Labour Party finance spokesperson Grant Robertson admits to overspending in one area, his own personal home sound system, but he doesn’t regret it.
“I probably spent more money on stereo equipment than [I should’ve], but I get a great deal of joy out of it,” he said, after Interest.co.nz asked for an example.
It turns out he is something of an audiophile and a huge fan of Flying Nun Records and the Dunedin Sound which were a pop culture phenomenon in the 1980s.
Robertson also doesn’t regret using the Crown’s borrowing power to insulate New Zealand’s economy and workers from the worst effects of the pandemic and its response.
Steering the country through the crisis and coming out the other end with a bigger economy and record employment rates was his greatest accomplishment, he said.
More than $70 billion was spent on wage subsidies, low-interest loans for small businesses, the health response, vaccines, managed isolation, and other pandemic related things.
This caused net debt to climb from just $5.4 billion in 2019 to about $71 billion today, or from 1.8% of gross domestic product to 18.1%.
Despite the sharp increase, debt is forecast to remain below the 30% ceiling recommended by the Treasury. This is a ceiling for business-as-usual debt and leaves room for a crisis response.
“You could go above but you wouldn't want to be there for very long, was Treasury's advice, essentially,” Robertson said.
In a serious economic shock, the Government could potentially raise debt levels to 40% or 50% of GDP without threatening the financial stability of the country.
“It's not desirable. It's not what you want to do. But in a crisis, the government will always step up … Our economy is resilient. The reason we can do that is because the underpinnings of it are strong”.
“But there's also an obligation for a Minister of Finance to make sure that we don't unnecessarily strain the economy, especially at a time when cost of borrowing is quite high”.
Duelling mandates
Borrowing costs are high because central banks around the world have been hiking interest rates to stave off a post-pandemic inflation shock.
Inflation is incredibly unpopular with voters and it has given political momentum to a pre-existing critique of the Labour’s decision to broaden the Reserve Bank’s mandate.
In 2019, the Government amended the central bank’s legislation to make monetary policy a committee decision and to formalise its role in supporting employment.
This dual-mandate, price stability and full employment, has been the model used by the US Federal Reserve since 1977 and the Australian Reserve Bank since 1957.
The National Party has promised to remove employment from the RBNZ’s mandate in its first 100 days, if elected.
Robertson said this would be a step backwards. The central bank's primary job is to keep annual inflation between 1% and 3% — but that is a fairly wide channel to swim in.
“We also believe that when decisions are being taken about [price stability], the broader economy also needs to be borne in mind”.
The best proxy for economic well-being was employment and so the RBNZ was told to ‘support’ the maximum sustainable level, as determined by the bank itself.
It is also inherently linked to price stability, as inflation tends to pick up when employment is above sustainable levels and fall away when it is below those levels.
Robertson said the dual mandate was important and could have a significant impact on monetary policy in the future, but it hadn’t done so yet.
“Adrian Orr has made clear that in the period since the mandate changed, they wouldn't have changed an individual decision because of that,” he said.
“There's no problem here. The Reserve Bank knows what its job is, and if the Federal Reserve can do it, and the Reserve Bank of Australia can do it, and to a certain extent, the Bank of England can do it, then I think RBNZ can do it as well”.
55 Comments
"Borrowing costs are high". Who is advising you, Grant?
Govt bonds on issue (aka Govt debt) total about $160 billion. Around $60 billion of those bonds are owned by RBNZ, ACC, EQC etc - so Govt is effectively paying itself the regular interest payment. The average weighted interest rates on the $120 billion of Govt bonds held by non-Govt investors is about 2.45% (fixed for term) - well below inflation.
Meanwhile on the other side of the Govt balance sheet (the side we never talk about), Govt's financial assets still exceed their financial liabilities. So, Govt has a positive net financial worth - very rare amongst OECD countries and almost unheard of amongst countries that run a trade deficit. What this means is that non-Govt (us) owe more money to Govt than they owe us. This is why we have private sector debt running at over 140% - we have gone into debt fueling the housing ponzi, and this has enabled Govt (and overseas investors) to build a positive net financial worth.
The issue here for Grant (or Nicola) is that the advice that the Minister of Finance gets from RBNZ and Treasury is terrible - based on broken economic models built on falsehoods and thinly masked ideology - e.g. 'crowding out', 'inflation expectations', 'rational actors' etc.
Agree (mostly).
If one was to pick just one issue with major consequences to NZ Inc that Treasury is useless at - it would be NZ's Taxation system.
Our current taxation system creates massive distortions in how capital is deployed and how labor is supplied. (Our low productivity is but one symptom. Another is our house prices. Another is how many people see no value in working. Another is how much food costs in NZ.) Our taxation system is outlier in the OECD and we are worse off for it.
And yet ... Nothing from the RBNZ (it's outside their lane), Treasury and successive governments.
Agree - 90% of commercial bank credit injected into our economy is for property development or to buy houses. Next to nothing is lent for innovation, productivity investments etc. This is a direct result of capital gains from property being the obvious place to put your money in NZ. It's crazy.
I didn't specify business lending only, or over the last year (when property development loans have dropped off). I was talking about the medium-term trend for credit flowing into the economy.
Over the last 6 years (for example) total outstanding housing loans have increased by $112 billion, personal loans have been flat, and outstanding business loans have increased by $27 billion plus $2.6 billion for Agriculture (RBNZ C5). The increase in business loans has been around 40% property development loans (RBNZ C36). So, around $17bn of the net flow of credit into the economy has been 'non-property' business loans - about 12%. This has increased by a percentage point or two since last time I looked because businesses are using more revolving credit these days.
Maybe part of the reason is that our learning institutions don't produce many Risk Takers, Innovators, Entrepreneurs..?
How many Peter Becks ( rocket Labs) are out there ? (Banks were NEVER going to lend to him, as a startup. )
AND.... with a coming wealth tax.... why would they take their Entrepreneur/innovation risks here... in NZ ?
Blaming the lack of Risk Takers, Innovators, Entrepreneurs... on the fact the most of our credit creation goes into the property sector, doesn't make much sense to me.
Amazons startup capital came from the Parents of Jeff Bezos ..!! ( Maybe his parents mortgaged the house ?? )
Amazons startup capital came from the Parents of Jeff Bezos ..!! ( Maybe his parents mortgaged the house ?? )
I have worked for his company. They do have a good business structure in certain areas of the business in that anyone at any level can bring ideas to the table and get it raised as high as it needs to go to enact action, but although they sell you the story of him selling books off a desk he made out of a door in his garage back in the day, that company is nothing more than a shark. They let 3rd parties sell on their platform, harvest the sales data, then find the manufacturers and buy up all the stock for months in advance then nobody else can get those upcoming popular goods to sell, then sell it at a much cheaper price from economies of scale. The company swallows all in it's path and destroys approx 60% of returned goods in the UK at least, which is incredibly wasteful, but they have so much money they don't care.
I'm assuming that's a reference to the massive support people and business got throughout our pandemic response.
Well said.
Voters clearly are extremely ungrateful.
No matter. They'll see the nasties back in charge soon.
And in 100 days they'll be thinking Labour wasn't so bad after all.
Me? I'll be smugly saying, "I did warn you. Suck it up. You made the bed. You lie in it"
(I'm in the top 5% so I'll be watching on from on high while sadly shaking my head at the self inflicted suffering. ;-)
I hope that the National Party will respect its promise to remove employment from the RBNZ’s mandate in its first 100 days, if elected.
This will remove any residual excuse for any kind of ultra-loose monetary policy, and finally force the RBNZ to do its job properly by raising the OCR to the necessary level to effectively fight inflation. The OCR should have been at least 6% by now.
BUT... the Govt is already borrowing to spend?
The Tax cuts we are talking about are to be , somewhat, funded thru other taxes...
Explain how that is extremely inflationary..?
Explain how a tax cut might be inflationary vs any other Govt spending funded thru debt. ? eg... working for families.. etc
Chris, you may not have heard, but Luxon is already talking of not being able to go through with tax cuts because of the state of NZ's books. And he reckons it will actually be worse once they really get a look at them. A couple of things that Robertson doesn't bother mentioning. Current account deficit of $30bn (which is a complete disaster and will cost NZ in a big way) and interest costs forecast to be higher than education spend in a year or so. Robertson is a numpty and it's difficult to see how he even balances his own bank account.
"...the LSAP programme (the one actually in effect this year) has been inauguarated with the explicit and repeated consent of the Minister of Finance himself (through the guarantees he has provided to the Bank)."
https://croakingcassandra.com/2020/11/26/robertson-playing-distraction/
We have the full letters here,
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/about/mou/mar…
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/news/2020/let…
The finance minister was hardly likely to decline any request from the RB as they are supposed to be the experts in these matters.
Quite amazing that after that much in handouts / welfarism for the property market via LSAP that Luxon is still campaigning on tax breaks and a free ride for property speculators. Wonder if having such a large property portfolio has anything to do with it. One might have thought being on the receiving end of such massive wealth transfers could have sated greed for a while.
Steering the country through the crisis and coming out the other end with a bigger economy and record employment rates was his greatest accomplishment, he said.
I would have to say the large increase in homelessness over his term, as well as financial barriers in NZ to starting a family and owning a home are not something to be proud of. It's one thing to look good on paper, it's another to have crackheads roaming the streets and more than just the youth bailing to Australia for lack of a positive vision for NZ says a tad more about how the average kiwi feels about Robbo's 'achievements'.
The whole CPI/OCR thing is a total load of rubbish. All that has ever been achieved by a low OCR is rampant capital speculation followed quite a while latter by the increased confidence and spending that the wealth effect creates. Problem always has been that the primary effect is a speculative bubble that causes a lot more trouble than it is worth.
The arrogance of this guy.
When interviewed by Bernard Hickey about the rampant rise in house prices 2020-2021 his response was something along the lines 'at least they have jobs.'
On the off chance BH reads this can he provide the full context to Robertson's response and the exact wording. It appeared on BH's paywall site, The Kaka.
I'm sure voters would like to be reminded of this.
Would've asked him three things...
- How he feels about the losses incurred with the LSAP;
- Recent significant increase of people on the Jobseeker Benefit (who aren't necessarily counted in the Unemployment Rate as measured);
- His best guess of the domestic (non tradable) inflation figure for the upcoming September Quarter (so he can't blame overseas factors).
Onya Grant, we've had $100 bills floating down from the clouds above here there and everywhere, It's called BORROW BORROW AND BORROW some more, now you are going to be kicked into touch! as an ever increasing 75% of NZ'rs do not want another piece of another Labour Government, the sad news of your demise is that the incoming Government is faced with trying to start repaying the massive debt, that you have overseen and committed this country too, very tough times ahead for the families of NZ Citizens especially for those with mortgages!!
Funny how many people in NZ view a tax cut as a negative. A tax cut is letting people keep more of their earned income. But there seems an attitude thats it's better to keep taxes high and then let the politicians determine who should get a give back through government handouts. The real problem for little NZ with 5 million people in a remote part of the world is that it has become too expensive here.
Tax cuts increase inflation, as people have more money to spend. Inflation leads to higher interest rates, which increase rents, which in turn increases inflation. It is a inflation spiral that NZ is stuck in. Australia has a higher tax rate than NZ, and also have other taxes such as Capital gains tax. NZs problem is that we essentially don't tax capital gains, so property investors etc really aren't paying their fair share of tax, and salary earners are picking up the tab.
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