Grant Robertson says public's focus is investment, as he tests tolerance for debt

Finance Minister Grant Robertson. Photo / File

COMMENT:

Grant Robertson's delivery of the half year update will be about more than just infrastructure, it will be testing the public's tolerance for Government debt.

In his first two years as Finance Minister, Robertson has presided over surprisingly healthy books, which combined with accounting vagaries, led to consecutive enormous surpluses.

Against the predictions of the Coalition's opponents, debt levels have remained within Labour's self-imposed debt targets, despite increases in spending.

This has only increased the calls for the coalition to invest more, to address social issues as well as pour money into infrastructure following a period of strong population growth.

So far Robertson has managed to stick to the target of fiscal restraint.

While he maintains that the Government will still show fiscal discipline, there are signs that it is willing to borrow more.

At the Labour Party conference Robertson in October promised a "significant" increase in infrastructure investment, which economists have speculated is a sign the debt targets will be loosened sooner than expected.

"What New Zealanders are looking for is investment from the Government," Robertson said in Parliament yesterday, in response to a question about the public's appetite for rising borrowing at a time when the economy has been growing for the best part of a decade.

"I don't think there's a single commentator out there who doesn't believe that now is the right time to get in there and make those big infrastructure investments that need to be made.

"The priority for New Zealanders is addressing that infrastructure deficit."

Robertson is right that most commentators have called for the Government to look to take advantage of low interest rates if it can find ways to improve New Zealand's productivity.

Kiwibank's chief economists Jarrod Kerr went as far as describing the Government's spending rules as "stupid" this week.

But this is still delicate ground for the Government.

The Budget Responsibility Rules that Labour and the Green Party signed up to in 2017 were an attempt to demonstrate that after year's of restraint under National, a left-leaning Government would not increase borrowing.

National, coping with the aftermath of the global financial crisis and the Christchurch earthquakes, made returning the Government's books to surplus, and keeping debt low, a core goal.

This arguably led to a focus which made keeping debt low a higher priority than investing in public services.

A booming tax take and optimistic Treasury forecasts (and the fact that the Government has struggled to get some of its projects off the ground) have allowed Robertson the best of both worlds, spending more while debt levels stay flat.

Tomorrow though, Treasury is expected to carve back its growth forecasts for the next few years, which will mean it will be forecasting a lower tax take.

Adding more spending commitments at a time when the tax take may come in lower than he previously thought could make it easier for National to try to frame Robertson as a "tax and spend" Finance Minister.