Liam Dann: Government's debt trick an election game changer

Finance Minister Grant Robertson has pulled about $15 billion a year of new spending out of his hat. Photo / 123RF

COMMENT:

As if by magic Finance Minister Grant Robertson has revealed that his self-imposed fiscal rules were ... only self-imposed.

With that one deft trick he has just pulled about $15 billion a year of new spending out of his hat and in doing so changed the game for the 2020 election.

Starting 2021, instead of targeting core Crown debt at 20 per cent of GDP the Government will now target a range - between 15 and 25 per cent.

That's a variation of $15 billion in either direction, although it's hard to see the Coalition opting for policies of greater austerity.

This will give them the freedom they need to address critics on the left who have spent the past year calling them too conservative.

In a sense it throws National a bone as it reignites the classic left-right debate about spending.

But the Government has the upper-hand as it has just spent the past year and a half focused on bedding down its conservative credentials.

Remember the Princess Bride.

The swordfighter Inigo Montoya is cornered and struggling against the Man in Black:

Man in Black: Why are you smiling?
Inigo: Because I know something you don't know.
Man in Black: And what is that?
Inigo: I am not left-handed!

It's a classic Hollywood trope.

Robertson has effectively just smiled at opponents and switched hands: "Aha!"

There was never any reason why the Government couldn't spend more in the second term.

It was a political conceit.

Labour and the Green Party agreed to go in the 2017 campaign (almost) matching Bill English for financial conservatism.

Regardless of whether or not it was decider in the election, it certainly laid a platform for the popular new Labour leader to stand on.

Grant Robertson. Photo / File

It also made it easier for Winston Peters to line up with them in coalition.

It was a calculated effort to convince the public that the parties of the left were not reckless spenders, an entirely political move.

So too is this.

Suddenly the onus is back on the Opposition to convince the public that this is the reckless left - financially irresponsible and willing to leave future generations of Kiwis in greater levels of debt.

In fact, capturing that narrative, ensuring Robertson doesn't get away with this move without serious public scrutiny, is now vital to National's election chances.

National's finance spokeswoman Amy Adams has already called this "a blunt admission the Government can't manage the books properly".

She has pointed to issues of trust. In other words if they can change targets once, what's to stop them doing it again.

But she and her colleagues will be up against it.

The beauty of this policy shift is that it is technically quite boring - from a fixed target to a range.

It deals in percentages rather than hard numbers.

There's a limit to the number of voters who will engage in a complex debate about the debt to GDP ratios you have to maintain if you want to call yourself fiscally responsible.

There are economists who will say these latest debt rules are still too conservative.

There are others who'll say they are risky and open up potential for wasteful Government spending.

But if Robertson can show he's still on track to keep the Government in surplus for at least the next four years, then much of the debate becomes theoretical.

Meanwhile the Government goes into the 2020 campaign with a greatly bolstered war chest - the capacity to keep old promises and make new ones.

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