By Bernard Hickey
Prime Minister John Key has signalled he will outline the Government's thinking in a speech on Wednesday about how it plans to use budget surpluses, including whether to resume contributions to the New Zealand Superannuation fund, or build up the EQC fun, or repay debt, or cut taxes.
Key told his weekly post-cabinet news conference in Wellington that there was no room for an election 'lolly scramble', given the government wanted to keep pressure off interest rates and it needed to repay debt for future 'rainy days.'
He said there were a range of options for using any surpluses built up from 2014/15, including restarting contributions to the New Zealand Superannuation Fund, building up the Earthquake Commission's (EQC) depleted funds, increasing spending or returning funds to taxpayers through tax cuts.
Finance Minister Bill English is due to deliver Budget 2014 on May 15. It will be the last before the September 20 General election.
Key said cabinet had discussed the upcoming budget earlier on Monday..
"At a speech I'll be making in Auckland this Wednesday, I'll talk about the broad approach we're taking to this year's Budget," Key said in detailing his plans for the week.
Asked about how any National-led Government would spend its surpluses after 2014/15, Key said: "Part of that we're going to give you at least some sort indication of what they look like and how we might deal with those issues, both on Wednesday, and also in the discourse the Minister of Finance will give on the day in his Budget speech."
"My overall view is we shouldn't have a massive increase in Government expenditure. If you're looking for us to have a massive lolly scramble, either on budget day or going into the election you're looking at the wrong political party because, A, I don't think that would be in the best interests of New Zealanders," Key said.
"If there are surpluses, those surpluses in part can be used for the benefit of New Zealanders in terms of direct payments we might make, but actually part of it's got to be used to repay debt and part of it's got to be used potentially to build things like the New Zealand Super Fund," he said.
"If you're going to have the argument that in the bad times, like a Christchurch earthquake or a recession, the Government should borrow money to stimulate the economy or support the people, then by definition in the good times you've got to prepare for another rainy day," he said.
Asked if the options for using surpluses could include tax cuts, Key said: "There's a range of options and they include, you could spend more money, you could tax people less, you could build up the Super Fund, you could build up the EQC. There's any range of potential options there."
"Broadly speaking, the new Budget spending allowance we've got is about right. It doesn't mean there can't be some increases over time, but the sort of promises we've seen Labour and the Greens making are truly unrealistic, would put enormous pressure on the Reserve Bank Governor and interest rates, they're unaffordable and they'd send New Zealand back into deficit," he said.
The Government set new operating spending allowances in Budget 2013 of NZ$1 billion a year for the current 2013/14 year and through until 2016/17. Last year's budget also delayed the planned resumption of contributions to the New Zealand Superannuation Fund for two years until 2020 and after net debt had been cut from over 25% of GDP to under 20%.
Asked if his Wednesday speech would detail the Government's ranking of its options, he said the speech would give "a bit of sense of where we're going."
'Higher interest rates under Labour'
Key said National had run 'zero' net new spending for four of the last five budgets, despite increasing health, education and science spending in each of those years. It had done that with cost reductions in other areas.
"I accept that can't go on forever, which is why we had about NZ$1 billion of new spending in the last budget," Key said.
"Bill English's view is that NZ$1 billion is pretty much the new normal. It doesn't mean you can't have a little bit more, but not massive amounts," he said.
He then referred to Labour's baby bonus plan, which he said would probably cost up to NZ$800 million a year once fully rolled out because the take-up rate for free childhood education would be higher than Labour's estimates.
"This is an opposition that came from being a Government that spent on average NZ$3 billion or NZ$4 billion extra every year for the last five years of being in office. That's not affordable for New Zealand. That will put pressure on interest rates and that will cause New Zealand to have to borrow more money and borrowing has to come from foreigners," Key said.
"And I just don't think that's what New Zealanders want. That's why Labour is not going up in the polls and they're going down in the polls and that between them and the Greens, who are just abjectly opposed to growth, that's just not a recipe to take New Zealand forward."
(Updated with more detail, quotes)
21 Comments
Can someone help? I just don't get how Key's government can reconcile this sort of blame-the-last-Labour-government statement;
"This is an opposition that came from being a Government that spent on average NZ$3 billion or NZ$4 billion extra every year for the last five years of being in office. That's not affordable for New Zealand. That will put pressure on interest rates and that will cause New Zealand to have to borrow more money and borrowing has to come from foreigners," Key said.
With this data;
You could reconcile it by comparing it to GDP. In 2009 GDP declined 18 Billion from peak. You are looking at a 33 Billion blow out that is the result of past govts spending a temporary boom. National didn’t cause the problem, I accept that they would have caused a similar one anyway but they weren’t in power. No, Labour built in temporary gains to GDP as though they were permanent gains and when GDP fell away govt debt blew out. NZ reacted swiftly in the form of booting Labour. As such the correlation of the blow out lines up closely with National taking power. Lehman collapsed two months before National took power. I don’t like National any more than I like Labour but in my view that is how you reconcile the data.
Perhaps but you just need to recall the pressure Cullen was under from the political right to spend the building surplus;
http://www.kiwiblog.co.nz/2005/12/cullens_threatens_to_take_back_his_89…
And then of course, Key's Government-elect did just that with tax cuts to both corporate and individual tax rates.
Granted they upped GST to counter later on .. but by that time I think we were into the corporate bailout big time, so it really only clawed back on those losses... and letting SCF (the biggest of all the bailouts) in on the 'deal' was all under this administration, I believe.
And to my mind, the GST rise really was a last nail in the coffin for the building sector - which had been responsible for alot of the improved GDP during Labour's nine year reign.
WTF revisionist history is this. National were elected in 2008, when debt was completely in line with what it had been since the early 90s. Then from 2009 Debt blew out. New Zealand did not react to a blow out in 2009 by travelling back in time and booting labour in 2008. National were in power in 2009. Now if you compare debt to GDP, yes it moved down to a low in 2008 then labour got kicked out and after that it began moving up again
http://www.tradingeconomics.com/new-zealand/government-debt-to-gdp
which looks just as bad as looking at the raw debt figures.
Kate initial post was about debt, not spending though, and that is not the same thing. Debt was going down as a percentage of GDP (until the GFC hit) because while debt was constant, the economy was growing. Spending was being paid for out of taxes not debt. How an imaginary labour govt might have responded in 2009 on is a straw man. What we know is that national unbalanced the budget loading on the debt to a level never before seen in raw terms (but in reality a level not seen since the national government of the 90s in debt to GDP terms).
Hmmm, yes, I was more answering her question how can this can be 'reconciled'.
Your point is good though I can see that. If National had spent less than they did the debt to GDP ratio would have remained in check. What that would have meant for life in NZ I’m not sure but what I do know is that revenue-expenses=surplus. Labour ramped spending up and then revenue fell away leaving high expenses and declining revenue. That tells me labour built in the deficits by assuming the GDP boost was real when it clearly wasn’t. For National to reign in that level of spending they would have had to unwind some major schemes very quickly, like Working for Families. That doesn’t sound workable in recession.
So ill take your point that National did not run a balanced budget but I would add that the expense portion of that unbalanced equation is mostly labour related policies. Labour did not use the boom to repay debt fast enough, that was clear at the time and is crystallized in history now.
It wasn't just GDP though- after a rotten (if understandable) 2009 GDP growth rebounded in 2010 to nearish the long term average in the long term. Borrowing by national at that point you really have to look at their tax cuts from the start of their term where when asked to explain the revenue balancing I recall there bring a lot of hand waving.
Great point. Kate mentioned this as well. I found this article that points out that it is not fiscally neutral as promised.
http://www.scoop.co.nz/stories/PA1204/S00343/nationals-tax-cuts-at-heart...
About 2.5 billion in losses so far with more to come.
Fonterrible have already sent a reconnaissance team to investigate and infiltrate our Moonie Green Cheese competitors ...
http://www.youtube.com/watch?v=DMviz8pA8aM
... their video came out of the blue ...
I hope Mr Key has made budgetary allowances for the waste of space in Parliament and Wellington.
Millions wasted on blowouts and blow hards, plenty more where that came from, seems we have a never ending supply of both.
Not forgetting the waste of space in Awkland, to house Len's gym and other benefits, accruing.
Not forgetting Novapay, overpay.
Not forgetting to budget for a few more Royalty distractions and the wherewith all to entertain them and us at our expense.
Not forgetting a pay freeze for all the above.
I’m not advocating for national here I just happen to know the answer to the question that was posted. Yes National is a wasteful government but I make no apologies in asserting that all major parties in NZ are wasteful as well. Never the less to address the point:
NZ GDP peaks at the end of 2007 at 135 Billion. NZ enters recession in March 2008. In September 2008 the GFC begins in earnest with the collapse of Lehman. In November facing recession and a global financial meltdown NZ elects National to government.
In terms of numbers we can use GDP per capita:
http://www.kiwiblog.co.nz/wp-content/uploads/2013/05/Issue-17-2013-graph.jpg
In this chart you can see the ramp in spending beginning in 2001. Michael Cullen’s last budget shows up as the 2009 data and Bill English’ fist full budget is shown in year 2010. It’s important to note that much of the GDP per capita ramp through to 2011 was baked in the cake as Bill English put it. He was referring to things like working for families which were still expanding (and still are). In any case one thing is abundantly clear; National has shown more fiscal restraint the Labour did preceding them. Labours spending was 31% higher than when they took power and Nationals is 7% lower than when they took power in terms of GDP per capita and this is despite a double dip recession.
Laminar,
You appear to have been taken in by National's spinmeisters- or maybe you are one of them.
New Zealand’s real GDP increased by 34% in Labour’s term.
So allowing for some population growth, Labour's spend per GDP per capita was probably constant, using your own incorrecly described figures. (You seem to be describing increase in spend as increase in spend per GDP per capita). GDP in National's term so far has increased 10%, with a population increase of 6%, so the spend per GDP per capita difference between the two governments is within a 1-2% band. That is without considering the earthquake spend which I understand is conveniently outside Core Crown expenditure from your link. That spend would more than make up the difference, and in terms of effectiveness of government on GDP, should absolutely be included.
By the by, if Working for Families was such a disastrous policy, as you hint at that you believe, why has National not touched it? They've had 6 years.
And lastly, it is disingenuous to suggest that Labour would not have adapted to a GFC. It seems to me National hasn't really done so at all, but they've persuaded most of the populace that they have done so. They are true to the conservative, non reformist, look after their core constituents, just moderately competent party they have always been. Which if NZ wants that, then fine, but let's not pretend they have been anything different to that.
Hi Stephen
I like all of your points but I feel you assume too much of my personal views. That to one side I’ll do what I can to figure through your exciting information.
Firstly I said National is spending 7% less per capita than when it came to power but actually it is only spending 2.6% less. 7% is from the 2017 projections and is subject to much conjecture I’m sure.
Also your right, I don’t mean spending per GDP per capita as that isn’t a thing. I do mean spending per capita so points to you good friend. Let me briefly explain why I use spending per capita:
With a given set of policies in place if you double the population then spending will scale with it. When comparing fiscal discipline we are primarily interested in how much spending occurs as a function of population size. If a government spends half as much but has only one quarter the population that’s not much to write home about.
Under Labour from 2001 to 2009 the amount the government spent per person rose 35%. This controls for population change.
Under National from 2009 to 2013 the population rose from 4.32 million to 4.47 million which is about 9.5%. In the same time it has reduced spending by about 2.6%.
This chart is excellent, input 2001 to 2013 and look at the result. A boom in spending from Labour and flat spending from National:
http://www.tradingeconomics.com/new-zealand/government-spending
I did not hint that working for Families is a disastrous policy but ill not elaborate as its slightly off topic.
I did not express an opinion on what labour may have done post GFC, only that I felt sure National would have been just as terrible as Labour had they been in government from 2001-2009. So in many senses we do agree and ill look forward to future interactions.
Numerically, I think you should probably be using mean inflation adjusted spending per person if you are wanting to capture the nuances, particularly as the periods are not of equal lengths (though people's eyes glaze over with measures like that). But more generally, unless you are of a hard core libertarian that all government is evil you generally acknowledge that there needs to be some form of government and some form of taxation and spending, and the issues congel around the degree and different measures of the quality of that spending. There is an awful lot of history in the world and we can ask the questions which countries do we want to think of ourselves as being like and what are their patterns. And personally, I would say that one of the important things with government spending is the sustainability of it, rather than hand waving about "paid for by future growth". High or low spending by itself doesn't really tell us much (particularly when not compared to other countries).
Great point. Kate mentioned this as well. I found this article that points out that it is not fiscally neutral as promised.
http://www.scoop.co.nz/stories/PA1204/S00343/nationals-tax-cuts-at-hear…
About 2.5 billion in losses so far with more to come.
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