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More Robertson belt-tightening ahead of Budget

Finance Minister Grant Robertson used the traditional pre-Budget speech to announce a fresh cinching of his fiscal belt while remaining coy on exactly where a recent tax revenue windfall will be spent.

Robertson promoted next Thursday's Budget 2018 as unleashing $42 billion worth of capital spending over the next five years, which he said was $10 billion more than the previous National Government planned. But it is also virtually unchanged from Labour's Half Yearly Economic and Fiscal Update issued in December.

The Government detailed in its 'mini-budget' on December 14 that it expected to spend $41.7 billion on capital expenditure over the four years up to the end of 2021/22. That means the Government has not increased its expected capital spending plan since December, despite its own figures showing its debt track is already almost one percentage point ahead of the December forecast because of better than expected tax revenues and higher than forecast nominal GDP growth.

Robertson reported last week that the Budget surplus was $910 million ahead of the December forecasts by the end of March, which meant the Government's net debt to GDP had already fallen to 21.4 percent. That was below the 2.2 percent expected in December and heading quickly towards the 20 percent nominated by the Government as its target to be achieved within five years of taking office (2021/22). The December forecasts saw net debt reaching 19.3 percent of GDP by 2021/22.

"I think that teachers, nurses and others are quite realistic about that, what they want to see is a plan and they will see that next week.”

The Government's decision not to increase its capital expenditure plans implies either it will be unveiling higher operating expenditure in the budget next week or will hit its debt target faster than the 2021/22 fiscal year, given economic forecasts are expected to be relatively unchanged from December.

When asked whether the extra revenue could be used for costs such as pay hikes for teachers and nurses Roberston refused to answer and said only some of the money would be used in this year’s Budget.

“We’ve got to be very careful about the additional revenue that’s been generated in the economy, every time we spend a dollar we have to project that dollar over that forecast period and into the future. Some of that money is available to be spent but some of it has to be kept for future Budgets as well.”

Spending boost, but be patient

Robertson made the prediction about the $42 billion of net capital spending over the next five years in his traditional pre-Budget speech to the Wellington Chamber of Commerce.

“The capital investments to be announced on 17 May will allow us to give a long overdue boost to Health to ensure that our hospitals are fit for purpose and can cope with a growing and ageing population," Robertson said.

“Education will also get a significant investment to support our schools to deal with ageing buildings and increasing enrolments," he said.

“We are upgrading our transport network to ensure we have a safe, efficient transport system, and will make the largest investment of our lifetimes into New Zealand’s regions via the $1 billion per year Provincial Growth Fund."

Speaking to media after the speech, Robertson said repairing core sectors could not happen in a single Budget.

“The point that we’re making is the underfunding of those services over an extended period of time means that the challenge of rebuilding them will take more than one budget. I think that teachers, nurses and others are quite realistic about that, what they want to see is a plan and they will see that next week.”

"One lesson I can draw from my first Budget process is that we spend a lot of time debating new proposals, but comparatively little on the substantial baseline allocations."

Robertson said the Government was making the extra investment while meeting its Budget Responsibility Rules, which include running an operating surplus across the cycle and hitting the debt target.

Robertson also used the speech to announce another belt-tightening exercise. Last month he announced his ministers had already found $700 million of savings, but he said he now expected more savings to be found from within existing allocations.

"One lesson I can draw from my first Budget process is that we spend a lot of time debating new proposals, but comparatively little on the substantial baseline allocations," he said.

"That is why, in the next phase of our reprioritisation exercise, I will work with a number of Ministers to take a further look into their allocations to ensure we are getting the best value for money from the investments the Government makes on behalf of all New Zealanders."

Details of what has been cut as part of the $700m reduction will not be known until Budget day, but Robertson said irrigation subsidies were one of the biggest projects that would no longer go ahead.

A shift to wellness far from easy

Robertson has ordered Treasury to shift its Budget focus away from GDP growth to ‘wellbeing”, using the department’s living standards frameworks.

Under development for several years but unused by the previous government, the framework will be used to assess bids for budget spending against new measures that determine the impact on natural, social, and human capital alongside GDP.

But such a shift in public service thinking is not easy and the aim is to introduce the measures in Budget 2019.

Robertson said he would have loved to have used the wellbeing measures this year but it simply wasn’t practical.

“It’s a big challenge to make the shift that we want to make with the wellbeing budget … this is a big challenge for the public service who have been used to, since the 1980s at least, to working in pretty concrete silos and that is one of the biggest issues from a governmental perspective for being able to draw together what is a much more integrated framework.

“I hasten to add the public service themselves are delighted at the opportunity but structurally there are issues around that.”

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