard him on a podcast with a Ms Rata. There, he argued an extreme left-wing activist line (completely incoherently, it must be said).

    If this extreme lefty believes that “Nicola Willis is just the right amount of Tory,” this indicates that he thinks that Willis is a left-wing politician. Concerningly, for the first time in ages, this newspaper scribbler is probably correct about something. Ms Willis is indeed worryingly left-wing.

    I always thought it would be better if ACT refused to join the coalition, and instead voted for each individual spending item, one at a time. After the next election, this is what ACT should do. Irrespectively, what is clear to me now is that Mr Seymour must fight this obscene spending, tooth and nail. He promised “real change”. These fiscal deficits are completely unacceptable. Even worse is arguably Council spending increases, but that is a topic for another day.  

    This wild spending is taking NZ down the road to serfdom. It’s time to turn away from this road, sharply to the right.

    We need courage from our politicians – not weakness and surrender.

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  3. Thomas Coughlan lacks credibility and follows the NZ Herald editorial guidelines, soft on Labour but paint National/ACT/ NZ First in a bad light.

    I would be more interested in your thoughts about Matthew Hooton article – 5 April – Why NZ is doomed to a downhill spiral from 2030 unless we get on top of debt.

    Of course the NZ Herald had it behind their paywall.

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  4. I would be more interested in your analysis of Matthew Hooton’s 5 April article “Why NZ is doomed to a downhill spiral from 2030 unless we get on top of debt”

    Of course the NZ Herald puts this article behind the paywall because it shows how poor Robertson was as Finance Minister

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  6. It doesnt matter who the Central bankers govt( set up as a corporation) media spokesman is Jacinda or Luxon , election promises are always broken. Politicians through history are known as deceitful liars, thats what politics is” the art of deception” for control over the peoples minds.

    Our economic system is a fictional reserve ponzi scheme, there is no getting around the lunacy of not creating our own interest free money instead of borrowing privately with interest.

    The govt sold off NZ assets to foreign owners, profits go offshore. I swear they made up the term “GDP” to distract people. The govt has an opposite view of “productivity” it thinks productivity is corporate profit more debt in our name with fewer public services , directly cutting employment numbers, increasing corporate welfare, bringing in tens of thousand of immigrants into NZ housing and health system crisis and dont forget its mad debt creation schemes.

    Obviously govts are deliberately stuffing up the people’s economy, there is only far right( fascist) and thats where govt sits. All the shades of party’s are ideological to make people vote and believe they choose the govt … so they obey not wanting to side against the majority ( not ever knowing, as the corporate media propaganda doesn’t say, that the govt has minority support of brain washed frightened children)

    Want change? Stop doing the same thing and expecting different results.

    Time for an inner revolution and a big fat ” NO”.

    Lets hope people understand politics before the 2030 when the central bankers UN throws in the Green Party with its climate cult of frightened angry children with conditioned intergenerational hate.

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