Finance Minister Grant Robertson's presided over another strong financial year for the Crown - but he's still not expected as yet to provide the fiscal kick many are seeking for the economy

Finance Minister Grant Robertson's presided over another strong financial year for the Crown - but he's still not expected as yet to provide the fiscal kick many are seeking for the economy
You've got to have friends: There's increasing pressure on Grant Robertson to help out RBNZ Governor Adrian Orr (right) with some extra fiscal stimulus - but to this point he hasn't.

The irony is unlikely to be lost on the business community.

As it collectively talks itself into an ever gloomier state, it will on Tuesday (October 8) witness the sight of the Government unveiling what's expected to be another bumper surplus for the year ended June.

And while there's a growing chorus of voices (including not least the voice of the Reserve Bank Governor Adrian Orr) imploring Finance Minister Grant Robertson to roll out some 'fiscal stimulus', it's not seen as likely that he will, at least not at the moment.

As Kiwibank chief economist Jarrod Kerr and senior economist Jeremy Couchman put it: "Minister of Finance, Grant Robertson, has the opportunity to signal a change in fiscal policy direction, ahead of the Government's half-year fiscal update in December. However, we expect an announcement of another outsized surplus and a commitment to irresponsible fiscal rules." (They've previously pointed out that the fiscal responsibility rules are "effectively irresponsible" as they say these limit infrastructure spending to get debt levels down to levels we don’t need.)

"Here's hoping there is a change in tack. But we are likely to be disappointed, again. And we must focus on the RBNZ, again," they said. 

The RBNZ dropped the Official Cash Rate by 50 basis points (to a new record low of just 1%) on August 7 in an attempt to stimulate the economy. It's widely expected that the RBNZ will cut rates again next month.

Meanwhile, for the 11 months to the end of May the Government's operating balance before gains and losses (OBEGAL) was just under $7 billion, which was $2.5 billion ahead of forecast in May's Budget, while net core Crown debt as a percentage of GDP was 19.3% - comfortably below the 20% target.

Economists are quick to point out that much can change in the final month of the financial year's wash-up - but there should still be a substantial surplus and a set of accounts showing the Crown in rude financial health.

Robertson has signalled a broader debt-to-GDP target in future years of up to 25%, but given no hints as to whether and when such wiggle room would be used.

In an in-depth ANZ Economic Insight, titled 'Let's Get Fiscal' ANZ senior economist Miles Workman said balancing up the need to be prudent with the ability to borrow more would suggest the Government could increase spending (or reduce taxes) by around $30 billion "and still tick the fiscal-prudence box".

"To put that in perspective, the current level of net core Crown debt (excluding NZ Super Fund financial assets and advances) is around $60 billion."

He says, however, while that seems "like a decent factoid" to rest an argument on that the Government could be doing a little more, there are longer-run fiscal challenges that need to be considered, as well New Zealand's need to run a more prudent fiscal position than other countries.

"After all, New Zealand runs persistent current account deficits, has a significantly negative net external investment position (although this has improved as a share of GDP over the past 10 years or so), and a very indebted household sector."

He says that ultimately, any Government stimulus package should have regard for "the three T’s" - that is, temporary, targeted, and timely.

"Ticking all three boxes will likely require both more spending and lower revenues."

By no means everybody is convinced there should be a programme of fiscal stimulus. 

National's Finance Spokesperson Paul Goldsmith didn't agree with Robertson's broadening of the debt-to-GDP target.

And BNZ economists say people should be wary about inferring from Tuesday's Crown figures that the Government has a lot of room to move in terms of fiscal stimulus.

BNZ senior economist Craig Ebert says it’s worth noting that "some (most?) of the recent out-performance in the Crown accounts appears related to the new tax-recognition scheme that IRD started to employ earlier this year, in the sense of front-loading".

"This, and the prospect of GDP growth proving materially lower than the 2019 Budget projected, means people should be very wary of reading tomorrow’s “bumper” government accounts as wherewithal to spend up large (as has become the hue and cry).

"Indeed, to the extent that (core) operating deficits start opening up over the next couple of years – which we still believe is the bias – the maintained net-debt target of 20% out to 2021/22 could easily be called into question."

He says in the the meantime there is also the irony that the government is struggling to spend as much as intended, on account of a severe lack of resources to be able to carry out the work.

"The latter does not speak of an economy currently suffering a relative lack of demand, in need of government expenditure to save it from a major pothole; quite the opposite."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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He must be considering buying gold reserves.

If not why not.

Who is going to pay for it? Teachers, by having their wage negotiated rise cancelled? Hospitals? Police? Pick a Social Service you like but to 'store' gold costs disposable national income, one way or another. Should we tie up a billion dollars a year in having a gold safe? It seems to me to be the opposite of what this article is suggesting - spend! Besides. We already have a 'store' of assets on our books (residential property), and that's what's holding us back?
"After all, New Zealand runs persistent current account deficits, has a significantly negative net external investment position .... and a very indebted household sector."

A good friend on mine once worked in the beehive, and advised politicians do anything to retain power.

Fiscal stimulus is just round the corner people. Unfortunately most will be a quick sugar fix to get the blurred masses happy.

Until the government impliments sustainable policies; and not try to save the world while they do it, we will continue to be hollowed out by overseas owned cartel operators stripping NZ inc of the wealth it creates by extracting excessive profits.

How on earth does an overseas bank justify a 16% return on equity, when equivalent scale utility companies earn less than 8%. Follow the money, as past politcians line their pockets with cushy bank jobs; who aid and abated this scam. Jonkey, Shipley, Bolger, Simon Power, Brash....the list goes on. And all from the National Party.

If the National party want my vote; for that matter those that now have worked out they're a fraud, they're going to have to focus on whats sustainability good for NZ inc, rather than themselves. This wont happen with Noddy in charge.

Henry-Tull,

How many reasons do you want? Here is a direct quote from the RB in Nov. '16 in response to a query I made; "The Reserve Bank's position is that gold does not meet our liquidity requirements. Gold also incurs storage and handling costs and moreover,the price of gold goes through very large cycles,making it a more risky investment than short-term government debt".

Just how much capital would you could you consider to be the minimum necessary to make such a holding worthwhile?

australia gave everybody a tax refund and it made no difference so i think they will let apathy be their ally as usual and do nothing.

Yep.
So spend up on infrastructure and housing.
Creates jobs, makes our cities more efficient and productive, and gives us all more disposable income.

You're right in theory but economic growth in NZ is faltering fundamentally due to the lack of productive capacity. The government will aggravate the strain on productive resources by creating yet more demand pressure on those limited resources.
Such a move could easily spiral construction and labour costs out of whack. In short, the problem we have at hand is low supply.

All that can be done at this stage is speed up the reforms proposed in town planning, RMA, consenting, construction visas, etc.

It's not "productive capacity" that is the issue. It's more on the demand side. Not enough people with money to spend is stifling the economy, with a shrinking consumer base. This is a symptom of growing inequality. There's plenty of businesses that have far more productive capacity, just not enough customers.

I did not mean any business and any capacity whatsoever. We were discussing on fiscal stimulus w. r. t housingand infrastructure. Governments don't exactly buy lattes as a part of fiscal stimulus.

Construction related businesses won't have the capacity to meet the added demand from several infra projects costing billions. That will just price the smaller developers out of the market.

Shrinking consumer base? Our population is growing at 1.5% annually.
Spending is down due to high cost of housing etc. leaving less discretionary income in the hands of consumers.

But surely if they show a big forward workload that isn't subject to the whims of the market then businesses can gear up and invest with confidence?
Note - I agree with you around planning reform etc. That's necessary, amongst other things, to even out the boom / bust cycles that makes long term investment so fraught.

You've got a point. In fact, part of the Infrastructure Commission's mission statement is to create a pipeline of greenfield and brownfield projects.
The new agency will be a gamechanger in the otherwise ruling party ideologically-driven decision making process.

Good on the Kiwibank economists calling the govt out. I am really liking these guys. A nice change.

Fiscal kick - where are the tradies, workers (and machinery) going to come from as there is not that much spare in NZ ATM?

Pls do not say from immigration.

Some of the big projects will be finished soon, they will free up some capacity

Did you see the Sat Stuff report on foundation issues in possibly 10000 Christchurch houses, previously unknown?

Christchurch needs possibly another billion.

Yes. I'd rather they were prudent and sorted that one out rather than get dragged kicking and screaming thru the courts.

ChCh is a debacle of epic proportions.

... considering that the main players in the rebuild were EQC , the CCC , Jumbo Gerry , Feltchers and a bunch of insurance companies ... what'd ya expect ...

They did well to raise themselves up to merely " a debacle of epic proportions " ...

True. At this stage, we just hope the cheap money from rate cuts eventually makes its way into the hands of developers, builders and equipment leasing companies and they use it for productive expansion.

It's simply 'cut and hope'...

So while Mr. Orr advocates consumers to go out and spend spend spend, our Minister clinches surpluses and shows reluctance to spend at all. What message are you sending to the your constituent?

How would it help people to borrow money to buy s*ht they don’t need?

I don't understand the problem that spending more is proposed to solve.
We're currently near full employment, with capacity constraints creeping up.

Yes there are clouds on the horizon, but they haven't really landed on our way of life yet. Maybe we should be calling for the government to articulate it's plans if the clouds turn to rain eg
- At 5.5% unemployment, we'll spend $xxx on this set of currently shelved projects
- At 6% we'll spend xxx on xxx

Just seems like fiscal stimulus on top of the monetary stimulus we already have could be fuel on the fire (fuel that's needed later likely!)

I completely agree. Or they could announce some projects 1-2 years ourt.

Dare I say it, the government wouldn’t need to run such big surpluses if we raised the age of superannuation.

I don’t know what people expect the government to spend money on that will boost the economy. We don’t have the capacity to build more infrastructure and I doubt we have any spare doctors, teachers or nurses.

So that only leaves tax cuts and if we have learned anything from the American experience it is that tax cuts are a poor economic stimulator. So there is little point borrowing money for tax cuts just to get weak stimulus and kick the debt can down the road.

You forgot the major growing political movements calling for a decrease in consumption levels/carbon footprint etc. That's not confidence, that's an "up yours" to the ideology of mindless pursuit of nominal GDP growth.

This will become a big contradiction to resolve in the coming years.

Indeed: the XR kiddies with their 'Zero Carbon by 2025' have Zero Clue about the practical effects of such a plan. My advice would be to ban diesel trucks within Climate-Emergency-declared council areas, to speed up the realignment......let'em deliver everything with cargo bicycles....

The best way to stimulate would be to increase the Income Tax brackets across the board.

This would basically give most working people more cash in the hand and would benefit the whole economy as it would increase consumption across the board. You can also make the adjustments to benefit those who need it most (at the bottom end).

In saying that, having low debt levels it is a nice position to be in should GFC 2.0 hit.

In principle, we should be adjusting our PAYE slabs to make up for the tax creep that has occurred since the last change 9 years ago.

From a fiscal stimulus perspective, the effects of tax cuts are fairly short-lived extending up to a quarter or two at the most.
I would rather have the government do more to fix the broader tax system that disproportionately benefits speculation over productive investment. Such a move would have lasting results in improving living standards for NZers and lift wages around a more productive economy.

It ain't going to happen. Cut the B---S--- and lets have some well though out and workable policies for NZ Future. We have just squandered NZ> next ten years since the Coalition took over Grant Robertson knows that the country is in real trouble. All Gloss and no substances.

I agree its an easy way to get a cash injection into the market, just change the tax brackets with perhaps zero tax on the first of your income to help those at the bottom end. Problem is that this government is greedy and is spending all that money and is reluctant to give any of it directly back to the workers, however if business confidence continues to plunge you can bet tax breaks will turn into an election promise before the next election. I'm expecting the next election to be a lolly scramble of epic proportions because its the only way that the COL is going to get back in.

And, to add cost to the biz equation, there's the relentless rise in the Minimum Wage....death to hospo.....

Wow all over the 6pm news tnite we have 4 billion more than expected in the kitty and guess what ? Tax cut announcments to be made next year what a surprise!