Budget 2023: Matthew Hooton - Grant Robertson gets one last roll of the dice

Finance Minister Grant Robertson announced yesterday that next week’s Budget would contain $4b in savings and reprioritisations over the next four years. Photo / Marty Melville

OPINION

If Finance Minister Grant Robertson pulls the expected rabbit out his Budget hat on Thursday, he’ll have achieved strategic surprise.

Robertson’s pre-Budget speech to the Wellington Chamber of Commerce yesterday could largely have been written by Bill Birch, Michael Cullen, Bill English or even Steven Joyce.

It followed last month’s “no frills” pre-Budget speech by Prime Minister Chris Hipkins to Auckland’s Employers & Manufacturers Association, which could mostly have been read out by Jim Bolger, Helen Clark or John Key.

The key messages were fiscal constraint, ministers being required to come up with cuts before making bids for more money, an alleged “ongoing” efficiency drive within the central bureaucracy, reducing the size of government and lowering debt, investing in research, skills and infrastructure to improve productivity, and an overall “balanced approach”.

Robertson warned that growth forecasts for advanced economies have been downgraded to just 1.3 per cent this year, with no sign of medium-term improvements. He says global growth over the next five years will be the slowest this century.

In this, he may have been getting his excuses in first.

While boasting that inflation has peaked and of the lowest unemployment since New Zealand abandoned government-funded Potemkin jobs in the 1980s, Robertson didn’t mention that our trade deficit is by far the worst since the 1973-74 oil shocks and our balance of payments deficit — a key indicator of international competitiveness — has blown out to a shocking 8.9 per cent of GDP, the worst since records began.

Finance Minister Grant Robertson knows he has everything to play for. Photo / Warren Buckland

Despite claiming fiscal rectitude, Robertson also laid the ground for more borrowing.

Under his controversial new measure, he claimed public debt sits at just 19 per cent of GDP, below his self-declared fiscal ceiling of 30 per cent and below Australia at 36 per cent, the UK at 95 per cent and the US at 96 per cent.

“At times in the past”, he said, New Zealand was too obsessed with low debt “to the neglect of other important considerations”, of which education, mental health, health generally, housing and the so-called “infrastructure deficit” were name-checked.

Perhaps referring to the $23 billion cash deficit he has already racked up in just the first nine months of this financial year, Robertson argued for more borrowing to fund long-term infrastructure projects and spread their cost across generations.

Included was a brief mention of climate-change “resilience” to prepare for extreme weather. Heroic talk of leading the world in slashing climate-change emissions was deleted from the Beehive’s playlist along with Jacinda Ardern.

This is all about assuring voters who care about fiscal prudence that the days of big spending on left-wing ideological obsessions and Covid subsidies also left the building with the previous Prime Minister. Hipkins and Robertson have apparently had stern words with whomever Jacinda Ardern had running her Government’s finance and Covid portfolios.

But Robertson knows those who care about fiscal policy will mostly be ticking Act or National when advance voting starts in just 139 days.

Famously, Robertson was the Beehive staffer most associated with interest-free student loans, Clark’s 2004 Working for Families programme and Cullen’s 2005 KiwiSaver scheme, including its $1000 per-head handout — which, together, Labour credits with besting Don Brash’s National in 2005.

As a well-connected candidate, Robertson was also close to the tax cuts and other measures announced in Cullen’s 2008 Budget to try to hold off Key.

The bold 2005 moves targeting the median voter worked for Labour. But so did those in 2008.

Prior to the 2008 Budget, Key’s National-Act was outpolling Clark’s Labour-Green by around 20 points. A couple of months later, the gap was more like 10 points.

On election day, despite Key’s extraordinary popularity, National-Act beat Labour-Green, by just 8 points, consistent with the usual pattern of the right doing a bit worse than polls suggest.

Robertson knows he has everything to play for. Right now, according to the Herald’s Poll of Polls, it is neck and neck. Christopher Luxon’s National-Act leads Hipkins’ Labour-Green by just 1.7 points, not even in the ballpark of Key’s 20-point lead over Clark. Add in the Te Pāti Māori and the left is ahead by 1.5 points.

Opposition strategists speculate that Robertson’s surprise next week will, like Michael Cullen’s in 2008, be “significant” but not “major” tax cuts, perhaps an adjustment to income-tax thresholds, as National’s Nicola Willis has successfully pushed.

But, as Cullen found when his 2005 threshold adjustments were mocked as offering families a packet of chewing gum a week, playing that card is expensive while not delivering much to individual families.

Beehive strategists are tight-lipped, even denying there may be any surprise at all. But the pressure is on Robertson to deliver something more innovative than threshold changes, and much more precisely targeted at the mere 50,000 or so voters Labour needs to win back from National to make its third term secure. That, of course, will further distort the overall tax and transfer-payment system, which already delivers bizarre effective marginal tax rates (EMTRs) for some median voters, as advocates of a universal basic income, from left and right, point out.

Tax and social-policy purists will tut-tut, left-wing NGOs will decry the poorest New Zealanders being ignored again, and business groups and mainstream economists will argue that even more distortionary EMTRs will make productivity worse. But Robertson and Hipkins have an election to win.

Both the Prime Minister and Finance Minister are arch pragmatists, have studied the practice of New Zealand politics for more than a combined 70 years since they were mere tweens. They have a combined 40 years as parliamentary staffers and MPs, and 12 as senior ministers.

Few of the things they believed as young left-wing activists in the 1980s and 1990s have survived into middle age, except one. Both believe passionately that the National Government of the 1990s destroyed the life chances of their families, friends and neighbours, and that a National-Act Government must be kept out at all costs.

The economic outlook may be bleak, but they know Luxon’s National Party, however well-funded, is not the political threat they helped see off in 2005 and which they almost kept out in 2008, despite Key starting that election year 20 points ahead.

For all they may try to sound like Key, English or Joyce, there’s almost nothing Hipkins and Robertson won’t say or do to protect their narrow lead over Luxon to October 14.

By this time next week, we’ll have our first inkling of exactly how far they are prepared to go.

- Matthew Hooton has previously worked for the National and Act parties, and the Mayor of Auckland.