Finance Minister Nicola Willis late yesterday stopped only slightly short of accusing her predecessor Grant Robertson of cooking the books.
She complained that the Half Yearly Economic and Fiscal Update (HYEFU), due to be made public on December 20, would show “fiscal cliffs” that would amount to “billions of dollars.”
Robertson, however, replied that she appeared not to have read last May’s Budget and her comments were a “desperate diversion from somebody who can’t make their tax package add up.”
But after the hyperbole of her press conference with Prime Minister Christopher Luxon, she conceded that what Robertson had done was to uphold the letter of the law but not necessarily the spirit.
“I think what they did was they found clever workarounds to make the books look better than they really are,” she said.
Willis levelled two charges at Robertson: that the already-identified fiscal risks were much larger than had been suggested and that the government had forecast funding for some programmes for only a limited time, but she said the Labour government would have been unlikely to have not renewed them then.
All up, there are 82 fiscal risks identified in the Pre-Election Economic and Fiscal Update (PREFU)divided into new risks, changed risks, and unchanged risks.
Willis said she would not identify specific risks because of commercial sensitivity issues, which would seem to point to a number of unchanged transport risks, particularly the replacement inter-island ferries and the Auckland City Rail Link and Waka Kotahi’s New Zealand Upgrade programme, which includes projects like the Papakura to Drury motorway upgrade; Pen link and KiwiRail projects like bringing electric trains to Pukekohe.
Otherwise, a number of favoured Labour projects like Te Kupenga, Three Waters and Resource Management reform all carry uncosted risks.
“Some of these risks are now upon us and are much larger than had been suggested,” she said, albeit that the PREFU did not actually put a price on any of them.”
Robertson said it was the Treasury who decided what the risks were.
“The reason the Treasury put things in there, and it’s Treasury who does that document rather than the Minister of Finance, who is consulted on it, but it’s Treasury’s document, is because quite often they’re not sure of exactly how much a potential risk would cost, let alone whether it was actually going to come to fruition,” he said.
Willis’s bigger concern was what she claimed was Labour’s time-limited funding for some programmes.
“I have been surprised by the sheer number of government policy programs for which funding is due to expire, as the government chose to fund those programs on a short-term basis only,” she said.
“In some cases, this practice is extremely disingenuous.
“This is because it makes the books look better and future needs even though it is highly unlikely, ministers genuinely intended to stop funding those programs.”
Willis singled out two programmes: Pharmac and cyber security in schools.
“It is remarkable to me, for example, that the outgoing government left a massive fiscal cliff for Pharmac funding,” she said.
“Did they really intend to withdraw funding for listed medicines, and if not, why didn’t they account for that in the pre-election update?”
The Pharmac estimates are included in the overall Vote Health which the Budget documents project out to 2026/27.
But that vote has not been broken down into its components beyond next year because the structure of health funding has been changed so that it will go on to a three year basis from next year.
“We wanted to align Pharmac with the overall health funding, so we did two years of health funding and now we’re moving into a three year health funding vote,” he said.
At present five per cent of the total Health vote goes to Pharmac.
As things have turned out, it will now be up to Shane Reti and Nicola Willis to decide what that percentage should be form next year on.
But current forecasts show the total Health budget they will have to dispense will be the vote from this year plus an inflation adjustment multiplied by three to spread across the three-year budget cycle.
The way the government works is that each spending area is covered by baseline spending, which is the money to keep doing what they have been doing.
Robertson’s May budget forecast that to rise each year by a little more than the projected rate of inflation.
Over and above that, any new funding would come from the annual operating allowance.
That will be 3.5 billion for next year, but in August, Robertson reduced it to $3.25 billion for 2025 and $3.0 billion for 2026.
National’s Fiscal Plan projects even lower operating allowances; $3.2 billion in 2024 and $2.85 billion in 2025.
Robertson pointed out that this detail was in the May Budget (and the details of the changed health funding structure were in last year’s Budget documents.)
“She’s been in the job of opposition finance spokesperson for close to two years,” he said.
“She cannot read and understand what is in the budget document, and I am deeply concerned at how she’s going to do the job of finance minister.”
However, he conceded that some programmes had no future funding shown for them.
Willis charged that a programme for cyber security in schools was unfunded after this year.
“I don’t think it is public knowledge that there’s only been short-term funding provided for cyber security in schools,” she said.
But Robertson said that had been covered in the Budget documents.
“It’s on page 89 of this document,” he said, waving around a copy of the Budget.
“It is one year’s worth of funding that adds to a previous year’s worth of funding as we were testing whether a particular approach worked.
“And that’s one of the other reasons you use time-limited funding.
“If you’re designing a new way of doing things, you test that you see if the outcomes are actually working.
“ Also, in this particular case, we were seeking a government wide solution to cyber security issues, which we think would be more efficient, that would potentially be funded in a future budget.
“Nicola Willis has to learn that a huge part of her job is tradeoffs.
“There are always more things that people want than there is money to deal with, and governments organise themselves differently on different types of funding in order to make that work. “
Nevertheless, Willis believes that the PREFU was misleading, and as a consequence, she intends to make changes to the Public Finance Act.
She wouldn’t say what those changes might be, but the Taxpayers’ Union had earlier written to her proposing the idea.
Their CEO, Jordan Williams, said the organisation’s staff would collate the unfunded or undisclosed liabilities and put them to both the Secretary of the Treasury and the former Minister of Finance to explain.
They would then ask what legislative changes (if any) would be necessary to avoid it happening again?
“Or was this a case of the law not being followed,” Williams said.
Ironically, in April last year, after National Leader Simon Bridges left, Willis proposed that National support a Green Party proposal for a Parliamentary Budget Office which Bridges had opposed.
However, Robertson, who was lukewarm about the proposal, did not move forward with the idea.
The 1989 Public Finance Act is one of New Zealand’s economic policy management pillars.
Speaking in 2018, then-Treasury Secretary Gabriel Makhlouf said the Public Finance Act was the primary legislation which governed New Zealand’s fiscal policy framework.
The framework was based on two key planks: transparency and accountability.
“It achieves this by requiring governments to be explicit about their long-term fiscal objectives and short-term fiscal intentions and to assess them against principles of responsible fiscal management,” he said.
“It also requires governments to report on a wider range of economic and fiscal information, including enshrining a role for the Treasury to produce independent forecasts and analyses of the Crown’s balance sheet.
“These principles promote sound fiscal policy, and the reporting requirements promote fiscal transparency.
“The expectation is that this transparency will lead to a public discipline whereby Governments are held to account on whether they are meeting their self-imposed fiscal policy targets.
Makhlouf said it was left to Parliament, markets and the public to pass judgment on whether these rules were being met.
After what Willis said yesterday, it might be expected that the public scrutiny outlined by Makhlouf might be more intense this HYEFU on December 20.