A leading economist says Steven Joyce’s 2017 claim that Labour had a hole in its planned spending will soon be proven correct.
Ahead of the 2017 election, then-Finance Minister Steven Joyce alleged Labour had an $11.7 billion hole in its planned spending and would break its Budget Responsibility Rules to reduce crown debt to 20 percent of GDP.
- Finance Minister Grant Robertson blasted for ‘loosening the purse strings’
- Steven Joyce stands by fiscal hole despite $5.5 billion Government surplus
- Economist consensus – there’s no $11.7b hole in Labour’s budget
Labour denied the claim and a list of economists at the time agreed there was no hole.
But questions about the Government’s financial management have re-emerged after Finance Minister Grant Robertson announced on Thursday it would shift its crown debt target from 20 percent to a range of 15-25 percent from 2021/2022.
“Beyond the Budget Responsibility Rules, our fiscal intentions in this Budget will signal a shift to a net debt percentage range, rather than a single figure,” 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.”
On The AM Show on Friday, economist Cameron Bagrie said the Government was facing “fiscal challenges” after host Duncan Garner asked if there would indeed be a hole in the years ahead and the Government would need to borrow more.
“When Labour came into power and delivered their plan, they had spending front-loaded but they didn’t leave much wriggle room for the out years or the unexpected,” he told host Duncan Garner.
“Things such as teacher pay, public sector wage demands – I don’t think they factored that in and we know those demands are becoming pretty ferocious and they are pretty expensive.
“So they are going to need more wriggle room for 2021/2022.”
Garner said that had been Joyce’s view.
“He [Joyce] said what they haven’t taken into account are the wage demands or the pay rounds of Labour’s old mates… Joyce was right,” Garner said, to which Bagrie agreed.
“He is going to be right, technically I think his number of $11.7 billion – the real number is going to be a little bit bigger than that,” said Bagrie.
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
Bagrie said regardless of the shift, the Government’s new future Crown debt range numbers were still “world class”.
“Whether the crown debt is 20 percent of GDP or 25, they are still world class numbers at the good end of the spectrum.”
He also encouraged the focus to not be on how much is being borrowed, but rather the quality of the spending and if it was achieving positive outcomes for Kiwis.
“The Government has got a big balance sheet, we shouldn’t be afraid to use that balance sheet for productive good, but it has to be good policy as opposed to quantity spending.
“You have the economy slowing up… we should be throwing a little bit more money into the economy to help pick things up. But of course, if you are going to spend a little bit more money during the tougher times, you have to have the ability to rein things in during the other times.”
He said he didn’t see rating agencies changing their credit rating for New Zealand.
The Finance Minister has been contacted for comment.