Finance Minister Nicola Willis will return to Treasury later this month to reveal her Budget Policy Statement. Photo / Mark Mitchell
Finance Minister Nicola Willis will return to Treasury later this month to reveal her Budget Policy Statement. Photo / Mark Mitchell
Opinion by Thomas Coughlan
Thomas Coughlan, Political Editor at the New Zealand Herald, loves applying a political lens to people's stories and explaining the way things like transport and finance touch our lives.
Sunlight is the best disinfectant, or so the cliche goes. The Labour-Green-Te Pāti Māori Opposition will have hoped that the sunlight shone during Parliament’s second ever scrutiny week might have exposed the darker shadows of the Government’s spending cuts, shedding light on the atrophying public services thecoalition mortgaged for tax relief.
Parliament’s committees ran all week for a full day of grilling departments on their annual reviews in sessions that could last for three hours each (spare a thought for MBIE chief executive Carolyn Tremain, who started at 8.30am on Thursday for a session that only wrapped up at 3.20pm, she then returned for another hour from 5.30-6.30pm).
For the Opposition, the week might have been an opportunity for public service bosses, often accompanied by protective ministers, to detail the vast and sinister effects of spending cuts and to begin building an argument for turfing the coalition out in 2026.
Instead, in all but a few cases, the opposite was true. Departmental execs largely defended decisions taken by the new Government. Wellington busses - their tyres working up an appetite for unlucky ministers during weeks like this - went hungry.
In several instances, sunlight turned to spotlight, and public service bosses were able to defend the Government’s policy direction against an alternative offered by the Opposition.
Treasury told the committee that reducing the deficit (including via shrinking the size of government) should be a priority as it would mean a quicker return to sustainable economic growth. It was the most forthright vindication of the Government’s economic strategy from the public service since taking took office last year and a riposte to the Opposition, who have been trying to attack the coalition for its (admittedly dismal) record on growth, which is likely to be hit further with the release of the next set of Treasury forecasts in a fortnight.
Treasury Secretary Iain Rennie during his appearance at Scrutiny Week. Photo / Mark Mitchell
You might think Treasury would say this (its reputation for fiscal rectitude led one former National minister to describe the agency as “the abominable ‘no’-man”), but in the twilight of the the Wellbeing Economics era in 2023, Treasury was actually advising Grant Robertson to spend even more money than he had planned regardless of the yawning deficit. The comments this week represent a return to orthodoxy and restraint.
It was a helpful message from Treasury as the Government enters the public part of the Budget cycle. Finance Minister Nicola Willis’ Budget Policy Statement on December 17 will be an opportunity to present a roadmap back to growth. She’s gambled a lot of political capital on staring down increased spending demands and sticking to her allowances.
She used the week of scrutiny to give an almost unprecedentedly frank confirmation that the Budget is likely to include some form of tax on businesses operating as charities. Willis has never denied this was on the cards, and confirmed it weeks ago in the publication of the Inland Revenue Department’s tax work programme, but dropping the hint again this week could be seen as a clever effort to frustrate Labour’s so far effective effort to build a rhetorical bridge between the vast demands on public spending from the health system and its pledge to run on a progressive tax policy (probably a capital gains tax) in 2026.
Treasury wasn’t helpful to Willis here: new secretary Iain Rennie made some pointed remarks about New Zealand’s tax settings putting pressure on those who earn a living from labour and those whose income is derived from capital.
Labour health spokeswoman Ayesha Verrall during Scrutiny Week. Photo / Mark Mitchell
The other big win came from KiwiRail. Earlier this year, the SOE’s then-chairman David McLean savaged the Government with a forthright defence of Labour and NZ First’s iRex ferry replacement plan and a delivered a wilting assessment of the pretty average alternatives. The fear, based on some advice from KiwiRail and old advice from Treasury is that a non-rail enabled inter-island ferry connection would sever the national rail network and possibly lead to the death of rail in the South Island, because locomotives and heavy machinery could not be moved from one island to another.
This week, KiwiRail changed its tune, saying the loss of rail-enablement would have an impact on the business, but that it could be managed and that equipment could be moved between islands either by ferries or other vessels.
It was a dramatic turn from KiwiRail. Willis’s decision to dramatically cancel the previous ferry replacement project is one of the Government’s most contentious and controversial calls, frustrating even centre-right voters who, while outraged at the price tag, simply cannot imagine putting the vital strait connection in jeopardy.
Nearly a year later, a replacement is yet to be found. Labour has cannily made the decision totemic for the Government, arguing it’s quick to cancel Labour’s good (if expensive) ideas, but very slow to come up with sensible alternatives.
KiwiRail’s comments this week suggest a sensible, cheap but effective solution might be possible, without the rail enablement that was responsible for so much of the cost blowout. If Willis gets lucky at Cabinet on Monday (the last meeting before Winston Peters’ deadline for announcing a decision) and a sensible, affordable, non-rail-enabled solution is agreed, the Government will finally have some evidentiary basis for its claim to be doing “more with less”.
The coalition didn’t get everything its way. Good Opposition work uncovered the Government would break a promise to build 1000 new public houses a year in Auckland, and would probably not meet a coalition agreement target of recruiting 500 new police officers within two years. It’s also fair to say that Opposition MPs, if they’ve been doing their jobs, will use information gleaned during scrutiny week to dig further into weak spots for the Government, building a case that they might prosecute effectively in the new year.
The standout on the Opposition side was probably health spokeswoman Ayesha Verrall, who ruthlessly prosecuted Health NZ Commissioner Lester Levy. While her “cooking the books” allegation was itself somewhat overcooked, the line she was prosecuting yielded gold. Health NZ had curiously attempted to book costs in the 2023/24 year, rather than the 2024/25 year, which Verrall alleged has been done to make the books justify the appointment of a commissioner and consequent cuts. The fact the Auditor-General forced Health NZ to revert to more conventional accounting made Verrall’s case very difficult for Levy to defuse.
It was a rare victory in a rather flat scrutiny week for Labour - but helpfully, it occurred in health, a portfolio where the Government’s position is weak and getting weaker. The Government should be worried. The health system takes a long time to turn around and there’s very little time between now and the election.
The Government and Opposition are effectively tied in the polls, and the Government will be bracing itself for a rare summer of discontent, thanks to the fact the traditional starts of the political year, Ratana and Waitangi, where Māori issues are front and centre, will be dominated by the Treaty Principles Bill.
Prime Minister Christopher Luxon will visit Waitangi as Parliament examines what the Waitangi Tribunal called “worst, most comprehensive breach of the Treaty/te Tiriti in modern times”. Senior ministers will fondly remember the simpler days when the worst that could happen at Waitangi was finding yourself a target for flying phallic squeaking toys.
These dark clouds broke for the Government this week.
It’s been a challenging year in which many positive macroeconomic and regulatory reforms (that somehow manage to be both bold and dull at the same time) were too often drowned out by a gaffe-prone Prime Minister who, it’s now clear, lacks the ability to explain his economic strategy, but does have the ability to put his foot in his mouth. He left the field, allowing Labour to effectively turn the Government’s comparatively minor spending cuts into a story of cruelty and incompetence. Luxon placed too much stock in his ability to simply hypnotise the electorate into believing the country is “back on track”.
It shouldn’t have taken this long, and it shouldn’t have taken a Treasury committee hearing, for someone to furnish that phrase with at least the semblance of an economic and intellectual underpinning. The Beehive, in particular its ninth floor, should take note.
