Federated Farmers Manager General Policy, Nick Clark. Photo / Supplied
Comment: While it may be tempting for the Government to spend up large, a boring Budget is probably what we need in these uncertain times, writes Federated Farmers Manager General Policy, Nick Clark.
Last week Finance Minister Grant Robertson announced Thursday 14 May as Budget day.
Also last week, with admittedly less fanfare, Federated Farmers presented its submission on the Budget Policy Statement to Parliament's Finance & Expenditure Select Committee.
The BPS sets out the fiscal parameters and government priorities for the Budget, so provided some hints at what to expect.
As with last year's Budget the Government has used the BPS to signal a strong focus on "wellbeing", with five key priorities:
• Supporting a just transition to a climate resilient sustainable and low emissions economy.
• Ensuring New Zealanders benefit from new technologies and lifting productivity through innovation.
• Lifting Maori and Pacific incomes, skills and opportunities.
• Reducing poverty and improving child wellbeing.
• Supporting improved physical and mental wellbeing.
Federated Farmers has no problem with the concept of wellbeing, or any of these five priorities which are all very worthy, but in practice wellbeing can mean all things to all people, and it's often used to justify almost any policy or programme. It would be a problem if it resulted in growth in lower value spending.
Over the past several years a growing economy has generated enough growth in tax revenue to allow growth in operating expenditure, the maintenance of operating surpluses, and a reduction in the ratio of net debt to GDP.
This happy set of circumstances doesn't happen by accident and it's been thanks to successive governments having a strong focus on the economy and for fiscal responsibility to underpin the economy. Boring perhaps but necessary.
Governments shouldn't take the economy for granted. Bill Clinton's political; strategist James Carville was right in 1992 and he's still right today when he coined the phrase "it's the economy stupid".
Put another way, it will be hard to achieve the Government's wellbeing priorities if the economy can't deliver.
Governments shouldn't assume they can keep growing their operating expenditure by several billion dollars annually and at the same time maintain operating surpluses and keep debt under control.
That we have gone from a $7 billion operating surplus last year to a $943 million forecast operating deficit this year should be a wake-up call.
Government spending has been allowed to increase by more than $6.5 billion last year and by more than $6.7 billion this year.
The strong growth in spending is the main reason for the forecast deficit.
The slowing economy over the past couple years and slower growth in tax revenue simply exposed it.
In response, Federated Farmers submitted that the operating allowance for Budget 2020 "new initiatives", which was increased last year, should be cut back and it should be used for tax relief, such as adjusting income tax thresholds for inflation, rather than new spending on top of that already committed.
Furthermore, while supporting the Government's substantial boost in infrastructure capital investment, there needs to be more for rural and regional New Zealand, the engine room for exports and the economy.
These areas need stronger increases in infrastructure spending than those announced at the end of January.
An emphasis on infrastructure going forward should be on rural local roads and rural and regional state highways, rural telecommunications, and assistance for upgrades to three waters infrastructure.
This is especially necessary to help many small rural councils that are struggling with cost pressures and challenges to maintain let alone renew and replace ageing infrastructure.
Budget 2020 will be delivered only four months out from the election and while budgets aren't the big bang affairs of the increasingly distant past this one will be key political set piece for the contest ahead.
While the temptation to spend up large will no doubt be strong, especially if the polls are looking close, New Zealand can't afford a spending binge which squanders the country's finances and leaves a nasty hangover.
A boring budget is probably what we need in these uncertain times.