A politically barren debt dispute
Tempers flared in Wellington on Wednesday as Grant Robertson fronted up to a select committee to defend his first Budget, but the dispute yet again highlighted the political positioning of both parties over debt.
Parliamentary recesses are usually quiet in Wellington. MPs head back to their electorates leaving the corridors of power eerily empty (or reassuringly empty, depending on your mood).
Not so this week as ministers return to be grilled by select committees over the budgets of their portfolios.
In this context, Finance Minister Grant Robertson’s appearance before the Finance and Expenditure select committee was always going to be eventful — and it didn’t disappoint.
Robertson read his statement to the committee, listing some of the Government’s big spends and the rosy fiscal outlook. Robertson’s fiscal siren call appeared to enrage and enrapture in equal measure. It was all a bit too familiar for some. National MP Paul Goldsmith grew restless.
“I’ve heard the Budget speech already,” he interjected.
National dug in along existing fault lines. Amy Adams tried to make Robertson’s debt target look ropey, hoping to catch Robertson out on the difference between paying down debt and reducing debt as a percentage of GDP.
The Government's aim to reduce the debt-to-GDP ratio to 20 percent by 2021/22 is not the same as reducing debt. As an absolute measure, debt will increase. But as a measure of GDP, it will shrink as the economy grows.
It’s fair to say the Government isn’t shouting this fact from the rooftops — although it didn’t exactly hide it either. Labour said during the election it would be borrowing more, although probably not as often as it said it would be reducing debt as a percentage of GDP.
The Opposition has been trying with little success to open up a line of attack on Labour over its increased borrowing.
In the crucial period leading up to the Budget, Adams launched an attack in the debating chamber on the Government's increased borrowing. She repeated that line of attack in committee yesterday.
Debt vs debt-to-GDP
Adams asked how many years of the next 15 would the Government actually be paying down debt. The answer is, “not many”, but that’s not nearly as important as the question.
Should we be worried that debt will increase in nominal terms until 2020/21 when it peaks at $67.7 billion? Adams’ line of attack in Parliament was that the cost of this borrowing was a drain on the Government’s finances.
It didn’t get much traction. Borrowing costs are low and the Government has for months been making a case that New Zealand’s infrastructure is deserving of additional investment.
Many commentators have added their voices to the mix, arguing the Government should actually borrow more.
Add to this the fact that the ratings agencies, which audit Government debt, have said they themselves would be unconcerned if borrowing increased. Our debt levels are already among the lowest in the OECD.
Adams and her party are looking increasingly lonely on the debt issue. As debate appears to consolidate around those in the Government who urge restraint, and those outside who want to spend more, calls for the Government to trim back its borrowing even further sound increasingly incongruous.
Barren central ground
National’s difficulty in landing a blow only underlined the canny politics of the Budget Responsibility Rules. The targets allow Labour to occupy the political centre ground, long dominated by John Key.
By proposing targets that are essentially softer versions of something Key's government might have dreamed up, Labour has forced National to pivot further right, which will drive centrist voters away.
The rules have created a two-faced polity, where both parties look different and yet somehow find themselves the same. As Labour knows all too well, it can take some time to find a way to distinguish yourself.