Grant Robertson blunders on costs, surpluses on The Nation

Newly minted Finance Minister Grant Robertson will be wanting to put this weekend's appearance on The Nation behind him very quickly. Finally subjected to some meaningful scrutiny about both the deals made by Labour to win the Government benches, as well as their own much vaunted fiscal plan, Robertson struggled to present a coherent narrative of what lies ahead for the government's books and economy under the new Labour-led Government and, it turns out, misled the public over what he knows about the cost of the new policies they'll have to fund.

I can't think of another Finance Minister who has inherited one of the strongest growing economies in the developed world, with books that are back in the black with surpluses projected to grow strongly over the next five years, who in their first major interview spent most of it trying to dampen down how well he'd do, and effectively saying that his Deputy Prime Minister Winston Peters was wrong in his forecasts of economic doom and gloom.

As some background, the Pre-election Economic and Fiscal Update released in August 2017, projected surpluses ranging from $3.7b in the current financial year, eventually rising to $6.4b in 2020/21. PREFU also projects economic growth to grow from around 3% now to 3.7% in in 2019, before easing back to 2.3% in 2021. Suffice to say these are some of the strongest numbers in the OECD, and they're numbers that New Zealand, and especially the National Party who led the country to them after inheriting a country deep in recession from Helen Clark's Labour-led Government, navigated us through the Global Finance Crisis that followed, and successfully managed the country's books through not one, but three major earthquakes.

Simply put, a lot of work has been done to ensure that New Zealand's economy and government books are in the hugely enviable position they are in now.

Robertson's first wobble was when Lisa Owen compared his rosy economic outlook with that of his Deputy Prime Minister, Winston Peters.

Lisa Owen: "Is Winston Peters wrong when he's predicting a downturn in the economic rockstar economy?"

Grant Robertson: "Look, there's a range of views on that, and there's certainly headwinds..."

Lisa Owen: "No no, I'm asking about his. Because he stated it very clearly on the day you guys were announced as the winners per se, he said 'Bad times around the corner', so is he wrong?"

Grant Robertson: "That is possible."

This is some fantastic ammunition for the National Party when the House resumes in a couple of weeks time. National will be able to put both the Prime Minister Jacinda Ardern, and Finance Minister, on the spot over and over again about their disagreement with Winston Peters on the country's economic prospects.

For a politician with his experience, which includes nine years as an MP and several more working in the office of Helen Clack when she was Prime Minister where he earned the title H3, Robertson should have handled this much better. He should have acknowledge that Winston Peters is rightfully concerned about possible economic uncertainty around the world stemming from Brexit, credit issues in China, and protectionist movements in our major trading partners. Instead, Robertson set himself at odds with Labour's coalition partner. It was a dopey move on the third day of the new government.

Robertson then went on to talk about ensuring there was fat in the system to deal with economic shocks. Lisa Owen then skewered Robertson on the lack of the fat in Labour's fiscal plan now that all these additional policies need to be funded due to Labour's coalition and confidence and supply deals with New Zealand First and the Green Party respectively. 


What's important to note is that, as per the above tweet, Robertson has already publicly committed that unless otherwise changed by the agreements, Labour's policies remain the same. E.g. Labour will be largely sticking to the spending track as outlined in their fiscal plan, so they need to find a way to fund all these new programmes, such as Winston Peters' Provincial Pork Barrel (otherwise known as the Regional Economic Development Fund) on top of the spending that they're already committed themselves to.

This exchange between Lisa Owen and Grant Robertson was telling, and may well come back to haunt Robertson yet.

Lisa Owen: "Have you costed all of those, and how much are they going to cost?"

Grant Robertson: "So in the process of the negotiations we look very carefully at each of the commitments we were putting in there, and made our best estimate of the cost. Obviously when you're in opposition you have a certain amount of resources to do that. We are absolutely confident that we can meet the expenditure that is in there and actually still meet our Budget Responsibility Rules."

Lisa: "Can you give us a number? How much do all the things that you've signed up for, how much do they cost?"

Grant: "Aw look we've got estimates but that's the,"

Lisa: "Oh come on, what's the estimate?"

Grant: "Well no because I don't want to do that till"

Lisa: "It's the public purse."

Grant: "Well that's the very point, Lisa. It is the public purse. And we now have the ability to work with the public service to refine the estimates we've made. But I can give you my assurance that it fits within the confines of our Budget Responsibility Rules."

First of all, former Finance Minister and National Party spokesperson Steven Joyce pointed out that parties have full access to the public sector for policy costings during the coalition negotiation process. So Robertson's line that he can't release the numbers because he needs the public service to look at them first doesn't seem to be factual.

That blunder aside, what do Labour's Budget Responsibility rules propose?

The first rule is that Labour has committed to delivering a surplus every year "unless there is a significant natural event or a major economic shock or crisis." So Robertson can't let the Budget slip into deficit to fund these promises, otherwise he's broken the first rule of this document, as deals to get into government hardly fit into any of the caveats Labour added to their commitment.

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Labour's second rule is that they'll reduce net core Crown debt to 20% within five years of taking office - meaning they'd hit the target two years later than National had planned to. There's no caveats explicitly mentioned on this one, but I don't think anyone would begrudge those from Rule 1 being applied here. That still means Labour can't push out there debt reduction target beyond 2021/22 to fund the new policies from their deal making.

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Rule 3 is one area where Labour might have some wiggle room, so long as Labour is able to get the NZ Super Fund to over $63b by 2022/23, they could play around with the scale of their contributions to the NZ Super Fund, reducing the amount in early years and compensating that with larger amounts in later years, as well as relying on the fund continuing its impressive return on its investments too.

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In Rule 4 Labour has committed itself to $8b in additional health spending, $6b more in education, and $5b in income assistance for families. They'll have some room to move here, though they have boxed themselves into a corner with their perpetual (and dubious) claims of a $1.7b hole in the health budget. So as to not make a mockery of themselves, they'll need to at least maintain that as they readjust their numbers to accommodate their spending promises.

The other issues is that Labour has committed to keeping government expenditure as a share of the economy to within the 29%. Again there's some room for movement here, but it needs to balanced against Labour staying in surplus each year too.

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Rule 5 is all about tax and, it's important to note, there's no anticipated additional revenues forecast from changes to personal tax rates, and Labour did explicitly rule these out during the campaign. It's hard to see where Robertson would manage to break Rule 5 during his mini-Budget, but stranger things have happened.

Lisa Owen: "It's a four year Budget, looking out - forecast - so how much gets sucked up in the first year, second year, third year, fourth year?"

Grant Robertson: "That's exactly what you'll find when we produce our detailed budget. What we know is that we have the funding to do this."

Lisa: "So are you not confident of the estimates that you've already done?"

Grant: "Well as an opposition party you've only got so many resources and we're confident that with the information we have they're correct. The beauty of now being in government is that we actually get to test those estimates, but I am completely confident."

Oh, there we are again. Robertson again stumbles repeating that little white lie about not having access to the public service to cost your coalition and confidence and supply agreements.

Lisa Owen: "Would you agree that it's an accurate reflection to say that your budget is tight, really tight?"

Grant Robertson: "Look, I've never denied the fact that we're ambitious about what we want to do, and we want to make investments. But Lisa if we just look at this in a one..."

Lisa: "So it's tight?"

Grant: "I've never denied that, I've never denied that."

Lisa: "If your economic premises that you base it on, for example if growth doesn't peak out at 3.7%. If we have the 10 year downward slum that some predict for 2018, then you're in trouble with your money?"

Grant: "No I don't think we are."

Actually Grant, you are in trouble. Where you start to run into problems is that whereas the PREFU's forecasts are based on immigration numbers naturally returning to historic rates, Labour is actively looking to slash immigration numbers by nearly half. Labour's changes may actually have an even greater impact than intended, especially when combined with Labour, New Zealand First, and the Green Party all looking to restrict foreign investment in New Zealand, and renegotiate crucial free trade agreements. Treasury's PREFU takes into account the potential for external economic risks from events like Brexit and the like, but it hasn't taken into impact what will happen when Labour starts introducing the changes required by their own policies and their coalition agreement.

There's also the question of KiwiBuild, Labour's assumptions behind the capital recycling of the $2b investment into it rest on the housing market remaining relatively buoyant over that 10 year period. The problem here is that we're already seeing Auckland's property market cool off significantly, and if immigration is slashed as they're proposing to do, demand is going to drop off as well. Labour is more than likely going to have to pump more money into KiwiBuild to deliver their promises 100,000 new houses, or they're going to have to downscale it. Something will have to give.

What this suggests is that far from Labour's numbers being tight, Labour is going to either have to massage the numbers in such a way as to make a farce of both their mini-Budget and their Budget Responsibility Rules, or they're going to have to start breaking promises.

My guess is that unless Grant Robertson pulls off a miracle in the next few weeks, he is going to regret giving assurances that his numbers add up and still fit within his Budget responsibility rules, or he'll burn a lot of political capital by pulling off some very questionable financial contortions to make everything work. My pick is on the later, and when he does it, National will have a field day with him in the House.

What Labour may well be counting on is that in three years' time, nobody will remember the potential omnishambles that we might be about to see.