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Peter Dunne argues the real questions over the Budget arise not from its economics but with the politics of it

Peter Dunne argues the real questions over the Budget arise not from its economics but with the politics of it

By Peter Dunne*

Grant Robertson says it is a "Rebuild Budget"; Simon Bridges says it is a "Tax and spend, borrow and hope" Budget. But both would they say that, would they not?

In reality, this Budget is neither as positive as the Minister has painted it, nor as negative as the Opposition claims. It looks to be a cautious and fiscally prudent document, which maintains but does not accelerate significantly the new expenditure track of the previous Government in health and education; allows through reprioritisation of existing spending the introduction of some of the Coalition Government's new programmes; and reduces the overall level of debt to below 20%.

Where the Budget has not been able to deliver expected policies - like the $10 per visit reduction in the cost of going to the Doctor - it makes it clear that the policy will be achieved over the balance of the Government's term. While conservative, given the overall fiscal position, the staging of commitments is a good step forward, especially since too often in the past commitments shelved one year by successive Labour and National Governments have often disappeared altogether.

Despite the Opposition's concern about more borrowing, the real questions over this Budget arise not from its economics - the Minister has made a good fist of balancing the numbers and projecting surpluses into the future - but with the politics.

While Mr Robertson wins plaudits for making clear what was not done in this Budget will be done in the next before the 2020 election, he has at the same time tied himself firmly into a straightjacket. He now has no alternative but to honour those commitments. While many will welcome that, there are some potential negatives.

First, his straightjacket means that, in implementing these commitments, he has left himself little to no headroom for anything that might emerge in the future. Put simply, Labour has played all its big cards in its first year and the next two Budgets will be about implementing the details. Knowing the Government's hand this early leaves the Opposition plenty of scope to develop attractive alternative policies over the next two years. And it makes life a little more awkward for New Zealand First and the Greens. Their trophies are now pretty much in the cupboard, leaving them with the perennial support party problem of relevance between now and the next election. And Labour needs both of them to make it over the electoral line in 2020 to remain the Government.

Second, there is a heavy reliance on the domestic and international economies continuing to perform well over the next two years. Even the notoriously and inveterately overly optimistic Treasury forecasts show there is little headroom should things falter on the home front, let alone there be an international (erratic America-first Trump-induced?) economic correction before 2020. In that event, the Government could be left high and dry with a less than half completed programme and no good news to show in its election-year Budget.

And then there is the reaction of the traditional Labour leaning groups like the teachers and the nurses. It is clear that the significant pay increases they were expecting as their payback for loyal support over the years are not among the new education and health spending in the Budget. Already both are making noises about this. So will the nursing and teaching unions rest quietly, and settle for jam tomorrow, in potentially uncertain times, or will they demand their slice of the pie now? According to their own narrative, they were held back so much during the nine years of the National-led Government, so they seem unlikely to be quiet now "their" party is in power.

This essentially stand-pat Budget certainly passes the good management and solid accounting tests, and the Government will be clearly (if vainly) hoping that, in the absence of any coherent economic growth strategy, this "reliable hand on the tiller" approach will assuage some of the concerns of the business community and stem the erosion of confidence. It probably will not do that, because the leading business and employer groups have now become just as stridently partisan as the unions they criticise. The Government will calculate that business has therefore painted itself into a corner, so probably will not be too bothered by the criticisms.  

Of more concern will be the fear that the Budget may fail to satisfy the many who voted Labour last year believing the new Government would do all the things it promised in an immediate new wave of Savage-like compassion and commitment. If they feel that instead they have ended up getting a Budget pretty much the same as they could have expected from National, Labour has a problem.

Grant Robertson says this Budget is but the foretaste of what is to come in 2019 and 2020. Given that and the unreal expectations he and his colleagues let build up for this Budget, he could be dangerously tempting fate for the next two!


*Peter Dunne is the former leader of UnitedFuture, an ex-Labour Party MP, and a former cabinet minister. This article first ran here and is used with permission.

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What has not been mentioned much about the budget when it is framed "politically" is this its conservatism is a continuation of the same old. The h'holds are still doing all the donkey work for NZ. Of the top of my head, h'hold debt to income is up around 160% of disposable income. If the h'hold is the mule, what is the target? Somewhere closer to 200%? We read about all the money being splashed around on new cars because the sheeple feel richer because of house prices, but ultimately someone's going to be left carrying the can for this unsustainable approach to stimulating consumer spending. The central bank has made a few noises, but nobody will be listening anyway.

Robertson could have gone all out and relieved h'holds to some extent (govt spending ends up in the private sector). He didn't and was probably advised not to but institutional types. It's almost as if he's waiting for the next crisis to "splash the cash", but what if the sheeple are too deep in the mire as it is? Our private debt to GDP is already greater than Japan's at the height of their bubble.

In some ways, we might have been better under a National govt who would protect the status quo by "doing nothing" (the myopic, wrong-headed focus on low public debt). It would be a more fertile environment for letting h'hold debt get closer to the day of reckoning.


Household debt is 168% of household disposable income, or roughly 80% or 90% of GDP (depending on which figure you use for GDP). If household debt was 160% of GDP we would be _______ed!


Yes you're right. Too many statistics bouncing around inside my head. Most developed nations have a h'hold debt to GDP ratio of approx 60%, so we punch above our weight. The Aussies are at 100% h'hold debt to GDP.


Try 120% for Aussie, tho no doubt there are a variety of GDP and Debt figures you can choose from to move it a bit in either direction.


Yes, that will be from Bank of International Settlements. Approx 120%. 2nd highest in the world after Switzerland.


anyone know how that 92% figure is derived. According to rbnz c5, the aggregate loans to Housing, Consumer, and Business for 2017-12-31 are 243790, 16449, 107689 million respectively . GDP per quarter for 2017-12-31 is 63540 mil (RBNZ m5 data - not sure which GDP to use).

Arr figured it out as I was typing.. 243790 / 4*63540 = 0.95 (GDP's per quarter) I guess that number's close enough.


Good points made by the ever-natty PD. The main issues I see with the budget are in the assumptions made and stated here, some of which are already demonstrably way out.

Two examples:

  1. WTI crude is assumed to
    fall from USD$62.9 per barrel in the March 2018 quarter to US$60.0 by mid-2018 and remain stable thereafter

    . WTI is currently $USD 71.01 and heading north. This, combined with a gently lower trending $NZD, will cause increased costs throughout the entire economy, only partly offset by increased export returns if the FX rate continues its slide. Gubmint can do precisely zip, nada, zilch about this effect, except (but of course) to exacerbate it by loading up more excise, duties, levies on that awful Fossil Fuel (none of which, dear reader, are Taxes....)

  2. The trade-weighted exchange rate is assumed to remain broadly stable around 75 over the forecast period

    It's currently around 71.9 (the 9am post from DC always includes a TWI graph object which is worth a look) - TWI has not been '75 or thereabouts' since October 2017.

Now, the Treasury assumptions are very much a bureaucratic CYA exercise. They provide the perfect answer to a politician's anguished cry, months down the track 'But you never told me....' to which the Sir Humphrey's smoothly-toned rejoinder is, 'Well, Minister, we did clearly state all our assumptions on Page 13 of the 2018 BEFU...I do hope you read it."

But the wider issue, Treasury antics aside, is that both of these indicators are well astray of assumed values now, that they influence business current profitability now, and business intentions later, and there can be a lot of events which push them further into unfavourable territory. A selection:

  • M Bovis: either a massive cull is ordered (striking at the heart of Ag factors of production and thus output) or it is decided to 'live with' the disease and our beef meat exports come under question in markets which are always picky, and in countries which tend to delight in imposing non-monetary tariffs on flimsy grounds. If MPI decides to recoup efforts to date from farmers for anything more than the GIA accord would suggest, then expect profitability, sentiment and Ag/Gubmint relationships to dive along with output.
  • There is now evidence for some animus amongst those whose expectations had been raised in advance of Budget 2018. A straw in the wind: the print firm which produced the dead-tree version of BUD2018 had workers go on strike the day after the print job finished. Nurses, doctors, teachers, police were all promised raises in both funding and in some cases numbers. There is less in kitty for each of these sectors than perhaps they had been lead to believe. The Coalition has had a herding-cats issue from day 1 in terms of loose lips amongst the outer fringe, and this almost certainly contributed. But dashed hopes linger on for long periods, grievances fester, and none of this will aid in that magic goal of Increased productivity. Especially the traditional 'withdrawal of labour' in strikes, work-to-rules or other traditional expressions of Resistance.
  • Business has the ability to control its costs: it's the centrepiece of budgeting, especially when expressed as a % of Sales. So the current mood of uncertainty, exacerbated by the data-free withdrawal from Oil/gas (short version "Taranaki, just die already") will lead to a mixture of three core responses:
    1. Substitute labour with automation, robots, outsourcing etc.
    2. Offshore core parts of the business, especially if markets are also offshore, and keep design, IP creation and the like here only. This is the textiles model for some decades now.
    3. Hunker down: downsize to a level of operation that keeps the proprietors in pocket money, but essentially aims simply to weather the storm.

    #1 and aspects of #2 strike at employment, #2 and 3 strike at overall onshore activity and thus tax revenue.

Assumptions matter, and they are already on the wrong side of the ledger.


Thanks for this. Enjoyable and insightful commentary.


"leaves the Opposition plenty of scope to develop attractive alternative policies over the next two years."

The last 9 years has already shown us what Nationals economic policy is all about.

Cut cut cut cut cut do nothing.

Where's John Key?
Where's Bill English?
Where's Steve Joyce?
Where's Jonathan Coleman?

Games up.


Do you still get paid if it's a (mostly) duplicate post?


Oh brave New world! And watch the Unions fly the red flag!

Nationals performance over the next 2 years will be as instructive as the Coalitions. They don't have policy, they have variations of other parties ones. Tough spot to argue from opposition.

Puala B won't enjoy being ridiculously portrayed on 7 Sharp as she was leaving last night by Newsboy. Mood in the popcorn media machine has already turned against the old Government.


Basically they seem to have taken money from one National scheme, such as Roads of National Significance and, instead of renaming them Roads of Worker Freedom or something like that, reallocated it to other worthy causes like hospitals and Auckland Houses. Workers can take buses, they are not allowed cars.

The cancellation of the Oil and Gas industries' future is a massively destructive own goal, breathtaking in its stupidity. Isn't our electricity expensive enough already? It is fashionable to run Muldoon down but where would our electricty come from today without Hydro (Muldoon) or Gas (don't mention Coal)? Speaking of Coal, New Zealand was seen as a worse place for mining than DRC, before the new government got in.

The good news is that having frightened off any potential overseas investment in either low productivity housing or high productivity mining, we can now enjoy a period of lower and lower exchange rates. The ragged few export industries of ours that have survived the multi decade onslaught of foreign money, high exchange rates and ineffective anti business government can look forward to a short period of good returns before the inevitable clamour for higher wages comes along.

C'est la vie.


Labour used to be the transformational party ... the guys with a big ideas ... with a fresh perspective ....

... they now have settled for interest free student loans ... free tertiary education for first year's at uni ... and boosting working for families .... a state schools only policy ... no fossil fuels exploration ... hikes on petrol taxes ... and $ 650 000 average home prices ...

I cannot fathom how that lot is gonna do anymore than endlessly suck the lifeblood out of regular tax paying workers ...

... it's not growing the pie , is it ... just shuffling and redistributioning ...