Speaking on the eve of this Thursday's key Half Yearly Economic and Fiscal Update, Finance Minister Grant Robertson has emphasised his direction to ministers to cut spending in unwanted areas to ensure the Government meets its fiscal responsibility rules.
Robertson told an Auckland Chamber of Commerce breakfast event at the Cordis (formerly Langham Hotel) the Government could pay for its policies detailed in its 100 day plan and remain within its debt and surplus limits, but would have to be disciplined about removing costs in areas it did not see as a priority. He mentioned the direction to ministers twice in the speech, reiterating the cost pressures facing the Government and impressing on a business audience the Government's aim to be fiscally disciplined.
"We can pay for the plans we have made and the policies in the agreements we have signed," Robertson said.
"But there are still other cost pressures to meet and programmes to deliver," he said.
"I have asked my Ministerial colleagues to re-assess current programmes to ensure they match this Government’s priorities and are value for money. Any such re-prioritisations will be reinvested to meet the cost pressures we face."
Robertson repeated again the Government's rules, which include delivering a sustainable operating surplus across an economic cycle and reducing net core Crown debt to 20 percent of GDP within five years of taking office. It is over 23 percent now.
"We will not generate artificial surpluses by underfunding key areas such as health, education, and infrastructure. Our surpluses will exist after we have funded our policy objectives - this is what we mean by a ‘sustainable surplus’," he said.
"While New Zealand already has low levels of Government debt relative to many of our overseas peers, we remain vulnerable to shocks such as earthquakes and other natural disasters. We have made our commitment to debt reduction to ensure that future generations of New Zealanders are in a position to be able to respond effectively to any such shock."
He also reiterated the Government's policy of maintaining Government expenditure within the recent historical range of spending to GDP. It has averaged around 30 percent over the last 20 years.
"We have accounted for all of our policy programme. As you will see in this week’s Budget Policy Statement and the Treasury’s Half Year Economic and Fiscal Update, this Government will meet its 100 Day Plan commitments by reversing the previous Government’s tax cuts," he said.
"And, through our operating and capital allowances we can deliver the remainder of our programme while meeting the Budget Responsibility Rules.
"However, we will continue to look closely at all Government expenditure to make sure that it is being directed effectively – towards improving all New Zealanders’ wellbeing."
'A Presbyterian approach'
Robertson described his upbringing in a Presbyterian family in Dunedin when talking about his approach as Finance Minister.
"This twin approach of investing to deliver social justice while being responsible with our finances very much mirrors who I am and my background," he said.
"Today I still try to live by the values that my mother taught me – we are our brother’s and sister’s keepers; treat others as you wish to be treated; and that if you work hard you will achieve your goals.
"I have also taken the extra precaution of having two Associate Finance Ministers steeped in the background of parsimonious southern Presbyterianism in David Parker and David Clark. The latter being an ordained Minister for good measure."
Moving on BEPS and living standards
Elsewhere in the speech, Robertson said a bill to implement changes to rules around base erosion and profit shifting (BEPS) would have its first reading in Parliament this week.
"My colleague Stuart Nash is also working with IRD on further steps to push multinationals to pay their fair share, and is building on the previous Government's work on the taxation of online purchases to ensure a level playing field when it comes to GST," he said.
Robertson also said he had instructed the Treasury to accelerate its work on the Living Standards Framework.
"This framework focuses on measuring our success in developing four capitals – financial, natural, human, and social capital. By assessing our performance across a wider range of measures we will see a much clearer picture of the effectiveness of our policies and how they benefit New Zealanders’ wellbeing," he said.
The HYEFU process
Robertson described in the speech how the Government's 100 day plan was going and how it fit into the Treasury forecasting cycle for the 2018 Budget.
"The Government was formed early enough during the Treasury’s forecasting and HYEFU cycle – just – that we were able include officials’ work on our 100 Day Plan costs into the Half Year Update," he said.
"So the likes of our Families Package, Fees-Free Post-Secondary Education and Training, Paid Parental Leave, the $2 billion capital injection for KiwiBuild, and our plan to restart contributions to the New Zealand Super Fund, are all included in the ‘base’ projections we’re starting from.
"These policies have been costed using Treasury’s normal process ahead of Budget announcements. Because of where the election fell, and the ambition of our 100 Day Plan, we were able to incorporate them into the accounts and the Budget process in December, rather than waiting for May to roll around.
"That’s not to say we’ll have nothing to talk about at Budget 2018, or 2019. A second document on Thursday will be our Budget Policy Statement. This will set out the operating and capital allowances we have set for the next few Budgets."
Robertson said these allowances provided the room for the rest of this Government’s policy agenda beyond the 100 Day Plan and detailed work had already begun on these policies as the Government headed towards Budget 2018. He said the detail in the 100 day plan and the coalition agreements meant there would not be a slew of announcements of new policies in the weeks leading up to the May Budget.
"The plan is already out there," he said.
"They are now being put through the Budget process to get final costings and design as officials work towards May," he said.
"I will leave the detailed announcements for Thursday but, suffice to say, I am confident we can meet our Budget Responsibility Rules while advancing our comprehensive programme."
Plans for Auckland
Robertson also spent time detailing the Government's five point plan for Auckland, including the need for competitive urban land markets "to bring down the very high cost of urban land that is at the heart of our problems."
Turning on the tap of infrastructure finance, for example, infrastructure bonds serviced by a targeted rate, building on the work done with Crown Infrastructure Partners;
Designing a more pro-growth planning system that allows the city to make room for growth instead of choking it off;
More robust spatial planning by central and local government;
Investigating a GPS-based network or transport pricing system. This will allow us to fully internalise transport costs so that roads and motorways aren’t a disguised subsidy for sprawl; and,
Possible legislative reform to support this new approach.
He again defended the new Government's decision not to go ahead with the $2 billion East-West corridor linking the Southern Motorway and the Motorway linking the NorthWest to the Airport.
"While we obviously see the need for making large investments into Auckland’s transport system, we do not believe paying $327 million per kilometre is good value for money. I am not interested in setting the record for building the most expensive road in the world," he said.
He said the Government was committed to implementing a $15 billion, 10-year programme to build a rapid transit system in Auckland, including light rail from the CBD to the airport and out to West Auckland.
"We are also investigating third-tracking the main trunk rail line and electrifying the rail line to Pukekohe," he said.
Robertson also repeated comments made by Transport Minister Phil Twyford about allowing Auckland Council to charge a regional fuel tax and opening up the use of the Land Transport Fund beyond just roading projects.
He also gave the first significantly positive comments about using Public-Private-Partnerships in areas beyond schools and hospital.
"We also want to work with those in the private sector who are willing to be partners in building and modernising our infrastructure," he said.
"Yes, this can include Public-Private-Partnerships (PPPs). We don’t believe PPPs have a place in schools and hospitals, but there is a potential for partnerships which can be used to drive productive and sustainable growth where they are appropriate."