UPDATED: 10:34am, September 10
New Zealand’s Delta outbreak has seen Parliament empower the Government to spend several billions of dollars over and above what was allocated in this year’s budget.
The Government was given this authority via an imprest supply bill, passed on Wednesday night.
It means it can spend $24 billion on operational expenses and $15 billion on capital expenses, as well as $2 billion on capital injections by June 30, 2022.
A large portion of this $41 billion is above what was accounted for in the budget. Some is money already accounted for, but reprioritised.
“This is an envelope of funding. It is not a target,” Finance Minister Grant Robertson said, stressing last year only 36% of the same type of provision it was given was used.
“It ensures that if unforeseen circumstances occur, the government has the authority to spend,” he said.
Opposition wants govt to stop rushing through expenditure under the guise of Covid-19
National and ACT voted against the bill.
National Finance Spokesperson Michael Woodhouse argued (see video below) the Government had spent some of the $62 billion set aside for Covid-19 in 2020 on projects with “tenuous links or no links at all to Covid-19”.
Around $8.7 billion of the $62 billion is available. Around $4.7 billion of the fund is yet to be allocated. Another $4 billion can be pulled from underspends from other projects.
Woodhouse pointed to money spent on the Three Waters reform, strengthening the Family Court, ensuring there are cameras on fishing boats and funding to commercialise NZ Music among other initiatives.
“While the projects may or may not have merit, they should have been subject to the normal budget process,” Woodhouse said.
“Covid-19 has been used by the Finance Minister as cover for circumventing established practice around new spending. These practices prioritise quality projects and weed out lower quality spending.”
Robertson said every government since 1989 had used the imprest supply mechanism, albeit to spend much smaller amounts on unforeseen expenditure than in this Covid-19 environment.
He noted members of parliament have the opportunity, through the financial review process, to analyse initiatives any of the $41 billion will be spent on.
Too early to say if more borrowing will be required
The issue of where the Government gets the funding from is a separate one, not dealt with by the imprest supply bill.
Treasury’s Debt Management Office is responsible for deciding how much government debt to issue. It makes this call based on fiscal forecasts - how much revenue the Crown is expected to receive via tax, etc versus how much it’s expected to spend.
Just because the Government gives itself the ability to spend up to $41 billion, doesn’t necessarily mean it will. It also doesn’t necessarily mean all this expenditure will be funded by new debt.
Some of the funding has already been accounted for in the system. For example, the unallocated $4.7 billion part of the initial Covid-19 fund makes up some of the $41 billion.
ANZ senior economist Miles Workman said it was too early to guess whether the Debt Management Office would need to issue more debt than planned.
He noted the economy has performed better than expected since Treasury released its last forecast bond issuance programme in May. There is more tax revenue available than initially thought.
The Debt Management Office is next due to update its forecast bond issuance programme when Treasury releases its Half Year Economic and Fiscal Update towards the end of the year.
The $30 billion of New Zealand Government Bonds the Debt Management Office is due to issue in the year to June 2022, is already more than was expected by analysts in May.
Financial markets watch this programme closely, as well as specific funding allocations made by the Government.
More govt spending could help RBNZ hike interest rates
Workman noted there was a risk that injecting more money into the currently overheated economy could simply inflate prices rather than increase economic growth - particularly as the economy is constrained on the supply side.
However more government spending does give the RBNZ the opportunity to start hiking interest rates, better placing it to respond to downturns again in the future.
Furthermore, Workman noted government spending (wage subsidies, welfare payments, etc) can be better targeted to those who need it, than changing the cost and supply of money via monetary policy.
The RBNZ is next due to review its monetary policy settings on October 6.
NOTE: This story has been corrected. Interest.co.nz was initially told by Robertson's office that the $41 billion would be expenditure over and above what was budgeted for in the annual budget. However, his office later confirmed this wasn't the case, and some of the $41 billion is already accounted for in the system.