Robertson tightens belt again and holds windfall in reserve

Finance Minister Grant Robertson. Photo by Lynn Grieveson.

Finance Minister Grant Robertson has used his pre-Budget speech to announce a fresh belt tightening exercise by his ministers and has indicated a tax revenue windfall over the last six months is more likely to be used on extra operational spending than extra capital spending when he delivers Budget 2018 next Thursday.

Robertson promoted next Thursday's Budget 2018 as unleashing $42 billion worth of capital spending over the next five years, which he said was $10 billion more than the previous National Government planned. But it is also virtually unchanged from Labour's Half Yearly Economic and Fiscal Update issued in December.

The Government detailed in its 'mini-budget' on December 14 that it expected to spend $41.7 billion on capital expenditure over the four years up to the end of 2021/22. That means the Government has not increased its expected capital spending plan since December, despite its own figures showing its debt track is already almost one percentage point ahead of the December forecast because of better than expected tax revenues and higher than forecast nominal GDP growth.

Robertson reported last week that the Budget surplus was $910 million ahead of the December forecasts by the end of March, which meant the Government's net debt to GDP had already fallen to 21.4 percent. That was below the 2.2 percent expected in December and heading quickly towards the 20 percent nominated by the Government as its target to be achieved within five years of taking office (2021/22). The December forecasts saw net debt reaching 19.3 percent of GDP by 2021/22.

The Government's decision not to increase its capital expenditure plans implies either it will be unveiling higher operating expenditure in the budget next week or will hit its debt target faster than the 2021/22 fiscal year, given economic forecasts are expected to be relatively unchanged from December.

Robertson made the prediction about the $42 billion of net capital spending over the next five years in his traditional pre-Budget speech to the Wellington Chamber of Commerce.

“The capital investments to be announced on 17 May will allow us to give a long overdue boost to Health to ensure that our hospitals are fit for purpose and can cope with a growing and ageing population," Robertson said in the speech notes made available before the speech.

“Education will also get a significant investment to support our schools to deal with ageing buildings and increasing enrolments," he said.

“We are upgrading our transport network to ensure we have a safe, efficient transport system, and will make the largest investment of our lifetimes into New Zealand’s regions via the $1 billion per year Provincial Growth Fund."

Robertson said the Government was making the extra investment while meeting its Budget Responsibility Rules, which include running an operating surplus across the cycle and hitting the debt target.

Robertson also used the speech to announce another belt-tightening exercise. Last month he announced his ministers had already found $700 million of savings, but he said he now expected more savings to be found from within existing allocations.

"One lesson I can draw from my first Budget process is that we spend a lot of time debating new proposals, but comparatively little on the substantial baseline allocations," he said.

"That is why, in the next phase of our reprioritisation exercise, I will work with a number of Ministers to take a further look into their allocations to ensure we are getting the best value for money from the investments the Government makes on behalf of all New Zealanders."