A variation of the phrase, “we’ve got no money, so we’ve got to think,” is attributed to one of history’s most famous New Zealanders.
Finance Minister and Deputy Prime Minister Grant Robertson might as well pin the quote on his screen-saver going into an election year with cost pressures squatting on any hopes for lavish vote-winning policies.
Treasury analysis has revealed the Government has “just” enough money to fund the increasing cost of new services in the next Budget, but has very little left over to fund any new initiatives.
Finance Minister Robertson, in unveiling the figures, has said ministers would be told any new projects can only happen by reallocating funding from elsewhere in their portfolios. That is, for Peter to get paid, Paul must be robbed.
It should come as no surprise to anyone paying attention that this is where we would end up.
This time last year, the National Party warned Robertson to “rein in” debt-funded spending. “This spending is pushing inflation higher and that, in turn, is forcing the Reserve Bank to keep hiking up interest rates,” said National’s then finance spokesperson Simon Bridges. “More than half our inflation is from the non-tradables sector and so home-grown, and at 4.9 per cent it’s growing faster than it has in over 30 years, much faster than in Australia (3 per cent), and much faster than wages at 2.4 per cent.”
Robertson says ministers know full well the Government dug deep into the chest to get New Zealanders through Covid but he insists it was the right thing to do. “I try to act in a way that is responsible to the time that we live in. We are in a period now where there is a need for some fiscal contraction.”
That need for contraction is there to be seen in the Treasury figures.
One concern flagged by Treasury is just how much inflation is costing the Government, which has to find money to fund the increased costs of delivering existing services - all of this comes before the Government can even think about dipping in to fund new policies.
At the 2020 election, Labour campaigned on an operating allowance - the public finance term for new day-to-day spending in a budget - of $2.625 billion for the 2023 Budget. This was increased to $4b and then eventually $4.5b at the 2022 Budget.
Of that $4.5b, Treasury reckons the Government will need to spend $3.7b just to stand still next year - such is the increased cost and wage pressure on the public service. Even that figure has increased by $200m since it was last forecast in May.
Act leader David Seymour says he’s glad the Government is feeling the pressure because households and businesses have been feeling it for a long time.
It’s not a situation anyone should be glad about but it is a chance for this Government to demonstrate responsible management in a time of austerity, as physicist Ernest Rutherford said, to show it can think.