Covid-19 pandemic handling returns to headlines, with Labour under scrutiny
The first, was last Thursday's Treasury Long Term Insights Briefing (LTIB). The report was actually into how best to manage economic shocks: should the Government spend up, or leave it to the Reserve Bank?
Treasury reckoned managing shocks was mostly best left to the Reserve Bank – a conclusion it published in a draft report some months ago. What was new were details of Treasury's advice to the former Government of its advice during the pandemic.
Two short sections in particular noted that Treasury advised the last Government to ease up on the stimulus in 2022, and another section detailed the consequences of this: a large structural deficit and risks of inflation.
With Finance Minister Nicola Willis off in London, exchanging knowing grimaces with Chancellor Rachel Reeves over their mutually dreadful fiscal headaches – left-right ideological niceties be damned – it was Bishop's opportunity to don the acting finance minister cap and have lobbed at him volley after volley of low patsy questions on the report, giving him ample opportunity to sermonise on Labour's alleged fiscal sins.
Bishop first cleared his blocked throat during the very first question of the week on Tuesday, Labour leader Chris Hipkins, pointedly interjecting that this was clearly 'audition number one' for Luxon's job.
Hipkins wasn't wrong about it being 'number one'. Come Wednesday, it was Nancy Lu's turn to take to her feet and ask Bishop what economic reports he'd been reading, to which he replied he was not yet done with Treasury's gripping LTIB.
On Thursday, the lucky backbencher was Catherine Wedd, who asked the same question: what reports had the minister (officially Willis, but in practice, Bishop) been reading on the state of the economy.
Bishop replied, 'Oh, I haven't been able to stop reading Treasury's long-term insights briefing.'
Another MP, Tom Rutherford piped up, 'What did it say?'
Bishop replied, testing the limits of MPs' obligation to be truthful in the House, 'it's a great read'.
It's not a bad parliamentary tactic: Grant Robertson often used it to highlight his successes and the Opposition's shortcomings. Bishop's effort this week worked wonders in cheering an otherwise gloomy backbench.
In Question Time this week Chris Bishop revealed a passion for reading Treasury documents. Photo / Mark Mitchell
Willis and Bishop have done a clever job in giving the impression Treasury's LTIB was mostly about slamming Labour for the Covid response – it's true, that's what's new in the final version vis-a-vis the earlier draft, but overall, the backward-looking part of the report is a small part of the whole.
Labour's responses are as interesting as the report itself. Leader Chris Hipkins dismissed it as 'spin', former Robertson staffers Craig Renney and Toby Moore had more detailed critiques.
Renney, posting to his Substack, quoted Michael Cullen to describe report as an 'ideological burp' and decided to skewer the conclusion that managing economic cycles was primarily the job of the Reserve Bank.
In Renney's view, the whole government is responsible for managing the economic cycle. If this is left to just the Reserve Bank, its focus on inflation would mean that other, distributional impacts become neglected. Hammering inflation somewhere means hammering the economy everywhere.
To be fair to Treasury, its report does briefly touch on fiscal policy's ability and obligation to smooth the bluntness of monetary policy. That's worth pursuing in more detail, particularly given the experience New Zealand had during the pandemic, in which the Reserve Bank's money-printing played arsonist to the housing market, before the bank guiltily and belatedly doused the inferno in a series of rate rises so blunt in their asphyxiating cruelty they cast thousands on to the dole queue, and shunted thousands more into the airport departure lounge.
Moore's piece, published in the Herald, was more of a right of reply to Treasury. He resurfaced papers he first received as a staffer in Robertson's office and which were subsequently published in the Herald to note that as late as Budget 2023, Treasury was still advising Robertson to spend yet more money – not on Covid stimulus, but via his operating allowance, the pot of money to fund ongoing cost increases in departments and to pay for new things, like removing the $5 prescription charge in that Budget. In that Budget, Robertson actually spent slightly less than Treasury told him, not more.
In that Budget, as for all of Robertson's Covid Budgets, the advice to spend more was consistent with the economic forecasts continually being revised in the right direction. This meant more money flowing in, allowing the Government to spend more money while returning to surplus in a creditable timeframe.
The trouble with these forecasts is that they were wrong – and badly wrong. The economy did not grow nearly as much as hoped, tax revenue fell – and the effect was compounded, tax revenue as a share of the smaller economy was smaller than forecast too. The spending still happened, but we're still waiting on the money to pay for it.
There were, then, two obvious flaws, given just passing detail in Treasury's report: the first is that Treasury's forecasts were badly wrong, the second was that Robertson did not show enough caution when he relied upon Treasury to put his Budgets together.
That telling of the story is no less interesting to either side, but it has a different moral lesson: the solution to the fiscal problem really is, as Willis says, growth. If the economy had grown to where Treasury earlier forecast it would grow to, we'd be in surplus and reducing the debt ratio by now.
A Treasury graph plotting which fiscal years have run counter- and pro-cyclically. Graph / Treasury
Treasury quietly dropped another paper this week – this time by one of its economists, with the usual disclaimer that it does not necessarily represent the views of Treasury as an organisation. It pondered whether governments were running pro-cyclical or counter-cyclical fiscal policies, with the latter generally preferred because it allows the Government to moderate the economic cycle. Cullen gets the biscuit for running the most counter-cyclical budgets, Bill English and Steven Joyce get good marks too. Robertson's first term gets a pass, but not the second.
The report only goes up to the fiscal year 2024, which was the year of a Labour Budget and National mini-Budget, but some back-of-the-envelope maths from the Budget Economic and Fiscal Update would suggest the Budgets for the last and the current fiscal years will be counter-cyclical – the first since 2019, a cautious vote of confidence in approval to Willis' economic management.
The week ended on another blast from the past. The Covid-19 Royal Commission announced Labour ministers would not be appearing before the inquiry in person. Labour itself only found out the commission was going to announce this change a few minutes before it did so – the coalition seemed to have more warning, with each of the three parties putting out damning press releases shortly afterwards.
Polling shows the public is clearly on the coalition's side and wants the ministers to appear, but they won't. The refusal led the news for 24 hours and is a good reminder to Labour the public haven't put the pandemic to bed quite as much as the party would like.
Labour is proud of its Covid record but the fact the ministers won't appear in public allows the Opposition to argue, with some conviction, that perhaps Labour actually isn't – and its Covid record, particularly on economic matters, is really as embarrassing as the Opposition would like the public to believe.
It's a dilemma for the Labour ministers, some of whom probably wouldn't mind appearing and defending themselves. One of the ex-ministers probably will be appearing in public in the near future – and, unlike Jacinda Ardern, will probably spend a lot of that time talking about Covid and money: Robertson's memoir Anything Could Happen is out later this month.
There's a good chance some of these questions will get an airing in any promotional tour, and the book itself.
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