Political Roundup: The Government's smart but conservative spending announcement

Columnist·NZ Herald·

12 Dec, 2019 04:03 AM8 mins to read

Finance Minister Grant Robertson arriving at the Half Year Economic and Fiscal Update lock-up at the Treasury in Wellington. Photo / Mark Mitchell

Opinion by Bryce Edwards

Bryce Edwards is a lecturer in Politics at Victoria University

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COMMENT:

In his big-spending infrastructure announcement yesterday, Grant Robertson reinforced what many political commentators say about him – he's electorally smart, but way too conservative to be a genuine leftwing minister of finance. Robertson does what is right for winning votes, but not necessarily what is in the interests of the country or even Labour's own constituency.

For details of the spending announcement, see Jason Walls' The Government will borrow $19b to help fund $12b of new spending on infrastructure projects. Basically, the new package provides a general idea of the quantity of new capital expenditure and timeframe for spending, but it lacks specifics on exactly what will be funded.

Why the announcement was smart

The spend-up on infrastructure is electorally smart. It answers critics from across the political spectrum who complain that this government has not addressed the infrastructure deficit brought about by previous National and Labour governments.

That's why plenty of economists have given the package a thumbs-up. For example, Donal Curtin has blogged to say, "It was, from an economic perspective, completely correct" – see: Give that man a DB. And he suggests any opposition to the announcement is suspect: "Show me someone who disagrees with this boost, and I've a better than average chance of showing you a nutter."

There has also been widespread endorsement of the general package from across the political spectrum. The Herald's business editor Liam Dann pointed to this accomplishment: "Today's announcement was 'welcomed' by BusinessNZ, The Employers and Manufacturers Association and the Council of Trade Unions. Getting the thumbs-up from these three in one afternoon is no mean feat" – see: What a time to be a finance minister.

Dann also gave credit to the Government's adroit timing and packaging of the new spending: "The Government gets to make a pre-Christmas splash with surplus spending headlines, it gets another bite in the quiet news vacuum of the New Year when it announces the highly anticipated specifics of new transport spending. And it still leaves plenty of fiscal headroom for voter-friendly acts of budget generosity later in 2020."

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Similarly, Herald political editor Audrey Young suggests that the lack of detail in Robertson's announcement will work in the Government's favour: "That will come in early January to kick-start the Government's election year. Robertson presented the outlines of a turbo-charged capital spending plan with enough lack of detail at present to avoid providing a target for the National Opposition. But essentially, Robertson and Prime Minister Jacinda Ardern will be able to announce the details of a $7.6 billion in new capital spending at the start of election year" – see: Robertson sets up Govt nicely for election year.

She also suggests that this was all deliberately designed as an election year gambit: "Robertson denied that delaying the big reveal until 2020 is anything to do with election year – he would say that, wouldn't he?"

Robertson has brushed aside this suggestion. Tova O'Brien reports: "The Finance Minister says it would be 'cynical' to describe the Government's $12 billion infrastructure spend on transport projects as an election year slush fund" – see: 'Cynical' to describe infrastructure spend as election year slush fund - Grant Robertson.

TVNZ's Katie Bradford says she's happy to be called cynical, complaining that the delay in providing information on what exactly will be funded looks remarkably "like an election year bribe" – see: Christmas hasn't come early for infrastructure industry, despite Government's extra $12 billion spending pledge.

Grant Robertson and Prime Minister Jacinda Ardern. Photo / Marty Melville

She says the Finance Minister "failed to identify one single shovel ready project. Or even reveal how many of those will be started next year. Given the Infrastructure Commission has a list of over 500 projects, worth $21 billion, Mr Robertson could've plucked a few of those out of the hat and said work would be starting soon."

Business journalist Pattrick Smellie also says that the configuration of yesterday's announcement means "it is almost inconceivable that the government doesn't have an election year hip pocket splurge of some sort up its sleeve for the ordinary New Zealand family" – see: Why so conservative, Grant?.

Smellie suggests the Government has cleverly left itself with plenty of room to manoeuvre because the announcement relates to one-off capital spending and not increasing operational spending, which means that next year could see increases for welfare beneficiaries and possible tax cuts via a shift in income tax brackets.

The focus of the Government's increased capital spending on transport, and roading in particular, is also seen as being clever. Hamish Rutherford labels the new-found fashion for roads "pragmatic" because, "Although building new roads may be less transformational than the Government hoped, it may also be smart politics. Not only are such projects popular with many voters, they can provide measurable productivity gains" – see: Grant Robertson promises a wall of transport demand into the future.

Rutherford also explains that for a government that needs to find projects that are almost ready to go, and with fewer construction industry capacity restrictions, roading is the perfect area to spend on.

Similarly, Thomas Coughlan argues that the Government's spending decisions are being influenced by partisan strategic gain: "this Government's funding of additional roads robs National of the oxygen it needs in opposition. The party is yet to release its transport policy document. But Robertson's announcement today of $6.8b in additional transport spending could steal National transport spokesman Chris Bishop's thunder by gazumping some of Bishop's promises" – see: Politics and economics are strange bedfellows, but they've made $12b of magic.

Why the announcement is conservative

Although on the surface, Grant Robertson's announcement involves massive amounts of new spending, many commentators have been underwhelmed by it. According to Thomas Coughlan's article above, although economists have approved of the announcement, the level of new spending was "not nearly as much as they'd wanted". He cites KiwiBank senior economist Jeremy Couchman as believing "the Government still had more room to lift borrowing to tackle the infrastructure deficit."

Finance Minister Grant Robertson during his presentation at the Half Year Economic and Fiscal Update lock-up at the Treasury in Wellington. Photo / Mark Mitchell

Similarly, journalist Bernard Hickey wrote this morning that the amount of spending is "nowhere near enough to fill a yawning and growing infrastructure deficit", and points out that new debt levels will barely increase on what they are now.

Westpac's economists also dismissed the significance of the new expenditure, labelling it a "bit of a damp squib", and suggesting that because "the spending would be spread over many years have only a small impact on the economy" – see Tom Pullar-Strecker's Infrastructure boost cheers business groups but economists fear lag.

The same article reports the Infometrics firm as arguing that given current low debt levels, the "Government could have announced a much larger investment".

Pattrick Smellie suggests the levels of new spending could be considered "unduly conservative – even miserly". He says "Having raised expectations the government could push out the ratio of net Crown debt to 25 percent of gross domestic product from the current 20 percent limit, the forecasts unveiled in today's Budget Policy Statement look tame" – see: Why so conservative, Grant?.

The focus of the spending should have been entirely different, according to leftwing political commentator Chris Trotter, who has written a scathing blog post, labelling Robertson's announcement "disgraceful" with a "courage and compassion deficit" see: Grant Robertson spends up large – on the Establishment!.

He asks what Greta Thunberg, or even the Greens, would have to say about the fact that only a tiny fraction of the new spend – $200m – is being allocated "to making the Zero Carbon Act mean something". Instead, the bulk of the money is going on roading.

Trotter believes the Greens should be outraged: "the Greens' response to his announcement is just plain sad. To be clear, their transport champion, Julie Anne Genter, has been humiliated. The road transport lobby has effortlessly outmanoeuvred whatever policy wonks she's had pitching the case for rail."

He is also astonished that none of the $12bn is being spent on welfare, despite this government claiming to be "transformational", and the Prime Minister preaching the "politics of kindness". For Trotter it's a betrayal of Labour's voters: "Never mind that pouring money into the pockets of our poorest citizens is the fastest and most effective way of delivering our economy a much-needed shot of adrenaline. No, never mind all that. Finance Minister Robertson and Social Welfare Minister Carmel Sepuloni have no intention of upsetting the Establishment by giving beneficiaries anything remotely resembling a Christmas present."

Finally, Gordon Campbell makes the economic and compassionate case to the Minister for Child Poverty Reduction, Jacinda Ardern, that increased government spending should actually be going on implementing the recommendation of the Welfare Expert Advisory Group – see: On welfare vs infrastructure spending.