Finance Minister Grant Robertson is reaching back to the 1972 political playbook of Sir Robert Muldoon as he sets a fiscal trap for National.
Legend has it that the finance minister told Labour on the eve of that year’s election that he had “spent the lot.”
(In fact, he actually said, “I have spent it all for them.”)
There was, therefore, no room for any fiscal promises from Labour which, as it was to turn out to their cost, they ignored.
Robertson is trying to do the same thing to National; by trimming back departmental Budgets, he is trying to leave no room for National to make further spending cuts to pay for its tax cuts.
National is promising it will publish that policy this week.
Robertson also announced the spending cuts on the eve of the IMF publishing its annual report on the New Zealand economy.
In its Concluding Statement after the visit of IMF officials here in June, it noted that “the authorities need to further calibrate the fiscal stance to current economic conditions and limit discretionary easing that adds to inflation.”
Its final statement this morning should flesh that statement out with more detail on how it believes Government spending should now be tracked.
But the writing was on the wall in the May report of the Government financial statements.
These were published on July 5 and showed a $2 billion shortfall in the corporate tax collection.
In a commentary published with the results, Treasury said they expected the shortfall to persist till the end of the year.
The full accounts for the 22/23 year, which ended on June 30, will be published in early October.
The deviance with forecasts began at $0.4 billion in January and has fluctuated between that and a peak of $2.3 billion in March.
Robertson has appeared unconcerned by the fluctuations until recently.
It was not till the May report that Treasury sounded the alarm with its warning that it expected the high variance to continue until the end of the year.
So yesterday, Robertson announced cuts to core Departments and Ministries ranging from one to two per cent of their forecast budget for 2024/25.
He has estimated this will bring a saving of $390.5 million the 2024/25 year.
The big savings will come from two per cent cuts to seven agencies: the Ministry of Business Innovation and Employment, Education (excludes frontline), MSD (excludes Whaikaha), Corrections, Ministry of Foreign Affairs and Trade, and Justice and Housing.
Over and above this, he has also found another $524 million this year in immediate savings, most notably money that has been appropriated but not yet spent by several agencies.
All up, the savings will add up to over $4 billion by the end of the budget year 2026-27; in other words, over the term of the next government.
“Since May, we have seen further deterioration in the global economy, particularly in China,” he said.
“This will continue to have a direct impact on the New Zealand economy, and it is important that the Government responds to meet our balanced and responsible fiscal goals.”
But where Robertson has laid his trap for National is that he has also cut Budget allowances in the 2025/26 year (by $250 million) and 2026/27 (by $500 million).
“We can do this as inflation falls and still be able to meet the cost pressures we face as inflation declines and solid economic growth is forecast,” he said.
Robertson can now say that his trimmed Budgets and the accompanying forecasts will squeeze National’s ability to find its own cuts to pay for its tax cuts.
In effect, he has spent the lot.
“I’m committed to the fiscal rules that we’ve got,” he said yesterday.
“We’ve always tried to strike a balance here between making sure we are careful with the finances for the sake of future generations, but also delivering the public services that New Zealanders need.
“And I’ll always take a responsible and balanced approach.
“That’s why this is not an environment where we should be seeing people promise big unfunded tax cuts to the cost of more than $10 billion across this period.
“So I’m committed to that balanced approach.”
National’s finance spokesperson, Nicola Willis, says the party will produce its tax plan this week.
But leader Christopher Luxon has given few clues in his “Get Back on Track” tour as to where National might make its cuts to fund the tax cuts.
Nor has the party been specific as to when the cuts might take effect.
The nearest Luxon comes when he claims that the current government has expanded the bureaucracy.
At a meeting in Feilding two weeks ago, he said there were 14,000 more bureaucrats in Wellington.
In fact, since Labour became the government in 2017, there has been an increase of 7211 full-time equivalent public servants in Wellington, according to the annual Public Service census.
If Luxon were to fire every one of them, he could save somewhere between $600 and $700 million.
The NZCTU economist, Craig Renney, said in May that National’s initial 2022 estimate that its tax cuts would cost $1.66 billion annually will have now blown out to $1.94 billion because of wage inflation.
That is money National would have to find by making cuts over and above what Robertson announced yesterday.
And he hinted yesterday that the $2 billion shortfall from May could get worse.
“Two point two billion in the May accounts, as I’ve said. Anyone looking at the world will be able to tell you that things have not been getting better,” he said.
“So we’ll see where that lands.
“It’s my judgment that what we’re doing here today will enable us to meet those fiscal rules. Obviously, whether that judgment is correct or not, we will find out briefly.”
But leaving the Treasury coffers empty on the eve of an election when the government is in danger of losing is an old trick.
It didn’t stop National from losing the 1972 election, but the Kirk Labour government went ahead and borrowed heavily to maintain spending, leaving the way open for Muldoon to successfully campaign against it in 1975 as a spendthrift, economically irresponsible government.
It would appear to be a lesson Labour has not forgotten.
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