Finance Minister Grant Robertson. Photo / File
COMMENT:
Lately, it seems that a Government Minister cannot open his or her mouth without the words "underfunded for years" coming out.
So it is surprising, to put it no stronger, that it looks as though amendments to the Public Finance Act, proposed by Finance Minister Grant Robertson and intended to "embed" the wellbeing approach, are confined to how government spending is allocated and accounted for, not how much of it there can be.
It is about what to count as value for money, not how much money is on the table in any Budget round, nor how much of it can be borrowed money.
It will not, in short, fundamentally change the principles of responsible fiscal management written by Ruth Richardson and enacted 25 years ago.
Chief among those principles are reducing debt to prudent levels and then maintaining those prudent levels by ensuring that "on average over a reasonable period of time" operating spending does not exceed operating revenue.
"Having an objective around prudent debt isn't something I would abandon," Robertson told me. "But it's about how you add the wellbeing objective alongside that."
The definition of "prudence" would have to bear in mind those other matters, he said. "We could still borrow significantly more money and in my mind meet that objective ... So for example, we have moved from the single point target [of 20 per cent of GDP for net debt] to a range [15 to 25 per cent]. That's an example of how you can shift things."
It's not much of a shift.
So it was fair enough for Richardson, in a speech at the weekend, to point to the Budget Responsibility Rules agreed between Labour and the Greens before the last election, and now embodied in the Budget Policy Statement, as evidence that her concept of fiscal responsibility has become entrenched, a permanent feature of the public policy environment.
It is, she declared, the gift that keeps on giving.
"The political imperative was to permanently change politicians' behaviour," she told a conference celebrating 30 years since the passage of the Public Finance Act..
"I wanted wholesale reversal of the tax and spend and beggar the consequences mentality. I became Finance Minister when I was 39. Never once in my adult lifetime had New Zealand come anywhere close to fiscal responsibility. We were negative net worth, the debt was out of control, we never once lived within our means and we came close to the precipice. I was determined to forever change that." She did.
According to the International Monetary Fund's global debt database, back in 1950 New Zealand's gross central government debt stood at 89 per cent of gross domestic product (a legacy of World War II).
By 1975 it had fallen to 37 per cent of GDP, level-pegging with private sector debt.
But by 1986, following oil shocks and nine years of Robert Muldoon, public debt had climbed to 69 per cent of GDP and private sector debt to 102 per cent.
The reforms of the late 1980s and early 1990s saw public debt fall again, reaching 16 per cent of GDP by 2007.
Private sector debt, on the other hand, continued to climb, reaching 186 per cent of GDP by the eve of the global financial crisis. It is not much better now. By the end of 2018 private sector debt stood at 177 per cent of GDP, including household debt at 94 per cent of GDP; the rich country average for household debt is 72 per cent.
Economist Geoff Bertram points out that for a country like New Zealand running chronic external deficits, it is no coincidence that falling public debt is accompanied by rising private debt; it follows from the national income identity.
Gross public debt climbed 20 percentage points of GDP in the wake of the GFC and the Canterbury earthquakes. Defenders of the current regime point to our ability to handle those shocks, without the kind of austerity which other countries like Britain have suffered, as a vindication of the New Zealand fiscal framework.
But it would have been seemly if last weekend's conference had included some recognition, from someone, that getting the Crown's books in good shape had come at considerable social cost. The management of public finances is not just about book-keeping and bureaucracy. It has effects on the real economy, aka people, not all of which have been good.
No doubt Grant Robertson would say that addressing social and infrastructure deficits is what drives the changes he is proposing to the management of public finances.
In addition to changing the overarching framework for measuring success and identifying priorities through amendments to embed wellbeing in the Public Finance Act, he is looking for changes that will break down bureaucratic silos and mitigate the inertia of baselines.
"About 98 per cent of government expenditure — or $89 billion — sits outside the annual Budget process and yet we spend most of our time assessing how to allocate the next 2 per cent or so located at the margin," said Robertson.
Ministers, he said, had little visibility of exactly what was being funded through baselines and where there were opportunities to stop some things to fund other new initiatives. So he is looking to make more use of baseline reviews to assess the effectiveness of current spending.
As an example of the wellbeing approach in action, Robertson cites the Child Poverty Reduction Act, which specifies measures of child poverty and requires the Government to set targets for reducing it and to report in the Budget what measures were being undertaken to do so, and progress so far.
All well and good.
But in the end, if the wellbeing approach is to take root and flourish, its tap root will have to extend to the parts of the act which bear on how much money the Government has to spend, and not just how it is divvied up.
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