Economist Cameron Bagrie has found a hole in the fiscal bucket:
Steven Joyce is going to be proved right. There is a fiscal hole and a softening economy is making it wider.
I don’t like the term fiscal hole. Good policy should dominate over strict debt targets and economic cycles come and go which are often beyond government control.
But the Labour-led Government’s fiscal hole is looking deeper by the day – and bigger than the $11.7 billion of additional borrowing that Joyce identified. . .
Growth is weaker, the Government is already borrowing creatively to the tune of $6.4 billion via Crown entities (keeping it out of core government net debt metrics) and spending demands are headed one way.
That combination will pressure its fiscal position. . .
The lack of money left in the kitty post the 2018-Budget raised issues of credibility, but the fiscal parameters were technically achievable.
It wasn’t going to be easy, but it was possible, so the Government was given the benefit of the doubt.
Giving them the benefit of the doubt was a mistake given their record, policies and the knowledge that coalition partners would add to costs.
But the picture is changing and the Government’s ambitions are looking more and more like pipe dreams.
So, what has changed?
Budget spending and investment demands needed funding, whilst at the same time sticking to the narrative of hitting debt objectives and being fiscally responsible.
The result was crown entities borrowing an additional $6.4 billion between 2017 and 2022.
That is an accounting fudge to get it out of the core Government debt figures.
Just because we can’t see it doesn’t mean it’s not there.
Public sector pay and spending demands are only heading one way.
Few bemoan the need to pay teachers and nurses more but that money needs to come from somewhere.
The realities of a coalition Government meant more needed to be spent. Spending allocations in the 2019 and subsequent Budgets were increased by $525 million to $2.4b per year.
That looked fine against a backdrop of solid projections for growth. But it was a risky strategy with the economy late cycle as opposed to early cycle.
The government can’t be held responsible for external problems but they can be blamed for not taking a more prudent approach given clouds gathering on the economic horizon.
They can also be blamed for wasting money on fripperies like fee-free tertiary education and good looking horses without leaving enough for necessities like improved pay and conditions for nurses and teachers.
They’ve dug the hole and there is nothing in their performance that could give any confidence in their ability to get out of it especially as they are still digging.