Matthew Hooton: Odd priorities in times of plenty

Thanks to Ruth Richardson we now have transparency, and so the truth, about the nation's financial standing. Photo / 123RF

It's Budget week so again time to pay homage to Ruth Richardson both for her personal conduct as Minister of Finance and that she codified it in her Fiscal Responsibility Act.

Prior to Richardson, governments flat out lied about the state of the country's books and economic outlook. Sir Robert Muldoon was too afraid to put in writing whatever fantasies he had for the 1984 Budget before calling his snap election.

In 1987, Sir Roger Douglas announced a $379 million surplus ($772m in today's money) that turned out to be a deficit of $2.6 billion in 2018 dollars.

Most shamefully, David Caygill announced an $89m surplus in 1990 which was in fact a $2.6b deficit — a $4.5b difference in 2018 dollars. The real state of the government's finances was kept secret from the public until after the election.

Like Michael Cullen and Bill English before him, Grant Robertson has Richardson to thank for the transparency of the country's economic and fiscal position before and after he took on his new job.

But unlike Cullen and English, who took over at times of economic and fiscal crisis, Robertson is the first new finance minister in living memory to be blessed with forecasts both accurate and exceptionally strong.

Growth will remain respectable over the next five years. Partly helped by the stimulus of Donald Trump's US tax cuts, New Zealand's growth will rise to an annualised 3.6 per cent in the December 2019 quarter, nearly as high as the 4 per cent achieved in 2016 before John Key's resignation.

As the nation goes to the polls in 2020, unemployment will fall to 4.1 per cent. Wages will continue rising faster than inflation and interest rates will stay low. Relatedly, the Treasury forecasts a nice final dollop of 7 per cent house-price inflation in 2018 before it settles down to just a 2 per cent increase for election year, and then heads up again.

Falling immigration in the outyears, caused largely by a recovering Australian economy, should reduce pressure on schools, hospitals, roads and the housing market.

Consequently, while Robertson already had strong forecast surpluses, the Treasury now picks record amounts of tax will flow to the IRD over the next five years, touching an annual $100b for the first time in 2021/22. The surplus should reach $7.3b the same year.

Broadly, anything the government wants to do, it can do. This too is a consequence of the rigour of the process Richardson imposed on her successors a quarter century ago, which they by-and-large have respected.

Yet some of the social spending initiatives are less than would have been expected even from a National-led Government, and some priorities seem odd.

The Government's plan for child poverty, housing and homelessness — what the Prime Minister calls her raison d'etre for getting into politics – received just $813m over the next four years. That compares unfavourably with Winston Peters' $1b for foreign affairs and the $4b for whatever Shane Jones decides to spend his fund on.

Schools and early childhood centres will have an extra $1.6b over five years, the type of increase announced by any government in any Budget.

The relative modesty of the new investment in the first 17 years of learning is a consequence of the $1.2b spent protecting millennials from the horror of interest-free student loans for the 25 per cent of their first year of tertiary study not already paid for by taxpayers and the $1.4b spent increasing their allowances, which has only served to inflate rents in student flats.

There is nothing for teachers or medical professionals, except for independent midwives who get an 8.9 per cent increase. Expect other medical professionals to demand their relativities be restored putting pressure on Robertson's outyears.

Those demands will also flow through to the private sector.

Elsewhere, Stuart Nash's promise of 1800 new police is now just something the government will "strive for" while the Greens must be disappointed with a niggardly increase for national parks and other conservation initiatives.

On the upside, the $1b to reinstate R&D tax credits promises a tax cut for any business with even a moderately competent accountant, spreading the now-enormous corporate welfare budget more evenly. There is $100m for the America's Cup.

All this splurging, however poorly targeted, means the government can expect a poll boost next month. Better still for Robertson, the extraordinary outlook means there is room for a similar splurge this time next year.

The remaining question is: If, as is likely, none of this does much to improve the social services experienced by voters, will there be enough cash for a third splurge in 2020?

Matthew Hooton is the managing director of PR and lobbying firm Exceltium