The Government's commitment to establishing a non-partisan fiscal costings body is the right move - you only need to revisit the $11.7b fiscal hole saga to see why, says Jason Walls

The Government's commitment to establishing a non-partisan fiscal costings body is the right move - you only need to revisit the $11.7b fiscal hole saga to see why, says Jason Walls
Steven Joyce.

By Jason Walls

When it comes to politicians playing politics, former Finance Minister Steven Joyce is up there with the best of them.

As National's campaign chair for more than a decade, Joyce developed a fundamental understanding of politics, the media and - most importantly - voters. He knows what makes them tick and how to spin a story - it's for those reasons, I should have been a bit more sceptical when he invited reporters to his office for a "significant announcement" last September. 

He passed around press releases as media were getting set up with a headline that read - "$11.7b hole in Labour's fiscal numbers." From there, the story took off. It led most news sites and for most of the afternoon, Joyce berated Labour as poor fiscal managers.

"These are significant errors that raise questions about Labour's whole spending approach and their fiscal competence," he said.

Then Labour finance spokesman Grant Robertson offered his rebuttal a few hours later, saying Joyce was wrong - there was no hole and it was just an attempt to discredit Labour before the election.  In the days that followed, practically all economists quoted in the media agreed with Robertson. The consensus was that Labour's the numbers were sound. But by that stage, it didn't matter and the damage was done. Joyce had sown the seed of doubt in voters minds that a Labour Government would be disastrous managers of the books.

It's hard to know how much damage Joyce's strategy had on Labour, but it's safe to say the Party probably took a hit.

An independent fiscal institution 

The "fiscal hole saga" - as it came to be known - was probably top of mind for ASB cheif economist Nick Tuffley on Thursday, as he was writing his report on the Budget. Hours earlier, Greens leader James Shaw had announced the Government's commitment to establishing an independent body to provide non-partisan costings of party policies.

“That way we can reduce political point-scoring and attempts to create unreasonable doubt about a party’s policy figures," Shaw said.

Tuffley said this initiative "may well be the lasting legacy of Budget 2018." The news was welcomed by the New Zealand Initiative. No doubt NZIER, which last year released a report calling for a group such as this to be set up, will be pleased as well. If the body were to be established, it would bring New Zealand into alignment with 26 of 35 OECD countries, which all have similar groups.

In Australia, for example, political parties submit their policies to independent officials who assess and cost them, before presenting their findings back to the public. If the policy doesn't add up, the Party that submitted it faces a backlash from their political rivals as well as the voters. Similarly, the process makes it almost impossible for politicians to take aim at the costing of a policy that has received the tick of approval from the independent officials.

In other words, a senior Government Minister wouldn't be able to credibly call out his Opposition for making "significant errors" in its policy costings 20 days before an election, unless the independent costing body had already come to the same conclusion. The bar for credible criticism would be much higher and would eliminate any "I don't care if it's true or not, I just want to hear them deny it" type political strategy. 

At the time of Joyce's claims of a fiscal hole, Labour MPs and staffers were furious at National's tactics. But almost eight months later, it's Grant Robertson, Finance Minister, who has had the final say on the matter. There are 11.7 billion reasons the Independent Fiscal Institution needs to be established in New Zealand.

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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54 Comments

11
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I’m the end the public concluded that a dildo to the face was emblematic for how Steven Joyce valued his integrity. And don’t forget Bill English put his credibility as PM and a former Finance Minister behind the charade.

It’s a bit sad that National will now be the first beneficiary of this policy that they opposed.

The Government is borrowing an extra $10 billion over the next three years - how is that not very close to Joyce's statement?

I might be wrong, but didn't National increase government debt by approx the same amount per year, for every year they were in office?

Yes, there were a few years when they borrowed around that.However, we are apparently in surplus now so why are we still borrowing?

10
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National borrowed $50 billion dollars in their tenure. While simultaneously underfunding important public services, selling important national assets like our power suppliers, and state houses. But hey at least the big earners got a good tax cut on the top bracket.

Here's a graph of government debt. https://i.imgur.com/X9g0wRM.png

I think we had this argument before and I can still not to understand your argument. National borrowed too, therefore, it is ok for Labour to borrow? I don;'t take my moral bearings from what other people do or do not do. Poor fiscal policy is still bad fiscal policy. But lets look at facts - this government is borrowing more. Whether that's a good thing or a bad thing we can argue that but we cannot argue facts i.e. this government is borrowing more.

you claim borrowing is evidence of a 'fiscal hole' in the budget. National borrowed and borrowed allot more, therefore National budgets also had a 'fiscal hole'?

Borrowing is not evidence that someone has made a mistake in the budget. When i borrow to buy a family home, does it mean i made a $1million dollar mistake in my household budget that year?

Guessing falling interest rates means lower level of debt servicing, but means we can take on more debt.

Comparing Apples to Cumquats.

Are you aware there was a massive Global recession in 2008-2010? as well as a huge series of earthquakes in Canterbury that cost 10's of billions and hammered NZ's productivity? But NZ's Debt to GDP stopped rising in 2015, And 2017 saw a fiscal surplus. National focused on growth. Labour appears focused on taxation and spending other peoples money. They have instituted a huge borrowing program in times of plenty, which is a major fail in conventional Keynesian economics.

If they have instituted a huge borrowing program, can you explain how 'huge' is compatible with a reduction in debt as a % of GDP?

"National focused on growth."

Growth? You mean piling in record numbers of immigrants to inflate GDP while doing nothing - or worse than nothing - re: actual productivity increases? You crack me up.

Off topic and irrelevant to discussion.

There are different ways of measuring a surplus. I’m guessing to reduce debt you need a cash surplus like Cullen had. If what Joyce had said was true Robertson would be running a deficit instead of a multi-billion dollar surplus.

But the current Gov. is still borrowing more. I think to suggest we actually have a surplus and borrow more (i.e. government debt will rise) is a bit disingenuous. This isn't borrowing for cash flow reasons but rather because they want to spend more than they are taxing.

Unfortunately, the public listen to politicians' warnings and claims. Once again, the problem here is that Joyce realised that people generally understand that people tend to think that govts operate like households and businesses that need to live within their means and plan their spending based on projected "income." While that is partially true, how it is conveyed to the public is deceptive. There a growing awareness that govts are not financially constrained. The greater the awareness, the less impact these accusations would actually have.

Politically, Joyce played his hand here that in hindsight looks to be more like a desperate last throw of dice. He tried to take the public as fools but was exposed enough for people to understand that he was talking a purely semantic line.

The Government is borrowing an extra $10 billion over the next three years - how is that not very close to Joyce's statement?

If the govt were spending an extra $10 bio, what is the relevance and implication of that? Are you trying to suggest that the govt is "living beyond its means"? How can that possibly be so?

Some time ago Paul Keating destroyed John Howard pre election over a $ billion discrepancy. Keating was clever and very destructive. And he was also right and most importantly, easily able to prove it.Seemed that Joyce might have fancied his chances similarly. Even if he was right, he nevertheless fell flat.

Well, this Gov is actually living beyond its means, and they have taken everyone for fools already -

If we start talking about deception, then there are many examples in the behaviour. promises, and the 2018 budget of this CoLs to fill volumes - Should we start with PT KB and the $2B ? or the doctors visits ?

Kicking some promises, and deemed-necessary expenditures, 2 years down the road is a clear indication that this Gov's costings has big holes in them - most people believed that at the time and it is showing now.

The childish arguments that they were left with disasters, and huge holes to fill and only discovered that when they took power, are laughable.

Some other spending items were not included in that costing as it came as a result of last minute Coalition agreement, and these are already few billions !!

Joyce's bombshell might have been exaggerated and we don't know that yet, but it would have come as how Nats would spend the money and surpluses - and there lies the big ideological differences and priorities, which costs a lot of money ! - However, Labour learned the trick fast and started their own : Sewage water running down the corridors of Middlemore and the lack of spending on houses, infrastructure etc are few examples. They too are trying to portray themselves as the saviours of the Nation !

It is early days to close this chapter, as it is early days to count the spoilage and waste of the money spent by this CoLs.

Further "holes" might well appear with this inexperienced Gov in the next 2 years ... so we need to wait and see what contingency plans they have in place and how much will that cost !

Labour delays promises to keep to fiscal targets and maintain the surplus.

Labour’s critics - Labour is fiscally irresponsible.

Some people here are suffering a bad case of confirmation bias.

Please refer to Mr Dann’a column from today:

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=120...

‘The Labour-led coalition will also spend more on social services, education and health – National was promising to do the same thing this term.

And, like National, it is sticking to similar rules around fiscal responsibility – lowering debt ratios and staying in surplus.’

So what is the problem eco-bird?

Dann's column in the Herald today is a positive spin and softening the blow of negative sentiments and clear disappointment ( which are accumulating for good reasons).

Noticed that the phrase "Let's give them a chance"comes up whenever there is a blunder?

This CoL's commitment to the budget rules around fiscal responsibility – lowering debt ratios and staying in surplus is NOT the same as National's -- there are two years and billions of $$s in difference. I don't care if they go into more debt and build something rather than waste the money !! I would encourage them to borrow more and build - really build!

I have a problem with a Gov doing the wrong things and justifying it as the only way out. e.g. Selling future Infrastructure projects through PPP and being busy finding ways to create revenue streams to make that possible. Shambles !!

Gov failed to make any sensible KB plan and kicked the can down the road until they milk more money through excise and taxes. Shambles!

Gov delayed doctor visit reductions and lodging homeless people by spreading that to 4 years while splashing money on tertiary education, the Islands and satisfying NZF partners and Green Mates !!

Gov is engaging the Super fund to invest in a lose-lose light rail and transport projects . Not only it will eventually be throwing money down the drains in so many ways, it has shifted another hefty promise expense to the super fund's balance sheet - daytime robbery and deception!! .. I have no issue at all for SF to engage in profitable projects like housing and productive industry - NOT infra and services !! Shambles

That is my problem hardly! simply another way in seeing events as they unfold.

Duplicate deleted.

Well, this Gov is actually living beyond its means

Only quoting the relevant part of this spew. Wrong. You didn't read the post. Govts are not constrained by their ability to spend, particularly a relatively meager $11 bio.

they are shifting chairs on the big mouth titanic ship - I did read it well, but they want to win on all fronts by either shifting money to other balance sheets ( Super, HNZ) or spreading it further afield over 2-4 years, while spending to satisfy mates or buying votes ... that is what it is ...time will tell if their GDP growth assumptions of 4.5% pa would eventuate, we shall see how big is the mess then !!

There is nothing wrong with the economy at present, there are incompetent managers at the helm ATM, that's all.

Eco Bird, responsibility for any "fiscal holes" will rest solely with the previous neglectful crowd of cabbage patch nanny's. They did nothing more than sit and stare but to you they sure looked good. A second term for the Coalition will send you scurrying into your own hole in 2020. I believe it was you that predicted the Coalition would only last six months. Now you're predicting Coalition fortunes two years from now. This crowd not only look strong and credible, they walk the talk. That's the glaring difference.

He Retired Poppy, you may have missed my post on Land Tax. I wrote that I’ve changed my mind as it’s patently unfair that people like you and me with debt free property and income from TDs don’t pay their way. Are you joining me and supporting land tax so you and I can pay more tax until the end of our days?

Rex Pat, I do confess to having missed some of your posts. I've come to believe your missing something too.

lol, having memory lapses now RP, must be early alzheimer kicking in !!
spin spin spin ...

I never predicted this Gov will last only 6 months .. another CoLs supporting lies .... we are getting used to that now !

but as usual you are there to spin any issue these losers get themselves into ...keep up the good work RP, you are doing well..so far, you mates should be proud of you ...lol yes walk the talk !
haha... you surely don't mean PT , DC, or DP eh ?

Eco Bird, Ha-ha-ha! I'm sure it was you that commented that! You were so sure alliance with the Greens and NZ First would do their heads in!

I stand cautiously corrected!

Thanks, your deflection Indicates that you want to be a net burden on NZ for the next 30 plus years. Your political allegiance is logical.

Until public sector wage increases are finalized it is unclear if any budget contingency is sufficient as this may become some or all of any fiscal hole. Presumably natural disasters are also part of contingency so perhaps Grant should announce how much has been allowed for in his budget which has benefited from more money available than was known at election time. To claim there were unexpected costs indicated that either Grant didn't read or understand the PREFU.

What puzzles me is why the media and public are so obsessed with whether or not the government can run a surplus or a deficit ...

... we're a small , isolated , young economy ... we don't have the deep pool of savings that European countries or the USA has ...

We need the government to run up some big debts , particularly at a time of hysterically low interest rates , to fund our much needed infrastructure rebuilds and upgrades ....

... if the government doesn't do .it , it just doesn't get done : Full stop ....

And , if they over-in-debt us , and the dollar drops , so freaking what ... it helps our exporters ... and the infrastructure is in place , it cannot be removed ... the tunnels and highways , the water systems , recycle plants , electricity lines , ports , Christchurch .... all fixed , all up and running ....

... our creditors abroad can't exactly send around the international bailiffs to repatriate them ... .. imagine trying to shift an under the city tunnel back to Germany or to China ...

Well said ... why should be proud of running surpluses or paying into the Super fund ( which is doing very well on its own) and starve essential services.

The international bailiffs can extract a toll though. Just look at the Aussie bank farming system. The livestock bid against each other to pledge their lifetime income for a better barn.

Indeed, look what happened to Argentina

How much NZ Govt debt is denominated in USD?

The labour fiscal plan pre-election had rather large holes in it, and are likely to be on the order of $11B. Have a look at the fiscal plan on the labour website (see: https://www.labour.org.nz/fiscalplan and download the fiscal plan at the bottom of this page). Their assumption of more than 4.5% YoY average increase in GDP over the next four years is laughable in its lack of reality (look at the 2nd to last page to see their GDP assumptions for their budget plan). The economists stated that if the labour assumptions were correct then the budget was correct. The lack of critical analysis in the labour budget assumptions, and the zero discussion of some of the obvious errors in the assumptions of labour in the media is a bit sad to me. There is a large hole in the labour fiscal plan, due to their rather optimistic assumptions. Whether this large hole is 11.7B, well time will tell. The current hint is that it is somewhat close to the $11B that Joyce highlighted.

I'm hoping that Jason Wells follows in the footsteps of Alex Tarrant, hopefully soon.

The current hint is that it is somewhat close to the $11B that Joyce highlighted.

Let's assume that Joyce is correct. The "hole" must mean that public debt expands by $11 bio. So what does that mean to you? Does it mean public services will cease to operate because of a lack of financial resources? Does it mean people will not be paid? Will the govt go broke?

The answer to all the Y/N questions is "No." In fact, more financial resources will end up in the hands of the private sector. Is that something you're against? Do you understand the relationship between high relatively h'hold debt and low public debt?

Doesn't the money just pass through, straight to the Aussie banks? That seems to be how the system works so far.

The increased government debt flows out as income to government employees and beneficiaries, enabling them to take on higher loans. It increases our indebtedness, making us poorer in the long run.

Doesn't the money just pass through, straight to the Aussie banks? That seems to be how the system works so far.

The increased government debt flows out as income to government employees and beneficiaries, enabling them to take on higher loans. It increases our indebtedness, making us poorer in the long run.

Not according to the orthodoxy. We know that private debt is ultimately destabilizing, but for all different kinds of reasons. Australia seems to be managing its high private debt levels because the debt is being serviced. The extent to which that debt can grow is largely unknown.

J.C.

Your second sentence is incorrect. If the "hole" is correct, the public debt expands by $11B more than the budget expectations, not that the public debt expands by $11B. Your assumption that the labour budget is completely balanced is highly amusing. Nobody is claiming that the labour budget is balanced and has no expansion of debt.

Your questions are a bit simplistic and sophomoric. The answer isn't Y/N, but range in a long scale. On one end you have Zimbabwe, a bit further in you have Argentina, then you start working your way towards responsible and sustainable economies.

As to your last question, the higher the private debt, the lower the public debt should be to reduce risk of large and sustained recessions. NZ is rather high on the private debt scale,which suggests that the NZ public debt should remain on the low side for the country not to increase risk of recession.

Your questions are a bit simplistic and sophomoric. The answer isn't Y/N, but range in a long scale. On one end you have Zimbabwe, a bit further in you have Argentina, then you start working your way towards responsible and sustainable economies.

Terrible examples. Zimbabwe doesn't have a fiat currency. Argentina does have a fiat currency...now....but its debt management problems started long before its issues with a free-floating currency.

Much better example would be Greece, whose situation is been made worse because of its lack of sovereign currency.

As to your last question, the higher the private debt, the lower the public debt should be to reduce risk of large and sustained recessions. NZ is rather high on the private debt scale,which suggests that the NZ public debt should remain on the low side for the country not to increase risk of recession.

And vice versa. Look at the Japan's public debt and ask yourself why the Japanese govt is not in some kind of default or turmoil relative to Zimbabwe or Argentina. If you're saying that the NZ govt needs to run surpluses and / or keep public debt low, do you really think that the savings rate in NZ can improve? What do you think the impacts will be on the economy?

You bring up Japan and why the Japanese govt isn't in default or turmoil. Let me think for.. well a second or two... maybe that wee thing called balance of trade has some influence? Note that since their govt went to stoopid deficit mode, their economy has been stuck in a quagmire, for decades now despite their long term positive balance of trade. If Japan had a long term negative balance of trade similar to NZ, they would have blown up decades ago.

As to Zimbabwe, it was a fiat currency country until quite recently. Kinda silly to disregard the extremity of inflation that happened in Zimbabwe when their gov decided to spend at an insane rate. Denying the abuses of their fiat currency in the recent past is a bit below the expected discourse level here.

Yes Zimbabwe is so relevant, Labour is clearly on course to rig the elections for the next 5 decades and about to print cash to pay soldiers to invade a neighbour and steal their diamond mines, and so we'll all be carrying around wheelbarrows of NZD to pay for bread until Labour are forced into a coalition with National who insist on using the USD instead of NZD. Damn socialists ruining the economy just like last time when Clark/Cullen were in.

Japans debt is entirely borrowed from its citizens so has no liability to foreign institutions. Consider the debt to GDP ratios for UK/France at 495%, Holland 750% and Republic of Ireland at 850% and ask why their ability to borrow at low EU interest rates will not cause severe liquidity problems when the global financial crisis arrives.

Your questions are a bit simplistic and sophomoric. The answer isn't Y/N, but range in a long scale. On one end you have Zimbabwe, a bit further in you have Argentina, then you start working your way towards responsible and sustainable economies.

Terrible examples. Zimbabwe doesn't have a fiat currenccy. Argentina does have a fiat currency...now....but its debt management problems started long before its issues with a free-floating currency.

Much better example would be Greece, whose situation is been made worse because of its lack of sovereign currency.

As to your last question, the higher the private debt, the lower the public debt should be to reduce risk of large and sustained recessions. NZ is rather high on the private debt scale,which suggests that the NZ public debt should remain on the low side for the country not to increase risk of recession.

And vice versa. Look at the Japan's public debt and ask yourself why the Japanese govt is not in some kind of default or turmoil relative to Zimbabwe or Argentina. If you're saying that the NZ govt needs to run surpluses and / or keep public debt low, do you really think that the savings rate in NZ can improve? What do you think the impacts will be on the economy?

Just watching the news - urban development authorities with the ability to compel land owners to sell a possibility. Sounds like a good step.

Yes, like the IFI, UDAs are another long overdue.

Long overdue! And it could also no doubt provide comment on the price of cabbages too;

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11901898

Did I also hear Robertson suggesting it could additionally have a role in environmental monitoring the monitors type watchdog function?

What it is it with these muppets. They need to do something. They can’t contract out all the government function? Asleep at the wheel

In fact they have bitten more than they could chew, especially with big mouth NZF who are standing pretty on the sidelines while being oiled by $3B a year of vote buying money ( AKA regional development) and some pocket change for the mates!

I just watched GR on today's Q+A , he is planning the foundation of transformation which will take 20 -30 years ... Geez !!

I am sure that Sunday program will be great too with all the talk about the prison , lol

What about their Flagship promise.... Ban on foreign buyer..... Negative gearing........... Labour is now having cold feet... Cannot backtrack so now trying to delay by creating comittees with long time period........

The foreign buyer ban and reducing immigration certainly sucked in gullible voters however realistically neither were going to happen.

Signing the TPP has put the brakes on the foreign buyer ban so for now they'll kick the can down the road and hope the public forget about the promised ban.

An important tool to combat toxic political discourse. If voters are naive and simply trust their tribe, that would pave the way to USA style politics.

Reading these comments leaves me questioning whether you all want Labour to parrot National's neo liberalism of economics with laissez faire capitalism - reduced Government spending and liberalism policies of privatisation, deregulation, austerity, free trade and free market economy. Collectively it has resulted in a disaster in my opinion. Coalition breaking up MPI has to be an absolute win with more money going into Biosecurity after 157 incursions in the past nine years has to be a good thing. The hands off treatment of the Regions and people resulting in significant under investment that is now being targeted to lift regional productivity and potential is fantastic. There is plenty I don't agree with that are mostly Green Policies but at least there appears to be a fairness on the horizon that I welcome. Now for a complete overhaul of LCNZ that has developed a culture of "you voted for us to make decisions on your behalf" while ignoring their mandate to consult and take their ratepayers on board. That would be Nirvana!