Hefty surplus piles pressure on Robertson for action
A massive surplus has heaped further pressure on the Government to cut taxes or invest in infrastructure - but will Grant Robertson meet his supporters’ expectations?
As problems go, a $7.5 billion surplus is not a bad one to have - but for a Minister of Finance beset by supporters keen for a slice of that pie, it is a problem nonetheless.
It is no wonder that Grant Robertson was at pains to downplay any sense there is a wad of cash burning a hole in the Government’s back pocket, following the release of its 2018/19 financial statements.
That view is not without merit: roughly a third of the surplus is due to a change in the way the rail network is valued, while the overall figure does not account for the spending decisions in this year’s Budget.
But that does not undercut the feeling from the coalition’s supporters and detractors alike that it could and should be giving more back to the public, in one form or another.
Net core Crown debt as a proportion of GDP continues to fall below the 20 percent target set out by Labour in its pre-election Budget Responsibility Rules; at 19.2 percent for the fiscal year just ended, it is nearly a fifth lower than what the party had projected.
With construction firms begging the Government for a pipeline of work, and the coalition parties themselves having hammered the prior National government for years of underfunding key services, why aren’t Robertson and his colleagues dispensing their funds more freely?
“The constant refrain I get from the business community as I move around the country is [that] access to skilled staff is the big constraint that they are seeing."
The Government’s response has two different prongs.
The first is what Robertson refers to as “capacity constraints” around the labour force and access to land preventing further investment in infrastructure and other areas.
“The constant refrain I get from the business community as I move around the country is [that] access to skilled staff is the big constraint that they are seeing,” he said on Tuesday.
That is supported in part by unemployment falling to an 11-year low, but seemingly undercut by business confidence surveys showing a third of construction companies planning to lay off existing staff.
Then there is the “rainy day” argument: that with global uncertainty, it is prudent to keep some financial firepower in reserve in case the worst occurs.
Robertson suggests the Government has landed on the best of both worlds, investing where it is needed while still safeguarding future generations.
“There is a lot to do, there is a lot of investment to make in our infrastructure and our hospitals and our schools, and we believe that we’ve got the balance about right on this.”
Some of Labour’s traditional backers disagree. The Public Service Association has already called for more money to go into housing, health and social services, with PSA national secretary Glenn Barclay proclaiming: “More of the status quo isn’t enough.”
Robertson went on the defensive over the Government’s fiscal conservatism at last year’s Labour Party conference, and more of the same seems likely in Whanganui next month on the back of these figures - not that he seemed worried.
“I won’t be the first Labour minister of finance who’s asked to spend more money by Labour Party members.”
But the main political obstacle to additional borrowing and investment comes from the Government's opponents rather than its supporters.
Labour, not unreasonably, fears being branded as an irresponsible steward of the economy by National.
The endless flood of negative business confidence surveys has taken its toll on the Government, with Robertson taking a swipe at what he and his colleagues see as perception trumping reality.
“It’s important that we don’t talk ourselves into a downturn just because it suits some people’s negative narrative.”
National offered little praise in the wake of the Crown accounts, with the party’s economic development spokesman Todd McClay claiming Kiwis had been “taxed to the eyeballs by this Government” and calling for tax relief and additional investment in roading.
Robertson was coy on any election-year tax cuts, saying only that any such moves would be a matter for next year’s Budget - but whether it is spending more or taxing less, it seems clear the Government will need to offer more than it has so far.
Reserve Bank governor Adrian Orr, no shrinking violet, gave the Government a nudge last week when he noted that many central banks were now asking for “monetary policy friends”.
The Government may yet accept Orr’s friend request; in a press release accompanying the financial statements, Robertson acknowledged that “fiscal policy has a part to play alongside monetary policy as we manage these challenging global economic conditions”.
But there are any grand fiscal plans, he wasn’t prepared to offer a peek just yet - and the concern from some is whether Labour is willing and able to break free of its self-imposed straitjacket.