Before the 2020 election, Finance Minister Grant Robertson must decide if Labour will stick with the Budget Responsibility Rules, or ditch them. Jason Walls says this will be a hugely significant decision

Grant Robertson by Jacky Carpenter.

By Jason Walls

“This wouldn’t happen at Hogwarts,” read the sign of a young girl on Parliament’s doorstep on Wednesday.

She was standing alongside hundreds of other teachers, students and parents pleading for the Government to increase teachers' pay and to better resource schools across the country.

As they stood, huddled in solidarity singing Twisted Sister’s We’re not going to take it outside the Beehive, the Prime Minister made a surprise appearance to address the crowd.

“I wasn’t scheduled to be here,” Jacinda Ardern said. “But I was sitting up in that office in a meeting and I could see you streaming to Parliament and I thought ‘I cannot, not be here.’”

She was received well by the crowd, despite the fact her Government had refused to meet the teachers' union's request for a 16% pay increase.

Weeks before this, the Government was locked in negotiations with nurses.

Although a deal was hammered out, Minister of Health David Clark told reporters there was “no money on the table to increase the salary package for nurses.”

“We want to manage the economy prudently,” he said.

This comment, and the Government’s approach to its books and the economy during the negotiation process, drew a lot of flak from the left.

At the heart of the criticism was the Government’s commitment to its Budget Responsibility Rules of getting net Core Crown debt to 20% of GDP and keeping Core Crown spending at roughly 30% of GDP.

BNZ, ANZ, BERL and Bagrie Economics all say the 20% target is “arbitrary.”

Many on the left have called for the Government to abandon the debt target as New Zealand wades into choppy economic seas.

But the Prime Minister has insisted the rules aren’t going anywhere.

At least, not for now.

Caught between a rock and a fiscal hard place

Labour and the Greens committed to the rules before the last election.

New Zealand First accepted these fiscal terms and conditions when it became a coalition partner last year.

But the rules expire at the end of this Government’s term. Before the next election all three parties will have to decide if the rules will stay or go.

And the way things are panning out now, the argument for the latter seems to be the strongest.

Both NZ First and the Greens have suggested there is room for the debt limit to be notched up.

The impact on New Zealand’s credit rating would be almost non-existent, as long as the increase was not too significant, according to both Moody’s and S&P.  

As the rules have been such a thorn in the side of the Government, they would likely take centre stage in any Coalition arrangements.

Finance Minister Grant Robertson would let Labour’s plans be known well ahead of any coalition talks.

And it is here where Robertson will be caught between a rock and a fiscal hard place as both options have their drawbacks.

To indicate Labour wants to make no changes to the rules would see fall out from the left, who think increasing debt to pay for the “nine years of neglect” is the Government’s duty.

To appease its base and the wider left wing by suggesting Labour would be in favour of increasing the debt and spending limits would leave Robertson and Ardern wide open to attack from National.

The rhetoric from the Opposition would be nothing short of a wall of noise, with 56 MPs paining the Government as irresponsible fiscal managers.

Robertson is damned if he does and damned if he doesn’t.

Regardless of which decision he makes, what happens with the Budget Responsibility Rules is likely to play a critical role in the 2020 election.

But one thing is for sure.

None of this would ever happen at Hogwarts.

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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43 Comments

Of course there always was and always will be reasons for the govt to spend more. Or sell off more govt owned companies. You can't separate those two things. So you could argue that in selling off half the power companies, National increased the debt by smoke and mirrors.
Sure there was the earthquake to pay for. Probably legitimate.
To increase debt in the calm before the storm and where the OCR is so low, in my view it could be the worst decision ever. But its politics, so I have no great faith. Just look at Greece.

No point selling government equity in state owned companies for opex commitments like more handouts to those on support or benefits. The only reason a government should divest non-controlling stake (maintain 51% of a cashflow-positive company)is to invest the proceeds in other profitable, long term growth ventures.
The government should spin-off its investments into a wealth fund management company independent from political intervention, where investment decisions are targeted towards growth assets with an element of public interest.

"Mummy, I want some new toys. That oil rig I got from Grandpa was boring, so I trod on it. I want some more lego bricks so I can make some more houses for the people to live in. And I need a train set of my own to play with. And I need some money to give to the school cos they can't get enough teachers. And I'll need some more pocket money to spend at the races with Uncle Winnie and Uncle Shane on Saturday."

RW,

Very amusing,well,slightly amusing. We have to try and work out what sort of country we really would like to be. In general terms,do we want to be more like the US or more Nordic?
My inclination is for the Social Democracy model,though I am far from blind to its problems. In general,I am prepared to pay higher taxes-and i am in the top rate-for better infrastructure,healthcare etc. For sure,money will be badly spent in some areas,but I want to see a more equal society.

Definitely more Viking, er, I mean Danish (much better furniture). A lot of our culture comes from them, particularly our sense that individuals are important. The opposite is the centralised hierarchy, headed by our betters. I think we need to look more deeply into what makes a society more civilised rather than copy the fashionable ideas of our times. So, Denmark, Norway, Switzerland, Finland, Netherlands are great countries of roughly our size, and Sweden and Britain are also similar in many ways, but more industrial than us. Obviously Australia and Canada are relevant. Funny thing is they tend to be constitutional monarchies not fashionable republics, Switzerland being the exception, but their referenda seem to put a restraint on fashionable ideas.

Also, I greatly favour the British system of looking back at when each idea was last used and seeing what happened, rather than the intellectual system of choosing the most sophisticated argument. In a sense this is the clash of cultures that underpins the Brexit debate. Evolution, in all its redundant messiness, or a society where everyone does what they are told by those clever or ruthless enough to be in charge.

Watch The Last Kingdom on Netflix, it looks at these issues in an earlier age. It contrasts the freedom loving Danes who believe in living life to the full; and the servile saxons, subservient to their masters of church and state. Our culture is the result of the reconciliation of the two.

"Mummy can you dig up some more carrots from the neighbours' garden? Flopsy, Mopsy and Cotton-Tail's are on their 4th litter of baby bunnies and they'll be hungy. And Flopsy's children are having baby bunnies too. They're so fluffy and cute you wouln't deny them food would you? Get the long ones so they don't bit my finger. Have you seen Peter Rabbit? Has he escaped and eaten the neighbours veges again?"

I don’t see any reason to abandon those rules. The government is already pretty much at the 20% target and the 30% target is just good discipline. There are a lot of cost pressures but government just needs to work within its means. Of course one way of managing this long term would be to raise the age for NZ super. That would reduce things on the cost side and free up money for spending on health and education services.

Raise age of NZ super. That would be sensible and quite rational and very political and decisive and for the best for NZ in the long run and is way behind what many sensible countries have done? So why can't we find a way to do it? It is easier to duck an issue - and end up like Greece with pensions at 50 but no money to pay them.
So how about - another committee of past their use by date but authorative Kiwi ex-politicans from all parties(Clarke, Key, Brash, Peters, Cullen, etc) - recruit by offering them freebies to visit countries with higher age for pensions and insist on a report by Xmas to be actioned in January when nobody reads newspapaers or watches TV? If not done now the next election gets in the way.

Supposedly Baby Boomers were promised a pension by 65.

So phase it in, but over a reasonable time frame.

One of the problems with kicking the can down the road is it often leads to a sudden adjustment.

If we’d implemented compulsory KiwiSaver in the mid 90s around when Winston had his referendum, people who are turning 65 would have enough money to cover their own retirement for a couple or years.

A promise from a politician (or a bunch of them).. and they think it's worth something. Guess boomers aren't as smart as they keep making out.

Apparently in this country the final deciding factor on whether a promise is a “broken promise” is what impact it has on the individual.

Lapun. There would be no reason to raise the age for NZ Super if we wiped the DPB, Working for families payments and Accommodation Supplements. but that would affect those that have not paid anything into the system.Leave NZ Pension alone easy political points and ill informed commentators

".. abandon the debt target as New Zealand wades into choppy economic seas."
There is a significant risk that things could get much worse in coming years through contagion from China housing crash, US turmoil, Europe debt crisis or EU breakdown, global warming, trade wars, poor Brexit outcome. Let's not run off spending more than we tax now just because business confidence comes off a bit!!
If anything, increase taxes to pay for much needed spending and build up sovereign wealth funds

Yeah, find any pollie willing to raise income tax (GST was easy for them...like not really "tax").

Well the COL have spent less on Health this financial year than National did in the last 9 and slashed the mental health bill go figure !. If they spend more it will be on stupid things like the free tertiary education that has not increased any uptake. Keep the limits on so more money is not wasted !

Slashing the mental health bill might just be their way of undermining National

:)

@Shoreman Health Actual 2017/18 $16,544.1b, Budget 2018/19 $18,225.4b
National Mental Health Services Actual 2017/18 $64.6m, Budget 2018/19 $68.1m

https://www.interest.co.nz/news/93813/budget-2018-health

Refuting the COL haters with facts? I call foul! :)

This can't be right. Hosking wouldn't get his talking points wrong.

That statement is not true. The closest to true it gets is in terms of the allocations to DHBs (a subset of health). Here National allocated slightly more in their last budget in % terms but less in absolute terms.

Leaderless Labour want to be liked. The trick is to be licked in the middle not the left. Stick to your guns Grant my lad. Don't let the lefties wear you down. Yes, we could all do with some more money in our wages packet but we're still paying for the earthquakes, remember. I quite like the raise the super suggestion. We're going to have to do it sooner or later. And I'd like to think the Nats would support it, but I'm not sure they'll have the balls. It's time central government did what was best for New Zealand, not just parts of NZ. We're only a couple of corks deep in the southern oceans, this left wing-right wing thing has to go. We are all going to have to grow up and be mature about this. There's too much 20th Century thinking going on. It's passed its use by date. We're in a new millennium now.

I reckon it could be a good measure to combine free education with raising the super age. Point out to young Kiwis, "Hey, we know it's rough we're taking away another thing the older generations are receiving / will receive, but we've given you back free education rather than starting you off in work with a large debt."

At least there's a bit of balance.

There is no such thing as 'free'.

Someone, somewhere is paying.

There is actually money for super if a equitable tax across a broader base is in place and real priorities are made in expenditure rather than just political ones.

The young will really need financial help when they are older, their labour pays little unless the have freakish ability in the right area at the right time.

When I can make seven figure capital gains in Auckland from my earthquake money from Christchurch and pay zip tax for the benefits from the immigration policy while the cost are socialised we know society has been had.

ps The money was spent else where rather than on the CHCH EQs for the record, why people hold onto that myth I really do not know.

The COL may well think they politically they can ignore the teachers rather than the nurses however if the education system breaks further down before the next election they may well have miscalculated.

The cost of super can’t be looked at alone. If it was just super it wouldn’t be a problem. But at the same time as boomers are maxing out their superannuation requirements they will also be overloading the health system. When you put the two together you can see how unaffordable the whole ageing population is.

Check out how much the budget for NZ super increases last year - that is just for one year. It is scary.

Hardy. The Boomers paid tax for their Pensions and old aged medical services. Where did the money go DPB< WFF< ACcommodation supplements. Boomers are sick of paying three times over.

No they didn’t. They paid for the previous generations superannuation and health services. The problem is the previous generation were significantly smaller, lived shorter lives and their medical care cost less. So boomers paid a very low price but are costing a very high price. Recognising this the government should have saved money to smooth the impact but nowhere near enough has been saved.

You are only looking at a small part of the Countriy" economic problems

A) its not that small - $11 Billion a year now, and growing every year on Super alone.
B) its only going to get worse. Currently 2 workers per adult beneficary, estimated to drop to 1.3 at peak boomer if I remember correctly
C) you have to look at all significant economic problems and address them.. you can't just ignore a major money pit.

The only people pre-funding what will probably end up being their pension equivalent are the ones contributing to KiwiSaver. Workers do not pay for their own pension, it's a benefit provided by the current taxpayers at any given time.

My money is firmly with the government ditching the Budget Responsibility Rules at the end of term one

So can superannuants and retired people ask for 16% rise in super pay?
can they strike and picket like all the others other??

Where is the Union representing the retirees who paid tax and served the country all their working lives ??????

Why should they be shunned away when they should have the first priority of a pay rise?

We will be lucky if we have been left with a $20B hole at the end of this CoLs term.

Keep an eye on drama choreography, public softening, and theatrical moves going forward...

Nahh you old birds can keep trying to reap National false economy by voting them back in and selling out your children's inheritance to the highest bidder.

Haha you got that wrong. Every dollar you pay us increases our own children’s inheritance.

I was in NZ for 11 years. The NZ govt insists on giving me full super. If my wife throws me out of the house I would get another $100pw and maybe an acommodation allowance.
Maybe time to tweak the rules a little?

Actually they will get an increase as their benefit is linked to the average wage.

This may come as a surprise to you ecobird but boomers are the fiscal hole.

Again I say you are only looking at a small part of the Country"s economic problems. You only get out of it what you put into it. A quick political fix raise the age of entitlement, what next raise it again. If I had my time over again I would tell the Politicians to reduce my taxes and I will look after my own retirement, of course I would not want to contribute to the DPB, or the WFF or Accommodation supplement either.

And if they had let the labour parties compulsory super plan back in '76 live we wouldn't be in the hole we are now.. at least not for superannuation. Healthcare would still be a problem.

*Keep an eye on drama choreography, public softening, and theatrical moves going forward...*

Going forward? You've been doing that since the election..

Without beating around the bush...If Robertson has to either borrow more, or cut operating expenses to fit within his “budget responsibility rules”, he runs the risk of looking like an idiot.

Without beating around the bush...If Robertson has to either borrow more, or cut operating expenses to fit within his “budget responsibility rules”, he runs the risk of looking like an idiot.