Grant Robertson this week had a problem that most of his international peers would envy: how to announce a stonking great fiscal surplus — $7.5 billion, or 2.5 per cent of GDP.
At the same time, he had to pre-empt the inevitable response: "If you're not using all that money, can we have it back please?" Especially when the economy is slowing and the Reserve Bank, for all its bravado, is close to running on empty.
• Robertson's $7.5 billion question: What will he spend it on?
• Government's $7.5b surplus is the biggest since 2008 GFC
• Is Robertson delivering credible economic and fiscal management for NZ?
• Simon Bridges: Government should cut taxes after the $7.5b surplus
Robertson could hardly claim to need the money to pay down debt, when the Government's net-debt-to-GDP ratio at 19.2 per cent compares with an average of 77 per cent for advanced economies. Fiscal policy space seldom gets more roomy.
His first line of defence against potential accusations of a Gollum-like hugging of his precious surplus is to point out that a third of it, $2.6b to be precise, is a paper gain only. It arises from a revaluation of the rail network and an attendant need, endorsed by the Auditor-General, to write back previous write-downs of its value which had been expensed, reducing the fiscal bottom line in prior years.
About another $1b of the surplus is a one-off timing boost to the tax take arising from a move to more timely recognition of tax revenues, which took effect in the last quarter of the 2018/19 fiscal year.
But that still leaves around $4b.
So Robertson's second line of defence was: that was then, this is now.
He repeatedly stressed that May's Budget had significantly increased both operating and capital spending to an extent that reduced the forecast Obegal (operating balance excluding gains and losses) for the current year to a surplus of just $1.3b.
And that was predicated on Treasury forecasts that economic growth would pick up to an annual average rate of 3 per cent in the current June year, from 2.4 per cent in the past year.
Robertson hinted at the inevitable downward revision of that growth forecast: "Recent indications suggest GDP growth rates are more likely to move broadly sideways than higher over 2019/20," he said, implying sideways from the 2.4 per cent recorded in the June year just past.
He pointed to the last Budget's 6.8 per cent forecast increase in core Crown operating spending in the current year, and the $14.8b increase in the four-year allowance for capital spending, as evidence of the fiscal stimulus people have been calling for. The Reserve Bank acknowledged as much, he said.
Robertson acknowledged the darkening international outlook and repeatedly stressed that the Government was keeping a wary eye on it. The strength of its accounts meant it was well positioned to respond as required if things turned ugly.
But he was resolutely non-committal about what form that response might take.
He gave short shrift to the International Monetary Fund's suggestion that if the economic cycle turns ugly, he might want to consider a temporary cut to the GST rate.
The IMF — hardly a body inclined to urge governments to throw fiscal caution to the wind — puts the argument like this:
• Global risks are skewed to the downside. (Translation: the world economy is slowing, debt levels are high and there is an impulsive madman in the Oval Office. Consider his tweeted response to criticism this week for abandoning Syrian Kurds, America's most effective ally in the fight against Isis, to Turkish invasion: "If Turkey does anything I, in my great and unmatched wisdom, consider to be off limits, I will totally destroy and obliterate the Economy of Turkey [I've done before!]".)
• Should these risks materialise, the central bank could find itself constrained by the "effective lower bound". (Translation: the Reserve Bank has just about run out of room to cut interest rates without doing more harm than good.)
• But there is ample space for a fiscal policy response. (The Government will have to do the heavy lifting and can, with debt levels and interest rates so low.)
• Infrastructure spending is subject to implementation lags. (Beset by capacity constraints and slow.)
• But a temporary cut to the GST rate would be fast-acting and especially helpful to liquidity-constrained households. (Those struggling to make ends meet.)
But it seems the minister is unimpressed. When asked if the Treasury was doing any work on this, he said, "it is not something we are considering".
"I would question the premise about where we are in the economic cycle. I am not seeing any evidence that New Zealand is heading towards a recession," he said.
"Clearly we are in an era of lower growth rates than we have seen in the past but the New Zealand economy is still growing and what I am focusing on is doing everything we can to support that ... When it comes to the need for those emergency-style tax measures, I don't see them at this stage in the economic cycle, but we continue to monitor the situation and prepare ourselves to act as is necessary."
Reassured? Me neither. Confused? Me too.
It is bizarre to stress that the Government is keeping a watchful eye on a deteriorating global outlook and is well positioned to respond if the economy were sideswiped by an external shock, but in the next breath that the economy is doing well and the prospect of a recession is so remote that it is not worth wasting officials' time preparing emergency measures for that eventuality.
It is also at odds with a Treasury report to the minister this year titled Scenario Planning: Maintaining Living Standards through an Economic Downturn.
It concludes on fiscal policy that, "Tax changes or cash transfers to households are the policy options more likely to meet the criteria (of being timely, targeted and temporary) ... The tax options could include temporary variations to some rates. Cash transfer programmes can be an effective stimulus but, if poorly designed, may lead to perverse outcomes if the stimulus is saved or spent abroad."
The tax take rose $6.2b in the latest year. Even if you deduct the $1b one-off timing boost, that is an increase of 6.5 per cent. As a share of the economy, tax rose from 27.7 per cent in 2017/18 to 28.8 per cent.
The PAYE take was up 7 per cent. That is faster than can be explained by growth in hours worked and in average hourly earnings.
So there is prima facie evidence there of fiscal drag, where rising wages push more and more people into a higher marginal tax bracket.
Rolling back that stealth tax increase should also be on the table.