Bryce Edwards: Why isn’t the Govt using its super surplus for doing good?

Bryce Edwards: Why isn’t the Govt using its super surplus for doing good?

It’s surprising that no cartoonist has yet portrayed Finance Minister Grant Robertson as Gollum, fiendishly protecting his “precious” surplus. His obsession over keeping government spending at low levels while the tax take soars is starting to look more than a little odd – and not just in the eyes of supporters of the coalition partners, but also to economists and even the Opposition.

Robertson’s dogged protection of his conservative fiscal settings started looking even more absurd this week, with news that the surplus has ballooned to a massive $7.5bn. Hence, business journalist Brian Fallow uses the Gollum metaphor this morning in the Herald, saying that Robertson is vulnerable to “potential accusations of a Gollum-like hugging of his precious surplus” and the public might rightly ask: “If you’re not using all that money, can we have it back please?” – see: Grant Robertson clinging to his precious surplus (paywalled).

As I wrote last month, everyone from left, right and centre can now see the desperate need for the Government to start spending money. It’s only Robertson who is obsessively holding back from doing what he surely knows is right – see: Political Roundup: Shouldn’t the Government be spending more?

So, is Robertson putting pride ahead of what is good for the country? For what is good for those suffering at the bottom? Or is he simply too focused on keeping his reputation as a conservative finance minister? His legacy could be as a politician of the status quo at a time when boldness was both required and demanded. And Jacinda Ardern’s government could be viewed not just as a party that failed to deliver transformational change, but also continued to underfund vital services, and allowed infrastructure to fail.

For an excellent discussion on these issues, see Tim Watkin’s Labour’s obsession with avoiding one trap is leading it fair square into another. He argues that Labour and Robertson, through their lack of boldness on economic matters, might cause their government to be characterised as a government of just social issues: “they now face their first term in office being defined by a referendum on cannabis reform, a euthanasia bill, and now abortion reform.”

Demands for spending from left, right, and centre

The pressure is building to start spending, and an embarrassing backdown for Robertson could therefore be looming. The political left, in particular, is getting more exasperated with the Government’s fiscal conservatism. Witness leading leftwing blogger No Right Turn’s anger at the news that Robertson is sitting on $7.5bn instead of spending it on what Labour governments are supposed to care about – see: “Surplus” again.

Here’s his main point: “When we have people homeless and sick and hungry, when we have schools and hospitals still falling down, when we have underpaid public servants and infrastructure unmaintained or unbuilt, it’s not a ‘surplus’. Instead, it’s a crime, a theft from the public of the services and infrastructure the government should have provided with it. It’s also a real reminder that every time the government cried ‘but we don’t have the money’ in the last year – to striking teachers, to those demanding beneficiaries be allowed to live in dignity, to those wanting their medical needs met – they were outright lying. They did have the money – and in fact they had billions and billions more, just sitting there, doing nothing useful whatsoever.”

Some good questions are raised by the blogger: “How much would it cost to restore benefits to pre-Richardson levels and let the sick and the unemployed live in dignity? How many state houses could be built with it? How many wind turbines and solar panels?… Those answers should make you very, very angry at the opportunities the government has squandered in the name of chasing the unachievable and pointless approval of the rich.”

The opposition is somewhat aligned to the above view, with National’s leader Simon Bridges also calling the underfunding “criminal” in the context of such a large surplus, and calls for a bolstering of the welfare state and national infrastructure – see 1News’ ‘If you’ve got a $7.5 billion surplus you are over-taxing’ – Bridges calls out Government after opening of books.

Bridges says: “You’ve got $7.5 billion surplus, and on the other side of it you’ve got a $1 billion health deficit, you’ve got surgeries that are taking longer and fewer of them than the year before, you’ve got a situation where literally not infrastructure is happening in housing and infrastructure – that is criminal.” According to this article, if Bridges “was prime minister, his government would focus on health, education and infrastructure, including housing.”

The union movement is also calling for Robertson to start spending properly in these areas. The Public Service Association’s Glenn Barclay issued a message to the Finance Minister this week, saying: “More of the status quo isn’t enough”. He said that union members “want to live in and work toward building a decent, caring society. That’s what this surplus should be spent on.” His union therefore called on the Government to reconsider its self-imposed Budget Responsibility Rules, which have kept social spending low – see Jason Walls’ National Leader Simon Bridges: Government should cut taxes after the $7.5b surplus.

The Greens, too, have started rebelling against Robertson’s stinginess, despite the party’s key role in writing those Budget Responsibility Rules. According to the above article, co-leader James Shaw, who is also an Associate Minister of Finance, came out this week saying the Government “can’t afford not to” spend the surplus on critical issues facing the country. He argued that “This Government has clearly established its economic credentials… Now we can seriously take on the task of eliminating poverty and inequality, strengthen our public services and infrastructure which were so severely run down”.

Shaw has also previously said: “What good is a surplus if you have people living in cars or garages – that makes no sense” and “Frankly, a surplus is inefficient if you don’t use it.”

Commenting on this, an editorial in The Press said: “Spending has been limited by the Budget Responsibility Rules that the Green Party agreed to and which are seen as a neoliberal straitjacket by many on the Left, including Green voters” – see: A Government surplus creates new problems.

According to Newsroom’s Sam Sachdeva, pressure is building from supporters to do something with the surplus: “A massive surplus has heaped further pressure on the Government to cut taxes or invest in infrastructure – but will Grant Robertson meet his supporters’ expectations? As problems go, a $7.5 billion surplus is not a bad one to have – but for a Minister of Finance beset by supporters keen for a slice of that pie, it is a problem nonetheless” – see: Hefty surplus piles pressure on Robertson for action.

Sachdeva points out that with “the coalition parties themselves having hammered the prior National government for years of underfunding key services, why aren’t Robertson and his colleagues dispensing their funds more freely?”

He reports that political pressure to spend is also ramping up from the Reserve Bank: “Reserve Bank governor Adrian Orr, no shrinking violet, gave the Government a nudge last week when he noted that many central banks were now asking for ‘monetary policy friends’.”

The Herald’s Hamish Rutherford also suggests that the level of nudging from the Reserve Bank is unusual, as governor Adrian Orr “has begun raising how much scope the Government has to spend and how it would be useful for his targets if it did” – see: Grant Robertson’s surplus question: What will he spend it on? (paywalled)

Rutherford suggests “the chorus could become deafening”, and he points to the state-owned bank also joining the fray: “Kiwibank economists hinted this month that the Government’s self-imposed spending rules were becoming ‘irresponsible’, with money being retained at a time when confidence was so low.”

Similarly, ASB chief economist Nick Tuffley came out this week agreeing that the time was right for increased government spending: “It wouldn’t be a bad time for the government to be considering some high quality spending that it could put into place quickly, if needed, to help keep the economy ticking along” – see RNZ’s Simon Bridges: Surplus is at the expense of New Zealanders.

How to use the surplus

Despite the Government’s reluctance to spend, the growing consensus is moving on to exactly how the surplus should be used. There are plenty of ideas for spending. This is best surveyed in Thomas Coughlan’s article, Grant Robertson has money, a wish list and an election to win – what’s he waiting for?  Coughlan says: “The economics and the politics are clear – the time to spend is now. Robertson just needs to decide how much, and who will reap the benefits.”

One obvious spending solution is, Coughlan says, fulfilling the recommendations of the Welfare Expert Advisory Group: “Implementing all of its 42 recommendations would have cost the Government $20.8 billion over four years.”

Alternatively, it could consider tax cuts, which was also dealt with by the Tax Working Group: “It proposed a tax free threshold, which is common overseas. This would mean the first $5000 people earned would be tax free, a tax cut of around $10 a week. The policy would cost $1.6b, or $1.8b if it were extended to include beneficiaries. The group said the tax change would help low-income earners most”.

Similarly, the International Monetary Fund came out this week with its recommendation for the New Zealand Government – a temporary reduction in the GST rate – which Grant Robertson all but ruled out.

The IMF’s argument for a cut in GST was that it would immediately pump money into the economy, causing a stimulus affect. A similar argument and solution was also put forward this week by Infometrics economist Brad Olsen: “Stimulus needs to be quick acting, targeted, and able to be turned on and off. Tax cuts are a bit too permanent for my liking. What I’d suggest as a better option is a tax rebate, which would work a bit like a temporary tax cut, with IRD returning tax back to those who’d already paid tax. A temporary tax rebate could only be for a year, or longer if needed, but doesn’t cement in a lower tax rate. It’s a way of injecting a bit of cash back into the economy during this period of softer growth” – see Susan Edmunds’ Big surplus makes argument against tax cuts harder to swallow.

Using the surplus for increased spending on housing and roads is put forward as the solution by economist Shamubeel Eaqub, who went on The AM Show this week to say: “My frustration is more around stuff like state housing… There are some clear areas where you can get some real relief by spending money, throwing money at it. On infrastructure, government financing” – see Newshub’s Don Brash downplays $7.5 billion Government surplus.

Eaqub says the Government is “going to have to put some big flagship policies around infrastructure spend”, and that in light of the massive new surplus, “the public will now be expecting big things at next year’s election.”

The host of the AM Show, Duncan Garner, also says the surplus is therefore simply being lined up for next year’s election campaign: “It’s all deliberate, of course. They’ve got this money sloshing around in their cheque account earmarked for a vote-buying exercise commonly known as the election year lolly scramble. How deeply cynical” – see: Surplus shows Government fleecing New Zealanders.

Garner suggests they shouldn’t just be sitting on the massive surplus: “They had the money there to act much quicker in emergency housing and they chose not to. They had the chance to fund breast cancer drugs earlier and save lives. They chose not to.”

Finally, does Labour’s inability to spend show that it’s not much different to the last government? Toby Manhire has put together an amusing but telling challenge where you have to work out which parties said what about spending – see: Quiz: Can you tell the difference between the parties’ finance talk?

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