The breakfast launch of the joint Labour/Greens fiscal rules policy last week was pleasantly surprising. They actually haven’t boxed themselves into a rigid set of rules. At the outset they downplayed the use of mechanical orthodox indicators like surpluses and net debt to judge success:
“In government, we will judge the success of our policies by improvements in the living standards of New Zealanders, improvements in key environmental indicators, and improvements in the economy. Achieving this will require strong, stable government, effective fiscal management, and evidence-based policy.”
So what is effective fiscal management? Why did they decide rules were needed and which rules? Clearly some on the left are worried about the conservativism the agreement apparently embodies.
An interview on radio NZ bemoans the foolishness of the Greens selling out to Labour and Sue Bradford writes on facebook:
“I’m sorry to see the Greens tie themselves to even tighter fiscal constraints than Labour evidently imposed on itself at the last election. In the push for votes they’re falling into the old trap of thinking only centre & right wing voters matter, & that the only economic way forward lies with what is acceptable to corporate capitalism.”
While there may be a lot of sympathy among the left for this view, the Labour/Greens agreement surely reflects the understanding that politics is the art of the possible. If this joint holding of hands quietens the horses and leaves enough wriggle room for progressive policies, the left should just get on with the real work of designing good policy to repair the social fabric.
Mercifully the agreement is not about running surpluses no matter what and does not lock government into a rigid adherence to rules of filling up the New Zealand Super Fund. There is not a lot of point in having money in the bank to secure universal pensions for the wealthy in 40 year time while we end up with a third world health system, widespread poverty, poor quality housing, stuffed-up waterways and failing sewage systems.
Let’s look at what they actually do say
“The Government will deliver a sustainable operating surplus across an economic cycle.”
“The Government will prioritise investments to address the long-term financial and sustainability challenges facing New Zealand.”
“Our surpluses will exist once our policy objectives have been met, and we will not artificially generate surpluses by underfunding key public services”
They have left lots of wriggle room in defining what is an economic cycle and most importantly they also point to the need for surpluses to be genuine. This allows for the restoration of social services and programmes that have been cut such as early childhood education and working for families before aiming for surpluses.
On debt they say:
“The Government will reduce the level of Net Core Crown Debt to 20% of GDP within five years of taking office”.
While this appears a rigid constraint, here too there is plenty of wriggle room. There is nothing magical and inviolate around how net debt is measured.
If the government is believed to be fiscally prudent when it borrows and puts money in the NZ Super Fund then it needs to get the credit for this prudence from a lower net debt outcome. Just as government fixed term deposits are netted off against gross debt, financial assets in the super fund should also be counted in net debt.
After the 2016 budget the CTU provided this helpful table that nets off the assets in the New Zealand Super fund and shows how laughable it is to panic over net debt.
It is far more important to pay attention to reducing private debt and overseas debt than reducing already absurdly low government debt. Ironically the more social services are squeezed to make government’s books look good the higher the private debt and general immiseration.
The Labour/ Green rules appear to have left less room around government spending.
“During the global financial crisis Core Crown spending rose to 34% of GDP. However, for the last 20 years, Core Crown spending has been around 30% of GDP and we will manage our expenditure carefully to continue this trend.”
However they refer to the past 20 years when there has been no simple ‘trend’. Government spending has bounced around a lot, and been above 30% for most of the last decade. It is currently at a very low level of around 29%.
Any accounting concept is able to be manipulated. Here is a thought- change NZ Super into a non-taxable universal basic income at the current net level as suggested here and you can wipe $2 billion off government expenditure leaving a lot of space for the needed increases in social spending.
Can the voters now park the thought that Labour/ Greens are by definition fiscally irresponsible and can we please get on with looking at actual policy.