In difficult times, Finance Minister Grant Robertson's Budget struck the right balance, writes Mike Munro. Photo / Marty Melville
OPINION:
Being the Minister of Finance in these fraught times is not for the faint-hearted.
Consider for a moment Grant Robertson's Budget on Thursday, which could hardly have had a more forbidding backdrop.
When he began framing the Budget last August, he couldn't have foreseen the firestorm that was coming his way.
At the time, Robertson would have been well aware that the pandemic would continue to batter public finances, with tens of billions having already been committed to support the Covid-19 response and recovery, and the likelihood of more to come. That was a given. Robertson knew too that debt was going through the roof and hadn't yet peaked.
But what about the other dark forces now walloping us — inflation and the fallout from a foreign war?
In August 2021, global inflation rates were heating up — here, it was 3.3 per cent and expected to continue to rise. Nobody was using the c-word, for crisis, to describe the emerging cost-of-living pressures. Oil prices were averaging about US$80 a barrel (now US$110). Vladimir Putin was sabre rattling, but few believed war in Europe was imminent.
We've all seen what happened next.
And as Robertson prepared his Budget, no doubt keeping an eye on war-induced volatility in global markets, he would've been very aware of the cries of anguish being sparked by the surge in the cost of living.
Finance ministers have to balance two critical considerations when crafting the Budget.
On the one hand they must demonstrate a responsible and competent demeanour as the keeper of the books — to be prudent, someone who can be trusted to manage debt and to channel taxpayers' money to where it's most needed.
On the other, the minister must bear in mind that the Budget is a crucially important political platform, one which provides an opportunity to progress manifesto priorities, and to dole out a few sweeteners, thus demonstrating they're hearing people's concerns.
Robertson, probably the shrewdest political operator in the current Parliament, did not disappoint in this regard. The $350 cost-of-living payment is short-term balm for 2.1 million low-to-middle-income New Zealanders struggling with the effects of rising costs.
An extension of the reduction in petrol excise duties and the 50 per cent reduction in public transport fares provide further relief for those doing it tough.
As Jacinda Ardern remarked, the measures were timely. She might also have added "politically canny". The $1 billion package of targeted support was a "rabbit from the hat" moment. It was all the more remarkable as a Finance Minister doesn't have as much room to move as many imagine.
These days a lot of contortion is required when putting the Budget together.
The advent of the operating allowance, which has been in place since at least 2004, has proved an important disciplinary tool.
How it works is that Treasury takes the core Crown expenditure from the previous year and makes that the starting point for the next Budget round, effectively forcing departments to eat their inflation costs. An operating allowance is set — this year it was $6b — and all new policies, and almost all increases in the cost of existing policies, are funded from it.
Most of the allowance this year was accounted for by the health reforms and the climate emergency response, as Cabinet had resolved last year. So the "budget bilaterals", the process by which Cabinet ministers negotiate their spending bids with Robertson, would have ended in disappointment for many.
The reality is, the finance ministers of the modern era are fiscal conservatives. Robertson, like Bill English and Michael Cullen before him, make a virtue out of being boring and predictable.
But it hasn't always been that way.
In the Douglas-Richardson era the Budget was often an exercise in shock treatment, as new and transformational policies were launched. Costings were often, in Treasury jargon, "sub-optimal".
Richardson's 1991 "Mother of All Budgets" was the most memorable in this regard, with its frenzy of benefit cuts and proposals for part-charges for social services.
The passage of the Public Finance Act and Fiscal Responsibility Act in the 1990s changed the game. The two statutes compelled governments to set forth more detailed spending plans, as tighter accounting and reporting requirements were applied.
Fiscal rectitude became the touchstone by which Budgets are judged.
Today, the Budget season has a lot more coherence than in earlier times. The Finance Minister puts considerable time and effort into signalling what the Budget will be all about. Anyone who read Robertson's pre-Budget speeches or followed his media interviews in recent weeks would have been clear on the positioning: spending must be targeted, action on climate cannot be delayed, Budget 2022 will be about health, and so forth.
And it's now the norm for the Government to choreograph a tightly managed programme of early Budget announcements, starting about one month out. This ensures that some measures enjoy a profile they mightn't get on Budget Day, which makes good sense politically.
Robertson has one more Budget before the next election. This year it was about pulling the expenditure levers, which on April 1 saw benefit rates get their biggest lift in a generation, followed by the Budget's cost-of-living measures. It is safe to assume that he will look to move on the revenue side in Budget 2023.
Will Robertson look to head off National's plans to index tax thresholds to inflation at 2017 levels by lifting the tax thresholds for lower to middle income earners, or will he have some other approach in mind?
We will have to wait and see. What can be certain is that Robertson will be looking for maximum political effect.
It was an Australian politician named Jack Kane who coined the phrase, "you can't fatten the pig on market day". It's a reference to the continuous campaigning that politicians need to engage in, whether it be shoring up the party base, organising for the next election, marketing policies or responding to voters' needs, in particular hip-pocket needs.
The job of ensuring that the hog is in prime condition never stops.
And for Labour, the guy with the swill bucket is Grant Robertson.
- Mike Munro is a former chief of staff for Jacinda Ardern and was chief press secretary for Helen Clark.