Former Finance Minister Steven Joyce appears to have used the wrong line in a Treasury spreadsheet when he told Parliament yesterday there was $110 billion of unallocated capital expenditure available over the next 15 years.
Joyce was defending claims that his Government made no provision for the $20 billion defence re-equipment programme.
Finance Minister Grant Robertson told Parliament that the capital spending hole went beyond the defence expenditure.
“I’ve been advised of significant capital spending pressures across multiple portfolios, including defence, education, and health,” he said.
“For example, district health boards (DHBs) have signalled a required capital spend of $14 billion over the next ten years, which will require $9 billion of additional Crown funding.
“This signalled investment requirement is higher than at any time since DHBs were established, reflecting nine long years of under-investment.
“I have also been advised of $20 billion of potential spending for defence stemming from Defence White Paper 2016, which does not appear in capital spending forecasts.”
POLITIK reported the defence spending hole yesterday morning which drew a response from Joyce claiming it was “fake news” and claiming that there was $110 billion of unallocated capital expenditure available over the next 15 years.
That figure appears to have been derived from Treasury “projections” which are not regarded by Treasury itself as carrying the same weight as “forecasts”.
In a 2012 paper, Treasury said it used the term “forecasts” for predicting the results of the key interactions of the economy to produce a forecast of the business cycle over the near-term future.
“Projections, on the other hand, involve relatively few interactions, few drivers, and relatively few assumptions; they more likely to follow smooth trends rather than the ebbs and flows of the business cycle. They can be used to show the effects of a change and answer a
question: “What if this assumption was higher or lower?” Projections are not an attempt to
forecast the future in the way described above. They are a much more mechanical exercise.”
But Joyce has relied on projections to make his case against
Robertson (and POLITIK).
The projections are contained on one line in a spreadsheet which is part of Treasury’s Fiscal Strategy Model.
Immediately below them is another line of figures which shows an unallocated capital expenditure out to 2030/31 of only $83 billion.
The Treasury methodology is complex, but the $110 billion figure includes $27 billion which is planned to be spent in years beyond 2030.
The $83 billion figure disregards that post-2031 spending so is a much more accurate figure of the available capital spending allowance up to 2030/31.
It provides for a new capital spend post-2021 of approximately $7.7 billion a year — considerably more than at present but also likely to be substantially eroded by new spending commitments as they come on stream over the next 15 years.
But Treasury cannot guarantee the accuracy of those figures.
It is much more certain about its forecasts out to 2021
, and that’s where the real problem lies.
Up till 2021 Treasury forecasts that there will be a total new capital spend of $5.019 billion.
The proposed purchase of four P8 Poseidon aircraft would come from this money — but as Robertson has made clear, the new Government is facing a host of competing demands for new capital expenditure.
Labour already has a total of $14.9 billion of new capital spending proposals – according to its Fiscal Plan which was updated after Treasury released the Pre-election Economic and Fiscal Update on August 23.
Since that update, the coalition agreement has added another $1 billion a year to capital spending for the Provincial Growth Fund.
What is clear from the spreadsheet and Labour’s plan is that no provision has been made for the P8 Orion aircraft purchase.
That purchase is now urgent with the aircraft though unlikely to be efficiently operational much beyond 2021 and with an option to buy four expiring in March.
What all this adds up to is intense pressure on the new Government’s capital budget.
Joyce told the House that Robertson’s answer to this would be to “ramp up debt risk”.
Robertson did not directly address this which leaves open the question that the only way out for the new Government may be to increase debt.