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Labour to relax fiscal responsibility rules

Written By: - Date published: 9:00 am, May 24th, 2019 - 72 comments
Categories: capitalism, debt / deficit, economy, Economy, grant robertson, Keynes, making shit up, Media, national, same old national, tax, the praiseworthy and the pitiful - Tags:

Huzzah.  Grant Robertson has announced that the Government will relax the fiscal responsibility rules, although not until after next election.

Thomas Coughlan at Newsroom has provided this perceptive comment on what has happened:

The Government will scrap specific debt targets in favour of moving towards a target range, Finance Minister Grant Robertson has announced. 

The current target, part of Labour’s Budget Responsibility Rules, is to reduce net debt to 20 percent of GDP by 2021/22. When that target is achieved, it will be replaced with a debt range. 

Robertson did not specify what this was, but said Treasury had provided him with advice. 

“At this point we are looking at a range of 15-25 percent of GDP, based on advice from the Treasury,” Robertson said. 

“This range is consistent with the Public Finance Act’s requirement for fiscal prudence, but takes into account the need for the Government to be flexible so that it can respond to economic conditions,” he said.

Robertson made the remarks at a pre-Budget speech to the Craigs Investors Conference. He also said that Treasury’s forecasts, which are released alongside the Budget will show the Government on track to meet its Budget Responsibility Rules. 

Still too low? 

The Budget Responsibility Rules have been criticised for being unnecessarily restrictive on the Government and holding back Robertson from making vital infrastructure investments. 

Last year, Newsroom reported the Government could choose keep debt at roughly 30 percent of GDP before frightening ratings agencies.

This would equate to an extra $35 billion worth of borrowing.

Robertson responded to some of these criticisms. 

“For me it is a question of balance.  We have made, and will continue to make, significant investments in our future, but we also know that the volatility of the world, be it economically or through natural disasters, biosecurity incursions or unexpected events, is never far away,” he said. 

Trading Economics reports New Zealand’s current debt to GDP ratio at 19.9%.  By comparison Australia’s is 40.7%, Germany is at 60.9%, the United Kingdom is at 84.7%, the US at 105.4% and Japan is at an eye watering 253%.  Debt of itself does not stop economies from functioning.

Of course this has not stopped National from engaging in frankly irresponsible scaremongering.

And when you have hospitals with raw sewerage in the walls, teachers and other workers with significant catch ups required, an urgent need to develop sustainable energy sources and light rail to build why wouldn’t you run up debt.  Especially when interest rates are so low.

72 comments on “Labour to relax fiscal responsibility rules”

  1. Ad 1

    If this government were any more relaxed they would be a puddle of blinking-eyed used skin on the floor.

    • peterlepaysan 1.1

      How very enlightening.  Thank you for your insightful and informative comment.

      • Ad 1.1.1

        Any time soon they'll get a spine and an actual bone structure.

      • sumsuch 1.1.2

        I think it pertinacious. Prefer the bulls in a china store of the first Labour Govt. After all we are a hundred times more in danger. 

  2. Blazer 2

    New Zealand’s current debt to GDP ratio at 19.9%.  By comparison Australia’s is 40.7%, Germany is at 60.9%, the United Kingdom is at 84.7%, the US at 105.4% and Japan is at an eye watering 253%.

     

    who do these countries actually owe the money to and where did the lenders get it from?

    Just wondering.

    • vto 2.1

      ha ha good luck with answering that one

      lenders get it by printing it  – best business in the world by far

      there is more debt in the world than there is money to repay it – how does that work?

    • WeTheBleeple 2.2

      I know right. If the whole world is in debt???

      We know that money is created from thin air (bank loan for producing goods and services), and then interest is required to be 'paid back' above that. Goods and services tether the magic money to reality (e.g. they generate a loan for a house which is tangible goods), but the interest on the magicked up money… This interest forces a growth model as it is over and above all current goods and services.

      One might argue the planet's economy could actually cope with a decline (you know, to save the planet), except a decline brings bankers into play, loans get defaulted, mom and dad lose their houses and businesses, and the bankers take them all.

      While this system gave us growth it also forced growth, now an entirely unsustainable model. At some point someone needs to tell whoever the head honcho lenders are to fuck off, they're not getting their interest. 

      Politicians are too scared to tango, if people get defaulted, they certainly wont vote for who stirred it up. It's like the planet is held at gunpoint, but so bloody hard to put your finger on. 

      Or we can let the financiers ride the fractional reserve banking gravy train to planetary annihilation. Grow, grow, die.

    • Herodotus 2.3

      Debt of itself does not stop economies from functioning.- But NZ has a large private debt.

      Japan Germany are net saver, the govt incurs debt the public save

      https://www.ft.com/content/ba96c8ea-b34a-11e7-aa26-bb002965bce8

      https://www.mckinsey.com/featured-insights/asia-pacific/japan-the-world-savers-retire

      And when you have hospitals with raw sewerage in the walls, teachers and other workers with significant catch ups required, an urgent need to develop sustainable energy sources and light rail to build why wouldn’t you run up debt- But we have to wait to AT LEAST 2022/3 before that happens. These issues are CURRENT. I am sure that another 3+ years of being treat as crap will be tolerated.

      How about we have a government to make decisions NOW. This lot just like those that went before them distort the truth to maintain their hold on power.

    • michelle 2.4

      they own the money to the world bank and imf 

    • Nic the NZer 2.5

      Its mostly owed to financial institutions (banks and insurers) of the countries in question. Ultimately this creates the fixed income market so the reason commercial banks in NZ have a surplus of $NZ to invest is mostly due to depositors.

      Its also worth noting the only institution which creates $NZ is part of the NZ government. The government never borrows due to it being short of the funds to facilitate spending.

      A very large part of the Japanese govt debt is internal debt between the Japanese govt and its central bank.

  3. Re Amy Adams attack.

    I recall National being good at paying down debt.

    Insert TUI ad here, please. 

    • greywarshark 3.1

      I thought that too.   Amy Adams  is the monkey dancing for the organ grinder of National that always says this sort of thing though a look at the historical records shows otherwise.   But why let facts get in the way of a good story.

      It is a bedtime story for the complacent, the wannabes, for the wealthy to repeat in hushed tones to the wilfully ignorant children who like Peter Pan will never grow up.  Taking that further Amy is Tinkerbell calling out to all the National supporters to clap their hands and provide the energy to make National a living reality!

    • michelle 3.2

      sounds like you need to fix your recall button Clive because national increased our debt by tenfold aunty Helens government had our debt at an all time low and then along came jooohnnn   

  4. dv 4

    25%, still well under the other ratios quoted by Blazer.

  5. SPC 5

    The advice to have a debt target range of 15 to 25% of GDP came from Treasury. All the government did was sign off on it.

    Just as with the change of inflation target from 0–2 to 1-3%, it means little to actual policy. Inflation has been lower since the change, not higher.

    Labour and Greens adopted National's 20% GDP debt 2020 target (by 2020/2021 with more government spending and lower tax cuts).

    Joyce talked about a post 2017 National government having a 10-15% GDP debt by 2025. This indicates that National was itself intending a more flexible lower level target in the future. 

    Treasury has indicated acceptance of a lower figure of 15% by 2025. And presumably a higher level than 20% because

    1. the trade wars, sanctions and Brexit consequernces for the global economy may deepen and broaden 

    2. the failure to introduce a CGT to improve future revenues. 

    3. infrastructure needs more investment (including increase of state house stock) to sustain growth (see 1)

    4. debt is so cheap we can afford more of it. 

  6. bwaghorn 6

    Oh God now we are going to be hearing all about Joyce's hole till the next election. 

    • greywarshark 6.1

      Thanks for your prayers bwaghorn on behalf of all of us.   Please keep up your relationship with the Creator, we really need some TLC from him/her.

      • Jimmy 6.1.1

        Mind you I heard Cameron Bagrie the other day on ZB saying Steven Joyce was right about the hole. Wasn't he mocking him about it saying it didn't exist….whats changed these economists just change with the wind.

        • michelle 6.1.1.1

          who cares about joyces hole he has gone and so has his hole

          • Jimmy 6.1.1.1.1

            The hole hasn't gone in fact according to Bagrie Joyce underestimated it!

            • bwaghorn 6.1.1.1.1.1

              Did you also note that bagrie thinks the economy is sound and that if labour does borrow more it's no big thing.

              • alwyn

                Tell me. To be consistent in your views, whatever the side you pick you will either have to say that Bagrie's views are both correct OR they are both wrong. He is a good Economist and his statements will be consistent with each other.

                I think he is right on both counts. Joyce had identified a genuine hole in their figures and probably did underestimate the number. It is also, in the current circumstances quite reasonable for the State to borrow a bit more.

                What do you say? Bagrie correct in his views or is he wrong?

                 

                • bwaghorn

                  He'll only be right if labour does start spending . 

                  I think they should drop the limits now and solve some issues . 

                  Still it's better than keys gst lie. 

                  Had a few bourbons so hope it makes sense

            • SPC 6.1.1.1.1.2

              FACTCHECK.

              But currently, despite wage demands, the Government hasn't been left without cash. While Joyce claimed it's net core Crown debt wouldn't fall below 23.5 percent of GDP by 2022, Treasury is forecasting it will reduce to 19.1 percent of GDP in 2021/2022. The Government's decision to change the crown debt target also wouldn't come into force until after June 2022 – beyond the period Joyce was referring to when he said there would be an $11.7 billion hole.

              • alwyn

                Did you include the numbers that the Housing people are running up? Surely you aren't being fooled by Robertson's b*s method of taking it of the Crown debt?

                And if you are going to make these claims can you please say where you are getting the material from?

                • SPC

                  Meh. The slower KiwiBuild uptake is reducing budgetary cost (allowing quicker debt paydown).  And those kept in ownership will earn rent (and are assets on the government books). 

                  Will you bet that the debt will not meet the 20% target in 2020/2021? 

                  I'll bet it will and this will put a stake in the heart of Joyce's contention that it would be no lower than 23.5% by 2021/2022. Knowing everything Joyce said Treasury later made an estimate of 19.1% for that year.

                  • alwyn

                    I take it you did get the numbers from Grant's May 2018 Press Release.

                    I think describing that as "But currently, despite wage demands" is pushing things uphill pretty hard. The wage demands hadn't started at that point and at least a year ago is certainly not "currently".

                    By the way you are also talking about wanting to me bet on 2020/2021 as if that proves claims you say were made about 2021/2022 by Steven Joyce being true or false.

                    Can I fiddle the dates as well. Will you let me make a bet with you on the result of the 2018 Melbourne Cup? You will have to pay out the TAB odds to me if I can pick the winner.

                    The comment about Kiwibuild is also very debatable. The money Housing is spending has been kept out of the Crown Accounts. It also introduces a very dangerous Financial liability to the Crown. Twyford has said that more than 10,000 houses have been contracted for before 2028. Everyone of those will have given the Contractor a free put which will require the Government to buy them if the developer doesn't sell them at a suitable price. At $500 k each that could lead to the Crown being forced to buy about $5 BILLION worth of properties which the taxpayer will then have to sell for whatever they can get.

                    Who ever let that man lose with the taxpayers wallet?

                    • SPC

                      Given the government will hit its 20% debt to GDP target by 2020/2021, the chances of a rise to 23.5% in 2021/2022 is very unlikely. More likely it will still be around 20%. 

                      Rising wages in the public service is not that big a factor on debt to GDP (and in the wider economy it reduces government costs and raises government revenue). 

                      The KiwiBuild homes programme is about getting them built, if the narrow criteria the government set means they cannot sell them they will take some into state housing (10,000 waiting list), some into rent to buy programmes and others they will sell by broadening the criteria (to those already owning apartments and flats when they start families). 

                      And remember a debt financed increase in state assets (earning rent income) is not an increase in net debt.

          • alwyn 6.1.1.2.1

            You did notice that your link is to something released 5 hours ago but that the Robertson Press release it refers to and where I suspect SPC got his numbers from is more than a year old? The Treasury numbers will have been done long before that and are long out of date.

            All the wage claims have blown out since those Treasury estimates you know.

            As Harold Wilson said "A week is a long time in politics". Well a year is an eternity for Treasury Estimates' validity.

            • Shadrach 6.1.1.2.1.1

              Indeed.  Did you see Robertson tripped up by Goldsmith in Parliament on Wednesday?  You can watch it at https://www.parliament.nz/en/watch-parliament/ondemand?itemId=206540, the fun starts at 4.30.  In short, Robertson claimed 1% of GDP was around 800million.  It is nearer to $3bn.  So we have a PM who doesn't know what GDP is, and a Minister of Finance who doesn't know how much it is.  Not to worry – there'll be a wedding soon!

              • SPC

                Typical government minister – he connects 1% of the GDP to the money he will get his paws on to spend, rather than the total. 

                • alwyn

                  I commented on this on another blog, "Yes Minister" this afternoon. I think Grant has been maligned on this as I think he didn't interpret the supplementary question correctly. I came to the same conclusion you did, although I think I may have been a little kinder to the man.

                  What I said there was

                  "I heard that reply he made to the supplementary question.
                  I am not a great admirer of Grant but he could have misheard the question and taken it as being a question about Government Revenue or Expenditure. The question was
                  "what is an additional 1 percent GDP growth worth to New Zealand".
                  When it was revised slightly to Goldsmiths statement "1 percent of GDP is about $3 billion" he objected saying that "That's not what the member initially asked".
                  I think it is possible he was interpreting the question as having been "what is an additional 1 percent GDP growth worth to (the) New Zealand (Government)" in which case his answer is about right.
                  I can't prove this of course but in answering supplementary questions it is a possible misinterpretation for him to make.
                  God. I never thought I would come to the defense of the gentleman concerned."

                  • Shadrach

                    Hi Alwyn

                    I have listened to the question again.  Goldsmith's question was very clear.  

                    "To the nearest billion dollars, what is an additional 1% GDP growth worth to New Zealanders."

                    Not "New Zealand".  Not the "New Zealand Government".  "New Zealanders".

                    The question was very clear, and it was in the context of a Primary question about GDP, and of Robertson specifically having just referred to factors contributing to a drop in GDP growth.

                    Robertson screwed up.

            • SPC 6.1.1.2.1.2

              Treasury is renowned for its conservative estimates. 

              And if surpluses are higher than forecast, the money for debt repayment is greater. 

        • peterlepaysan 6.1.1.3

          One can lay economists end to end and never reach a conclusion.

          Hat tip to GB Shaw.

      • bwaghorn 6.1.2

        If I thought god was listening I'd be talking about far more important things than holes.

        • greywarshark 6.1.2.1

          Anything is helpful bwaghorn.   I'm not big on prayer myself but feel the need FTTT.   Who knows whether a prayer on the North or South Islands will start a chain of events in Wellington, Auckland or somewhere.   I think it is part of hope, I just don't believe it replaces personal action of some helpful sort.

  7. “At this point we are looking at a range of 15-25 percent of GDP, based on advice from the Treasury,” ..so, and please correct me if i'm wrong..but there is a possibility that we are going from a 'restrictive ' 20%..to possibly 15% ?

    Meantime we are still going for 20% by '22.

    And this is exciting?

    How bad will things be in Public Services (Health , Education, Family crisis support, housing) by 2022? I shudder to think. By that time even 35% won't be enough to by all the selotape and string we'll be needing to hold things together.

    • SPC 7.1

      On the positive side all fiscal drift revenue increase is going into spending, as is the benefit of lower cost of debt. 

      There are options

      1. finance the annual $2B contribution into the Cullen Fund via a 1% employee levy with a 1% top up from employers. This frees up that money for higher day to day spending. Which should include tertiary debt writeoffs for teachers and nurses – interest free while they work in these jobs and 10% written off per annum while they work in Auckland).

      2. reboot the KiwiBuild programme around all new homes on existing HCNZ land being state houses (all such land no longer being sold for KiwiBuild or private developers) and instead the cost of building new state houses on the land entirely being funded by borrowing. This does not increase net debt because the money is going into an increase in number of state owned properties – assets from which it receives rent.

  8. The Chairman 8

    And when you have hospitals with raw sewerage in the walls, teachers and other workers with significant catch ups required, an urgent need to develop sustainable energy sources and light rail to build why wouldn’t you run up debt.  Especially when interest rates are so low.

    Yet, despite all these problems and the fact Government debt is tracking down faster than projected (currently at 19.9%) Robertson is arguing it's a question of balance and believes they have the balance about right. However, many (teachers, poverty action, etc) disagree. 

    Considering the Minister’s comments, adopting a range of between 15 percent and 25 percent opposed to the current set target of 20% does suggest that despite all the stated crisis (housing, education, health, etc) in the current economic climate (which they deem as good) the Government will most likely move to further reduce debt. Disappointing those who are hoping adopting the range will result in the Government spending more to address current concerns.

  9. greywarshark 9

    Banks fight back against RBNZ capital increase proposal

     
    @NonaPelletier nona.pelletier@rnz.co.nz

    Reserve Bank proposals to make banks hold more capital to guard against a financial crisis will slow economic growth, lift interest rates, and disadvantage smaller New Zealand owned banks.

    Just in on Radionz.   I think that savers and retirees will find life easier by a lift in interest rates.    While government is at it, what about dropping taxes on interest paid on savings, that would be nice, and help to limit consumerism and money spent on imported goods that help to drain our economy.    For decades we have spent more than we have earned, but we have a 'stong' economy, while we can borrow at cheap rates.  Manipulation, prestidigitation!.    Let's have a grass roots economy not one with fairy wings and a wand.

    We can still have relaxed Debt to GDP rates as long as the money is spent on preventing expensive health outbreaks, goes into infrastructure, helps train young people for jobs where staff are needed etc. And limit how many people come to NZ to get education, needing jobs. It is so sad to hear about the way our Immigration chess players push them around as human pawns.

    Set limits where needed on all policies of inserting money into the slot marked NZ, and find ways to make our own money go round, the multiplier effect! Now that is a useful device, time to brush the dust off the archives in Treasury and ensure that we use this little economic gem to its full potential for good.

     

  10. RedLogix 10

    New Zealand’s current debt to GDP ratio at 19.9%.

    This omits an important point … this is only government debt. Total external debt including business and personal debt is higher and a less comfortable ratio.

    https://tradingeconomics.com/new-zealand/external-debt

    • SPC 10.1

      Another reason to borrow to build more state houses on HCNZ land rather than sell the land for KiwiBuild and other property building – increasing private debt further. 

    • Dean Reynolds 10.2

      Business & personal debt is not the responsibility of Government

      • RedLogix 10.2.1

        True, but our risk and ratings are largely related to the total debt we have to service. While you are technically correct, govt debt is the responsibility of govt … where do you imagine govt gets it's funds from? 

    • Pat 10.3

      think its safe to assume that the private debt levels are of equal concern and are being addressed , namely by the RBNZ proposed capital requirements

  11. mosa 11

    Bryan Bruce – Is there really “no more money” for teachers, and other essential social spending ? Or should we stop running austerity budgets and do something about untaxed wealth?

    https://thedailyblog.co.nz/2019/05/24/guest-blog-bryan-bruce-is-there-really-no-more-money-for-teachers-and-other-essential-social-spending-or-should-we-stop-running-austerity-budgets-and-do-something-about-untaxed-wealt/

    • Sam 11.1

      Running up government debt isn't a s bad as paying it down to fast. Of course the government could just leave the printing presses on full if it was for War and a select few other things like energy policy or productive purposes. But borrowing for tax cuts as did Key and English is just stupid.

      • mosa 11.1.1

        " But borrowing for tax cuts as did Key and English is just stupid." 

        Their donors and wealthy recipient's ( and constituents ) were happy and overjoyed.

        A great return on their investment.

         

        • Sam 11.1.1.1

          My Facebook timeline has been abnormally filled with weddings and engagement announcements this week. Must be getting closer to a Global Recession.

    • alwyn 11.2

      Oh dear. Perhaps you haven't noticed but your dream of what sounds suspiciously like a CGT is dead for at least the next 5 years I would say. Even if we are lucky enough to have a new Government in 2020 I don't think that they will introduce a CGT and it is unlikely that Ardern's controllers will make her flip again and push for one before the next election.

  12. Michael 12

    Robertson should never have agreed to BRR in the first place – our social deficit is too high for any responsible government to adopt neoliberal economic policies – especially when this one did so voluntarily.

    Rather than borrowing, I'd prefer it if Robertson funded necessary public spending from taxes – either increasing existing taxes or implementing new taxes on various forms of economic rents that are so endemic in societies like ours.

    The government's Achilles heel is spending control – who really believes our public service is capable of exercising competent oversight of appropriations? Labour needs to get a handle on this side of the budget process before opening up the sluices or else it is just handing a weapon to the Right.

  13. One Two 13

    Refering to debt percentages et al diverts attention away from the discussion which should actually be constantly in the mainstream public domain…

    That is… the discussion around why borrowing from anywhere other than between RBNZ / Treasury  is even necessary…

    Everything else is simply propagating misdirection and fallacies…

    Which the government is now using as an election bribe.

  14. Stuart Munro. 14

    I think it's the first sign he's beginning to grasp the possibilities of his office, and therefore healthy. It may of course become a line of attack from the blithering idiots of the extreme right, who never said a dickey bird about things like English's wrecking of Solid Energy.

    The original target was an externally imposed straitjacket of no particular merit. It's quite possible to govern responsibly within a looser framework, or, as the Key Kleptocracy demonstrated, to govern irresponsibly within a tight one.

  15. michelle 15

    they (national) also wrecked nz post one of the best postal system in the world now one  of the worst 

    • alwyn 15.1

      Ever send a letter Michelle? And do you still use cheques?

      Most mail is handled today by e-mail. Quicker, cheaper and more reliable.

      Thinking that New Zealand Post can, or should, go on the way it used to is like saying that we should ban the car because it will put all the manufacturers of horse drawn carts out of business?

  16. adam 16

    Austerity say's shit lite, because it's good for you.

     

    But see how magnanimous we are, we might not be so austere in say 3 or 4 years. 

     

    shit lite, not as bad as shit – but boy howdy it getting harder and harder seeing the difference. 

    • Blazer 16.1

      if the neo cons could monetise shit…the poor would be born without…arseholes.

  17. sumsuch 17

    Does it surprise anyone our search for the truth is less popular then KiwiBlog by 4 to 1? Scratching itches Acclaimed! has its way. What makes us different to the bloated rudderless iceberg of America is the unconscious values of less political NZers. Given to them by their Welfare State upbringing , and the echoes thereof.

  18. sumsuch 18

    My question is is this break from the budget responsibility rules just a surface crack for those of us angry about it or is there substance? What would substance look like? You detailers. Chris Trotter being away, not hearing any of our summarisers. Do you realise why itch scratchers on the Right have their way? Though details are needed. 

  19. Jenny - How to get there? 19

    Good on Robertson.

    Let's do this

    Let's pay the teachers

    Let's pay the health workers

    Let's fully fund the ambos

    And if were still short of a few quid we could take up Andrew Little's idea and take back some of that $20 billion largess we dolloped on the military.
     

    Personally I think our hard done by teachers nurses Drs and ambos do more to defend New Zealanders than the all the overfunded rambos in the world.

    • Jenny - How to get there? 19.1

      Chris Trotter put it this way.

      Perhaps, therefore, we should follow the example of Costa Rica and abolish our armed forces altogether. On December 1, 1948, following a bloody civil war, the President of Costa Rica announced the abolition of that country's armed forces. His decision was confirmed the following year in Article 12 of the Costa Rican constitution. The monies previously spent on the military were reallocated to education and culture. The maintenance of internal security was left to the police…..

      ……If national defence does not mean ensuring the basic welfare of every citizen – then what does it mean?

      https://www.stuff.co.nz/national/politics/opinion/80986483/chris-trotter-how-many-houses-could-we-get-for-20-billion-spent-on-defence

    • Herodotus 19.2

      the problem re paying these deserving workers is that by the time 2022 comes around the next pay round will have concluded, or that if our govt has its way nurses, police, teachers etc will have to wait 4 more years until wages are able to catch up, that after 11 years of being left behind ☹️

  20. New view 20

    Labour are only talking of taking on more debt. They never actually do anything,just talk about some plan in the future. My fear is they will borrow to fund more think tanks. 

  21. sumsuch 21

    2021/2! No substance. I was right to join up and vote for the guy from New Plymouth, intending to vote for Cunliffe. Never voted for Labour in my life. Though my G. grandfather hit people for them.

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  • Christchurch trial new defense against fleeing drivers
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    18 hours ago
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    4 days ago
  • New international protection for frequent fliers
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    6 days ago
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    6 days ago
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    7 days ago
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  • IPANZ Annual Address
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  • Milford Track to partly reopen after storm damage
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  • Kiwis better off under Coalition Government
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