Political changes threaten NZ infrastructure
THE FACTS
The problem with large-scale government-procured infrastructure is that elections get in the way.
Over the past 10 years, big projects have been cancelled every time the Government has changed.
The Roads of National Significance was trimmed in 2017; the Auckland light rail was cancelled in 2023 and now,
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NZ Herald
an hour ago
- NZ Herald
Government overcooked spending during pandemic, against official advice, harming economy
This year's is on how fiscal policy – taxing and spending – should be used to respond to economic shocks. Treasury's calculation of the size of the Covid response. Graph / Treasury Its main finding, learning from the Covid-19 pandemic, was that fiscal policy should be used sparingly, with the Reserve Bank taking the lead on managing the economic cycle using its monetary policy tools like the Official Cash Rate. 'Polite, but its conclusions are damning' – Willis The report lands in the midst of a protracted economic downturn, with both the Government and the Opposition pointing the finger at each other over who is responsible. The Government blames Labour for excessive, inflationary and unsustainable spending that prompted the Reserve Bank to plunge the economy into recession with high interest rates. Labour blames the Government for cutting spending and axing infrastructure projects. Finance Minister Nicola Willis said the report validated the Government's concerns about Labour's spending. 'Treasury's language is spare and polite, but its conclusions are damning,' Willis said. 'The report makes clear significant errors were made in the fiscal response to Covid.' Finance Minister Nicola Willis said the report validated her concerns. Photo / Mark Mitchell Willis pointed in particular to Treasury's criticism of the last Government for spending the Covid-19 fund on things that were only tangentially related to the Covid response, such as the school lunch programme. The report said the fund was established in May 2020 to 'support a timely economic response and public confidence'. However, it added that 'as the economy recovered, the then Government was advised against further stimulating, in favour of more targeted support'. Willis said the Government 'ignored' that advice, favouring 'undisciplined spending that pushed up inflation, eroded New Zealand's previously low public debt position, and fuelled a cost-of-living crisis that many families are still suffering from'. Labour has been approached for comment. Just ahead of Budget 2022, the then Finance Minister Grant Robertson said the Government struck the right 'balance'. 'There were and are no costless decisions. Doing less would have seen unemployment grow, or put people's health at risk,' Robertson said. Treasury told Govt to ease up on spending Treasury outlined a history of its advice during the pandemic. It said that initially, it had encouraged the Government to spend money to support the economy through things like the wage subsidy. However in late '2020 and into 2021 ... Treasury started to move away from recommending broad-based fiscal stimulus to support the economy towards more targeted and moderate fiscal support'. After the 2020 election, Treasury said it informed Robertson that there was 'adequate' fiscal space to support the economic recovery and space for 'further temporary support if the economic or public health situation deteriorated'. However, officials also 'highlighted the importance of controlling ongoing spending and ensuring it was high value to meet the medium-term fiscal challenge'. By August 2021, the beginning of Auckland's long lockdown, Treasury warned that any support to businesses should 'take account of macroeconomic trade-offs'. By Budget 2022, Treasury said it was recommending 'against any further stimulus'. The briefing noted that five years on from the beginning of the pandemic, spending is still close to its pandemic-era peak and has only been partly offset by higher revenue. Higher debt-servicing costs are weighing on the Government's balance sheet and lower GDP has 'contributed to the deficit both directly, by leading to a smaller tax base and lower revenue than anticipated, and indirectly, as spending plans were based on revenue expectations that did not eventuate'. The Covid fund was closed in 2022, ending that era of stimulus and Budget 2023 ended up being more stimulatory than planned thanks to the Auckland Floods and Cyclone Gabrielle. Unlikely comparison between Labour Govt and Ruth Richardson The briefing made an unlikely comparison between the Labour Government of Dame Jacinda Ardern and Chris Hipkins and the fiscal policy of National Finance Minister Ruth Richardson. Treasury noted that fiscal policy can be counter-cyclical, which means it tries to counter and blunt the business cycle by, for example, spending money during a downturn to stimulate an economy, or saving during an upswing to cool an overheating one; or fiscal policy can be pro-cyclical – this means exacerbating a business cycle by spending money when an economy is hot or cutting back when an economy is shrinking. Treasury noted that the responses to the Asian Financial Crisis and the GFC had been accidentally counter-cyclical thanks to pre-promised tax cuts, however, fiscal policy was 'pro-cyclical in the early 1990s and during 2021-2023″. It said in the 1990s, 'pressures on fiscal sustainability motivated fiscal consolidation even as the economy was in recession'. In the case of the Covid response, the Government thought it was engaged in a counter-cyclical response to a 'severe economic downturn', however 'from late 2020, the economy turned out to be much stronger than expected (perhaps, in part, caused by the strength of fiscal stimulus itself)'. 'Combined with expenditure that was enduring rather than temporary, this resulted in large fiscal deficits while the economy was overheating.' The current Government is facing similar criticism for being pro-cyclical. Much like the Governments of the 1990s, it is trying to pull back spending to rebuild the balance sheet at a time of economic weakness. The Government was criticised for spending Covid money on school lunches. Photo / Liam Clayton How much was spent? Of the 20% of GDP spent on the pandemic, about half was spent on direct pandemic economic and health initiatives. Thirty-five per cent was spent on wage subsidies 'and similar schemes during lockdowns' and a further 18% 'arose from health-system costs such as vaccination and contact tracing, along with managed isolation and quarantine (MIQ) costs'. The parties that now form the Government broadly agreed with this spending at the time – National, at some points, called for spending on wage subsidies to be even greater. The remainder of the response was 'made up of a wide range of initiatives with varied objectives', Treasury said. Some initiatives were 'aimed at more directly responding to the impacts of Covid-19 and others aimed at providing fiscal stimulus or achieving social or environmental objectives'. These included tax changes, training schemes, housing construction, shovel-ready infrastructure projects, increases to welfare benefits, the Small Business Cashflow Scheme, Jobs for Nature, additional public housing places and school lunches. The then Opposition disagreed with much of this spending. Lessons for next time In a foreword to the report, Treasury Secretary Iain Rennie noted that increased use of fiscal support during shocks had 'contributed to public debt ratcheting up over time'. Rennie warned that if nothing changes, 'this leaves future generations with less financial capacity to respond to shocks'. The recommendations from the report note the Government needs to get better at saving money when the economy is booming to ensure there is fiscal space to support the economy when times are grim. When times are grim, the Government should allow the 'automatic stabilisers' to kick in, spending money on increased benefit payments. Managing the ups and downs of the economy should mostly be left to the Reserve Bank – a conclusion reached in Treasury's draft report, published earlier. 'Monetary policy changes can be reversed more readily and can often be implemented faster. The Government's spending and taxation decisions should generally seek to optimise long-run value for money rather than moderating economic cycles,' Treasury said. This does not mean there is no role for the Government. If monetary policy is constrained or at extremes – as it was at points during the pandemic – Government spending can kick in. Or, if interest rates can fall further, the Government could restrain spending to 'help moderate booms that would otherwise result in interest rates or the exchange rate becoming extremely high'. Treasury also said fiscal policy could be used to ease some of the distributional impacts of monetary policy, which can be blunt. Monetary policy during the pandemic was largely responsible for the housing boom and bust.
RNZ News
an hour ago
- RNZ News
Labour leader Chris Hipkins says NZ is not in 'economic shape'
Labour leader Chris Hipkins. Photo: RNZ / Mark Papalii Labour leader Chris Hipkins has told the Queenstown Business Chamber the economy is not recovering, and more spending is needed to get the settings right. Hipkins and several of his MPs are in the city ahead of a caucus retreat in Christchurch this week, aiming to speak to South Island communities. In Thursday's speech to the Queenstown Business Chamber, he said the government's strategy for growth was not tackling the underlying economic problems. "While there are pockets of positivity around economic growth, overall the country is not in the economic shape that we need it to be. "Despite a lot of talk about economic growth, actually the most recent indicators are pretty concerning for us - they're suggesting that New Zealand's economy isn't recovering and if anything we may be going in the other direction." He said government policies were contributing to rising costs and leading to a "two-speed economy" where those worse off were ending up much worse off. "Rates, which councils primarily influence but central government actually has a role in... things like car registrations, public transport costs, even things like insurance levies which government is contributing to through EQC levies, electricity prices which government contributes to through transmission charges - all of these things are now made one of the major contributors to inflation in New Zealand." It was more than just mining which had seen Australia leapfrog New Zealand economically in the past 40 years, he said, pointing to higher rates of savings, infrastructure investment including schools, hospitals and energy generation. "Let's be really frank - and I know that this is huge in Queenstown - we have an over emphasis on the housing market... We can't get rich as a country just by buying and selling houses from one another, we need to invest in the productive economy, and our over emphasis on the housing market as our primary source of investment has meant that we haven't been." The comment hints at a capital gains tax policy Labour has long been rumoured to be working on, having promised a tax policy of some sort by the end of the year. The party has had an on-again-off-again history with the policy which taxes a portion of profits gained from selling assets that grow in value, but it appears to have some support from voters - depending on the settings. One argument for the tax is that it would decrease the incentive for people to put their wealth into housing, making other forms of more productive investment more attractive. "Simply reinflating house prices and growing the population through further inbound migration might mask some of the problems that we see, but it's not going to deal with the underlying ones and some of those underlying ones will get worse if that's our strategy for economic recovery," Hipkins said. "The sort of innovation that we're seeing in New Zealand is really exciting, some of the best in the world, but our challenge is to scale that - it's to continue to grow that. All of those businesses talk about the shallowness of our capital markets when it comes to innovative companies and startups." He also criticised the government's decisions on curbing spending for schools, hospitals and transport. "Reviewing transport projects against a new government policy statement meant a lot of just the basic day to day ongoing upgrade of our transport infrastructure stopped for about a year and a half. It's starting again now, and that's really encouraging, but we don't want to repeat that cycle." Answering questions afterwards, Hipkins said New Zealand's self-imposed debt limits made it one of the most fiscally conservative countries in the world, making an argument for more direct government investment. "It's based on a narrative that says that government spending should be constrained to 30 percent of GDP ... that puts us as such an international outlier around the world and it makes us one of the most fiscally conservative governments in the world. "Government spending as a percentage of GDP in a small economy like New Zealand needs to be able to fluctuate, so in a period of economic crisis or in a significant shock like a pandemic you need to be able to increase government spending to get through it - the question is, what you spend that money on?" He said the current strategy was an ambulance at the bottom of the cliff approach. "Government spending needs to be focused on areas of investment rather than kind of subsidising day-to-day activity and I think that that's where this government have got the analysis wrong... by saying they want to spend less, they're spending more in the areas of subsidy, because the more people you end up with on a job seeker benefit, the more money you're spending on day to day consumption." Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
NZ Herald
4 hours ago
- NZ Herald
Labour MPs visit Tairāwhiti Civil Defence iin Gisborne ahead of new legislation
Labour MPs (from left) Jo Luxton, Camilia Belich and Cushla Tangaere-Manuel are impressed with the quality of civil defence and emergency management services in Tairāwhiti. A delegation of Labour MPs say their visit to Tairāwhiti Civil Defence is important, with new emergency management legislation soon to be introduced in Parliament. Ikaroa-Rāwhiti MP Cushla Tangaere-Manuel, emergency management spokesperson Camilia Belich and associate emergency spokesperson and East Coast-based list MP Jo Luxton visited Tairāwhiti Civil Defence and
