By Jenée Tibshraeny
Some financial markets traders were left confused last week when it was reported in the media that a bill had been passed to empower the Government to spend up to $41 billion “over and above” its annual budget.
Parliament on Wednesday night passed an Imprest Supply Bill, giving it the authority to spend up to, but not necessarily, $41 billion on unforeseen expenses by June 30, 2022.
As it turned out, not all of the $41 billion was “over and above” what has been accounted for in Budget 2021.
In fact, around $15 billion could be funding already accounted for.
Finance Minister Grant Robertson's office explained: "It is not the case that the Government intends to spend $41 billion more than set out in the Budget, as much of this amount is funding shifted between appropriation, or already accounted for in the Budget, or unlikely to be utilised."
The distinction is important. It affects the level of borrowing the Government may need to do. The amount of spending the Government signals it’s prepared to do could also affect inflation and therefore the way the Reserve Bank sets interest rates.
Why then did the media, including interest.co.nz, get it wrong?
Robertson’s office initially provided the wrong information.
Interest.co.nz on Wednesday night asked whether the $41 billion was “above” what was budgeted for. On Thursday morning it responded, yes. Interest.co.nz wrote a story accordingly.
Later on Thursday afternoon, Robertson’s office got in touch to say not all of the $41 billion was actually above what was budgeted for. Interest.co.nz corrected the story - something we take seriously and rarely need to do.
By this point, ANZ senior economist Miles Workman had been fielding calls (mostly off the back of another media report published on Wednesday night) from traders seeking clarity around this $41 billion.
Kiwibank chief economist Jarrod Kerr said there was some head-scratching among traders, who raised the issue with him too.
Again, there is a material difference between the Government potentially sourcing up to $41 billion for new expenditure, versus it using some money from underspends and contingencies already accounted for in the Budget.
Workman explained: “Not all of this ($41 billion) can be considered potential new spending over and above that included in the Treasury’s medium-term Budget forecasts.
“For example, some essentially frees up the Government to spend funds that are probably already baked into the outlook, but not necessarily allocated to this fiscal year, and some represents fiscally neutral adjustments.
“At a minimum, it looks like the pot of potential new spending in here could be closer to half that amount.
“It’s important to note that this Bill merely gives the Government the option to spend more. It’s not a guarantee that it actually will.”
Robertson’s office should’ve issued a press release explaining exactly that.
An event worthy of a press release
Imprest supply bills are technical and effectively deal with the plumbing that sits behind public finances.
These bills are routinely passed every year without fuss. But they don’t usually give governments war chests worth up to $41 billion.
The Government being empowered to potentially (but not necessarily) spend this much is worthy of it proactively explaining what’s happening - if not for the sake of transparency, then for the sake of providing clarity around a confusing technical issue.
If the Government can issue press releases for a few million dollars of expenditure, it can do the same for a pot of $41 billion.
A mitigating factor is that what the Government actually commits to spending, how that compares to its tax take, and what that means in terms of how much debt it needs to issue, are more salient issues.
While Workman sent out a note to his ANZ stakeholders on the Imprest Supply Bill, it wasn’t front of mind for Kerr. Nor was it something ASB chief economist Nick Tuffley was particularly interested in.
Nothing to see here…
Robertson’s office hasn’t sought to set the record straight with other media over their characterisations of the $41 billion.
The irony is, clarifying that much of the $41 billion has already been accounted for actually makes the Government look better and the situation less alarming.
Presumably Robertson’s staff figured there wouldn’t be too many people concerned about how much of the $41 billion is specifically over and above what was budgeted for.
What’s more, they might not want to draw more attention to the fact the Government is giving itself the ability to spend a whole lot more. Labour remains sensitive about being seen to be more frivolous with money than National.
Robertson was at pains to clarify in Parliament that the $41 billion was not a target and only 36% of what was made available to him last year via imprest supply was actually used.
National’s Finance Spokesperson Michael Woodhouse used the passing of the Imprest Supply Bill to question the quality of expenditure done since the onset of Covid-19 and the process followed to expedite this expenditure.
However, even Woodhouse in a press release said the $41 billion was “over and above” Budget 2021.
Public finance isn't niche
Yes, the issue is complex and seemingly dry. But it’s the Government’s responsibility to accurately, if not proactively, explain what it's doing.
There’s an argument the economy needs more targeted government spending and less monetary stimulus.
But if the public is to trust the Government to carry on spending up large to support struggling households and businesses, it needs to go above and beyond on the transparency front.
Public finances - what we pay in tax and receive in state services - should never be dismissed as too niche for public debate, especially not in this war-like environment.
The finer details
For those interested in exactly how the $41 billion is comprised, below is a table and explanation provided by Robertson's office.
"The line on ‘technical changes at baseline updates’ are essentially fiscally neutral adjustments between one appropriation and another, and are not net increases to the level of government spending.
"The line in Imprest Supply relating to tagged contingencies or between budget contingencies are in included in the BEFU 2021, under unallocated operating contingencies (p. 107)."