Estimates Debate — Finance

Thank you, Mr Chair. It’s a privilege to lead off with a summary of what happened at the Estimates hearing recently held with the Minister of Finance. As is usual, the Minister gave a brief overview of the aims of the Budget and the committee, made of members from different political stripes, asked questions.

I’d note that the system we have in New Zealand in an election year is a pre-election fiscal update gets produced, the Treasury and Inland Revenue do their best to try and forecast what it looks like, and the Minister prepares a Budget based on that information. Of course, since the Budget Policy Statement in December, there have been significant unanticipated costs associated with the weather events that occurred—the Auckland Anniversary Weekend floods and Cyclone Gabrielle—with estimates between $9 billion and $14.5 billion, and those events represent the second-largest natural disaster that New Zealand has ever faced. There was damage to communities, the economy’s productive capacity, and damage to assets like infrastructure, orchards, horticulture and so on. So the Minister told us at the outset of the hearing he needed to pivot, that while recovery and resilience was one of the four priorities of Budget 2023, the focus on recovery needed to be much greater. He said he needed to provide certainty to affected regions for recovery and rebuild and hence there was a billion-dollar cyclone recovery package. He said it was a first response package and it was stitched together through savings and reprioritisation. So a net change of $300 million in the Budget operating allowance compared to the Budget Policy Statement and that was a Budget allowance of $4.8 billion.

He also talked about priorities for the cost of living, delivering services to New Zealand that had both short- and long-term policy objectives, especially with the cost of living. He referenced $5 copayments on the prescription charges; removing those, which would be instant cost relief as well as preventing chronic or more severe ill health due to delayed medication, and he also referenced transport charges. There were references to the resilience theme in some of the Budget allocations.

The select committee asked about specific income tax measures. These were ruled out of order. Since then, of course, the Government has proactively released tax papers and there has been considerable water under the bridge regarding taxation in these House debates.

Other members asked whether the Minister could provide better value for money in the context of a 30 percent, long-run average of spending as a percentage of GDP in terms of health, safety, school attendance, education outcomes, and so on. The Minister told us that rebuilding after natural disaster meant trade-offs and hard decisions. He would have liked to have done more, but that would not be fiscally responsible. This was against Treasury forecasts highlighting the Budget priority of fiscal sustainability and a projected return to surplus in the 2025 to 2026 year, which is the same time frame as after the global financial crisis (GFC) and Canterbury quakes. The Minister also said it compared favourably below the 30 percent GDP ceiling and internationally with comparators like Australia, the US, and the UK.

Members asked about value for money, given what one member, according to their maths, described as “A 25 percent increase in costs per head of Government spend over the course of this term.” The Minister spoke about free lunches and the contribution that had to lifting 77,000 children out of poverty on the after-housing cost measure that’s used, that school attendance was improving but there was more work to do, and that measures supporting small business were also important—hence apprenticeships, free trades training, and other initiatives.

There was a discussion about the increase in taxation as a proportion of the economy and debt ratios. The Minister responded, referencing a 34 percent Government spend after the GFC. He said the level of spend or restraint was a political question and he wasn’t prepared to cut services.

There were a number of other discussions and questions about interest costs, about the tax excise projections on the Government’s smoke-free goals, and why New Zealand would not achieve surplus until next year. The Minister said New Zealand had been on track to until the weather events and that had delayed things by about a year.

There was also discussion about climate change, with the Minister saying that a comprehensive review was under way on the emissions trading scheme to better understand the market in which it operated. The Minister also told us this was the first full Budget that had a fully costed gender analysis done to ensure equity for women.

I think it’s fair to say it was a feisty meeting. We covered a lot of territory. There was an opportunity for written questions, but none were forthcoming. I’d like to thank the Minister for his appearance and for members’ participation in this important democratic process.

Just to the Minister in the chair— so I do want to talk a little bit about the disaster funding, etc. But also in the foreign affairs portfolio, there’s a substantial increase due to the climate change funding, and in my own head, those two aren’t disconnected.

Of course, we’ll also want to ask some questions about your tax and tax intentions. I note that the member Ingrid Leary, who just resumed her seat, seems to have gone away from the often-stated position from the Government of “Nothing to see here, move on.” to the good old-fashioned “Water under the bridge, don’t worry about it.” But we will be making some effort to discuss that with the Minister.

So maybe as a starting point, it would be useful to know how that large increase in Vote Foreign Affairs is expected to be used. It’s a substantial amount that is, essentially, the climate change fund, and I suppose the question is why it’s in that Vote when there are so many potentially pressing climate change issues that might need to be dealt with here in New Zealand.

I thank the member for his contribution. He’ll be aware as a longstanding member that the way the Estimates debate works is Vote by Vote, and so specific questions about Vote Foreign Affairs need to be addressed in the Estimates debate in that space. But he did ask the question about why that Vote and why not other Votes, which is quite a clever way of trying to shoehorn it into the finance Minister’s responsibilities, so given that I’m giving him credit for that, I’ll answer that particular bit of the question.

He’s right that there is obviously an enormous domestic element to this and an international one, and given his background, the member will be well aware that our Pacific neighbours, in particular, are under enormous stress when it comes to climate change. The additional funding is in Vote Foreign Affairs because that is the appropriate Vote to be able to deliver to those countries, particularly within our region. These matters arise in part to do with New Zealand’s internationally determined contribution, which we take seriously as a Government. That requires significant additional resourcing, and we have decided to target a significant part of that resourcing to the Pacific, hence why it appears in Vote Foreign Affairs.

In terms of the domestic side of that, I thank the member for the opportunity to mention the National Resilience Plan, which was a new feature of this year’s Budget. That’s a $6 billion fund, initially, to be able to get New Zealand into a position of greater resilience and to get ahead on issues to do with, particularly, adaptation to the climate events that that member is indicating. When we began working on this idea, it was before the Auckland Anniversary Weekend floods and Cyclone Gabrielle, and we had the idea that this would be an opportunity to get beyond business-as-usual on infrastructure and get ourselves to somewhere where we’re starting to get ahead on the deficit.

The truth is—and I said this on Budget day—that the reality now will be that at least the first couple of years of that plan will be dedicated to the rebuild of those regions because there is now so much to do in the form of adaptation and resilience. It is a commitment to build back better in those regions because—

Hon Michael Woodhouse: Ha! Joe Biden’s in the room.

Hon GRANT ROBERTSON: That’s a slogan that many use, Mr Woodhouse, around the world, but giving it reality means actually putting some resource behind it. So we are working our way through, and the member will be aware of some announcements already made about the kinds of resilience initiatives we’re doing in the transport area, for example, which mean that we don’t just build the road or the bridge back where it was, but we actually look to do it in a way that is more resilient, and similarly with investment in the broader regional recovery plan.

So while—yes—the member is right that there is a big boost in the Vote Foreign Affairs area in this space, equally, there is a significant lift in funding more broadly.

So on that Vote—that very large Vote—which now comes under the whole title of foreign aid, effectively, was his department at all concerned about the $147 million administrative cost for that fund, given that that represents about 20 percent of the foreign aid budget, exclusive of the climate change funding that’s been added to that fund?

We are now getting into the position where we are debating Vote Foreign Affairs, and that is not the way in which this particular proceeding works. What I can say to the member more generally is that—yes—the Treasury and myself take seriously making sure that administrative costs are kept to a minimum. When it comes to administering large amounts of money in the foreign affairs budget, that’s certainly something that we would expect, but the member does need to take those matters up in the appropriate Estimates debate.

Point of order, Madam Chairperson. With all due respect to the Minister, he’s responsible for the State’s spending, and I asked a question—

Hon Dr David Clark: Ha, ha! Ha, ha!

Hon GERRY BROWNLEE: Oh, is he not?

Hon Dr David Clark: No—the long bow.

CHAIRPERSON (Hon Jacqui Dean): Order! Order!

Hon Dr David Clark: It’s the long bow.

CHAIRPERSON (Hon Jacqui Dean): Shush!

Hon GERRY BROWNLEE: Yeah—point of order, Madam Chairperson. Someone should go.

CHAIRPERSON (Hon Jacqui Dean): Has the member finished his point of order?

Hon GERRY BROWNLEE: No, I haven’t. I haven’t made it yet.

CHAIRPERSON (Hon Jacqui Dean): OK—all right. Thank you.

Hon GERRY BROWNLEE: I’ve been interrupted.

CHAIRPERSON (Hon Jacqui Dean): Thank you. I’ve—

Hon GERRY BROWNLEE: May I make the point of order?

CHAIRPERSON (Hon Jacqui Dean): Oh, point of order—

Hon GERRY BROWNLEE: Yeah—

CHAIRPERSON (Hon Jacqui Dean): —the Hon Gerry Brownlee.

Hon GERRY BROWNLEE: —the point of order is that the Minister is saying to take it up with foreign affairs. The whole Budget is the responsibility of the Minister of Finance, and it seems to me that asking a question like: was his department concerned about the extremely large amount of money that is going to administer a budget—an administrative cost that in any other circumstance would be completely unacceptable.

OK, thank you. I will take some advice.

Hon Members: Madam Chair?

CHAIRPERSON (Hon Jacqui Dean): No, I’ll just deal with this matter, thank you. OK—

Hon Grant Robertson: Point of order.

CHAIRPERSON (Hon Jacqui Dean): Well, I’m actually just about to rule on it, and, as you can see, I have taken advice. I am advised that it is in order for any member to ask a Minister any question in the Estimates debate. However, if the Minister advises that that is not their area of expertise, then that is the answer.

Thank you, Madam Chair.

Hon Gerry Brownlee: So Treasury are happy to give it away, but they don’t care where.

CHAIRPERSON (Hon Jacqui Dean): Does the member want the call?

DAMIEN SMITH: Yes, it’s just Mr Brownlee was speaking.

CHAIRPERSON (Hon Jacqui Dean): Does the member want the call?

Hon Gerry Brownlee: I was talking to a colleague—sorry, Damien.

DAMIEN SMITH: Oh, sorry—OK. So a quick three questions to the Minister, one around debt servicing, the second one around super, and the third one around funds.

So in 2017, the Vote Finance debt servicing cost was $3.4 billion. In 2023-24, it’s now $5.8 billion, which is over $3,000 per household. So the taxpayers are paying more than $2.4 billion on interest payments. The operating balance, excluding gains and losses, is expected to record a deficit of $7 billion in the 2022-23 fiscal year and a deficit of $7.6 billion in 2023-24. So the first question is: what is the likely debt servicing in future years?

In 2023-24, there will be $21 billion on payments of New Zealand superannuation. The previous year was $19 billion—an extra $2.1 billion—and before that, New Zealand superannuation costs increased by $1.8 billion. So the cost of superannuation is increasing, and increasing by a huge amount: is setting aside $1.6 billion as a New Zealand Superannuation Fund contribution going to cover the annual increase in future years, and what is the interest paid on the Superannuation Fund in the past two years, and what is the interest being paid by the Government on its debt in the past two years?

I will ignore shovel-ready projects and the loan to Air New Zealand because they are, hopefully, going to get some return. But on the Green Investment Finance Scheme, since 2019, the $500 million was intended to both invest into reducing emissions and invest in a commercial basis. The question is: what are the projected returns on the investment? In 2022, it was 5.89 percent—so was it actually an OK investment in 2022? And on the venture capital fund there was an appropriation of $300 million, so what has been the return on that fund?

Finally, from the ACT perspective, the $6 million for the Productivity Commission: has it proved to be worth it in value for money when its reports have veered from a focus on economic productivity to all sorts of fashionable itches that the Labour Government wanted scratched. So those are our questions on the appropriation.

A veritable potpourri of questions from Mr Smith there, which I will endeavour to cover off. On the cost of borrowing, clearly, the member will be aware that interest rates have been increasing globally and so it is a statement of fact that the cost of New Zealand’s borrowing will have increased. I don’t have the number right there in front of me, but I’m sure I can grab it for the member before we finish up this particular debate. As a percentage of GDP, the cost of borrowing has remained, you know, around 1 percent, a little under 1 percent—it will maybe go a little over that now. In cash terms, obviously it’s significantly higher than it was several years ago, it is a function of the markets and a function of where we’re borrowing our money from.

The debate about how much we have borrowed is one the member and I have had before, and I appreciate the fact that we hold different views on that, but from my perspective that borrowing was what New Zealand needed to do to get through COVID, and of course there is a cost for it, and that is the cost that we are now facing. But it is not unreasonably larger than it has been in the past, in terms of the percentage of GDP, particularly in the face of a natural disaster.

On the question of the Superannuation Fund, it’s always been the case that the contributions that the Government makes to the Superannuation Fund and the growth of the Superannuation Fund was never going to meet the full costs of superannuation. The ideal has been that it would start paying out in around 2033, and play its part in defraying the costs of superannuation when we have an ageing population. It ultimately does become a policy choice as to whether or not a Government decides that investing the amount of money required in order to keep the current settings of superannuation is a good investment. The Superannuation Fund’s role is to support that, but it’s never been—ever—the idea that that would be sufficient in order to actually pay out, it’s merely to defray those future costs.

In terms of the member’s question around the returns, again I can get the specific number, but it’s outperformed the kind of core Government bond and core portfolios that it measures itself against, and in fact over the years has done significantly better—I’ve got the number around sort of 10 percent growth in my head, but I’ll get the specific number for the member. So yes, the Superannuation Fund continues to be a well performing fund and it continues to be worthwhile for New Zealanders that it’s there, and that it will contribute, in the future, to paying out.

The final—oh no, two more. The venture investment fund. Look, I can’t give the member that number, but I can say for sure that it has been investing over a period in a number of quite significant potential growth areas. The nature of venture investment is that not every investment will succeed, and that some of them have quite long runs in terms of being able to get to a point where they’re making big returns. So I’m happy to get some numbers for the member on that. But as a fund, as a concept, we endorse its role in supporting early stage companies and making sure we get ourselves, New Zealand companies, to grow and be productive and profitable.

On the question of the Productivity Commission, I note the member’s comments and would say that we did take some decisions when we came into office that we wanted the Productivity Commission to take a broader view. Having read a lot of Productivity Commission reports over the years, we wanted to make sure that we were capturing a broad set of topics around what is productivity. And again, I acknowledge that this is not necessarily something the member and I would agree on, but again, if we’re going to have a wellbeing approach—which we do—then we do need to be analysing other things beyond just really very, very traditional measures of productivity.

Having said that, I note that a couple of the recent reports have been well received, certainly by the Government and by others outside. One of those was around frontier firms, and actually gave us some very good recommendations that as a Government we’ve been trying to enact—working with New Zealand Trade and Enterprise, but also looking at Māori businesses, for example, and how they’re going. So those reports, I think, have been useful. We’ve had a more recent one which is more about questions of social mobility which are significant in other parts of productivity, not just kind of that core economic side. So we believe the Productivity Commission still fulfils an important role, but obviously we should continue to monitor that and continue to assure ourselves of that as we go on.

This Estimates debate is very well-timed. Today, some very serious reports have emerged about New Zealand’s allegedly rapidly deteriorating financial position. We have been led to understand that the Labour Government is now in financial panic mode; that today, public servant leaders have been belatedly, far too late, told to batten down the hatches and desperately dig up some majorly needed savings in order to cover up a crevasse in the Government books.

What we have here is a set of Estimates which show us that the books were already teetering on the edge, with net debt having grown from $5.4 billion in 2019 to $71 billion today, with very little to show for it. We knew that surplus had been delayed until 2026, we knew the credit rating agencies were watching us carefully, and, yet, the finance Minister’s refrain has been: “Every dollar is well spoken for.”

Again and again, while we on the side of the House have said, “Look, the house is burning. Inflation is running at record levels, and yet still you spray that money hose around. You are spending with wild abandon, show some restraint.” The finance Minister has neglected to bring in any fiscal rectitude and claimed that all of his spending is appropriate.

Yet today, we are told public servant heads have been told that the situation has become so desperate that now he is finally reaching for restraint and has finally, far too late, demanded that they offer up savings or else the hole will be too large and all of us will be at risk.

So my question is a very simple one, Minister. This is your opportunity to front-up in Parliament and to come clean about just how much worse New Zealand’s financial position is today, than at the time your Budget was published. This is vital information in the public interest, and I would ask that you front-up about exactly what’s going on.

Well, that was quite the moment, wasn’t it? I want to perhaps take the member back a couple of steps just so we can have a conversation about the Estimates and about the questions that she’s asked.

The first of those, as the member well knows, in the Estimates and the process of putting the Budget together, the Government sought a savings exercise—a similar exercise to ones that we’ve done in the past, but we definitely put the foot to the floor this time because we are aware that it is important, having had the period of time through COVID where we did need to invest significantly in the New Zealand economy—to support our households and our families and our businesses through COVID—that the time had come for us to be able to say, “We now need to begin that journey back to a more sustainable fiscal position.” So we clearly made those decisions.

We also, obviously, were faced with the situation around the Cyclone Gabrielle event and the Auckland Anniversary Weekend floods. That also put further pressure on the Government’s books and the Government’s accounts, making that savings exercise that we did during the Budget very important. It gave us around $4 billion worth of savings which we were able to use to offset many of the other expenses that were required in the Budget that we’re talking about here.

It is obvious to anybody who is following along that the global economy continues to provide challenges to us. Just within the last few weeks, we’ve had the IMF sound a warning about China’s economy and the impact that its slowdown would have. Our exporters will be able to tell you that as well.

So, yes, this is a very challenging environment. I’m not sure quite about the breathless tone—I could point the member to my media release from 5 July this year when we did get an update postBudget of the Government’s accounts, and, as the Member well knows, in that we did see that revenue was not as high as we had hoped or had been forecast by the Treasury at the Budget. I made the comment in that particular media release that we would indeed need to look at tough decisions and trade-offs on Government spending.

That’s the reality of being in Government. That is the reality of being responsible with the way we manage the Government’s accounts.

So the member, I’m sure, in her past life—in working here in the building—and in her current life, is aware that that needs to be a constant process. We are facing difficult and challenging economic times. We have made savings as we’ve moved through this Budget process. We will need to continue to look, as I said, in July at tough choices and decisions about how we go forward from here.

In the member’s comments, she made a reference to ratings agencies. I do just want to highlight for the member a report that actually came out overnight from Moody’s, which talks again about the fact that they have a stable outlook for the New Zealand economy. It goes through in some considerable depth, actually, around why that is and the fact that they do believe that New Zealand both has the economic strength, also the way in which our governance and our institutions work that are all strong and that all contribute to solid credit ratings for New Zealand, our fiscal strength—all of these things are factors that the ratings agencies take into account. That was produced overnight, reinforcing their view of the stability of our system here.

So I don’t think the members should scaremonger about what the ratings agencies are doing. I do think the member should acknowledge that throughout the last period we have been looking for savings. During my Budget presentations, I think, across the country, I’ve talked about the need for that, and I believe actually in the Budget document on page 64 we talk about the importance of a fiscal sustainability and effectiveness programme.

In order to make that happen, it is of course necessary to work with the Public Service to do that, just as we did in arriving at the savings that we have. The members should be very careful about believing everything that she hears on the radio.

How big is the hole that has emerged in the Crown’s books? What, specifically, precipitated the meeting with public heads today? Does the Minister ever take a moment for pause or reflection to think that perhaps last year’s decision to embark on the biggest-spending Budget in New Zealand history, with an operating allowance of $6 billion, was, in retrospect, rather reckless, given the inflation position and the position that the books are now in? Has he had a moment to think that his late-life discovery, that efficiency and care with public finances should be ongoing, is something that perhaps he should have listened to a little earlier? Wouldn’t it be nice for the finance Minister to give us some honest answers to these questions given the alternative is that New Zealanders will have to wait until September to find out what’s really going on?

As the member well knows, and as I said in my answer to her just a few moments ago, we have been driving for savings and efficiencies across all the Budgets that we’ve done, and, in this Budget, we had $4 billion of that.

It is, of course, important to keep doing that. That’s why on Budget day, when we released the documents, we talked about a fiscal sustainability and effectiveness programme. We have to keep doing that if we are going to meet the fiscal goals that the Government has.

It is important to me also to note that ongoing conversations of the public sector are an integral part of being the Minister of Finance. They occur regularly. Those sorts of meetings are significant and important to making sure that the Public Service understands what the Government wants from it, and they occur throughout the time that somebody is Minister of Finance.

The pre-election fiscal update is Treasury’s update. It will be done when it is done. None of that takes away from the importance of us making sure that we do keep the foot to the floor on finding savings and finding efficiencies in, as I have said numerous times in this House—just about every day in this House—what is a deteriorating economic environment. That is the truth. We saw in the accounts at the end of May that they had not matched with the Treasury’s forecast from earlier in the year. That is the reality.

What I think the problem is here is that the member does not know how she’s going to pay for the promises that she’s making. That’s actually the issue that is at play right now, because the member is sitting here saying, “I haven’t been following along when the Government accounts came out in May. I haven’t been thinking about that. I’ve just been promising things that I cannot pay for.” And so, Madam Chair, that is actually what’s going on right here, right now: the only panic that you are seeing is from the member asking the questions, because she knows that she can’t pay for what she’s promising.

Does the finance Minister think his so-called drive for savings and efficiencies—two words that when used by former finance Minister Bill English or Steven Joyce, he would refer to, in Opposition, as “cuts”. But does he think that that latter drive for savings and for efficiencies has been sufficient, given—according to the Treasury’s own analysis in this document—every operating allowance, that is Budget, he has ever set for himself he has broken, on average, by $600 million? Which is to say, he says the year before, “I’ll only spend this much; I promise I will, I will.”, and then he goes on to spend $600 million more. Given those facts, does he really think it’s plausible to say he’s been good at driving savings and efficiency?

As I have said, it is a part of what we do when we put Budgets together. The other parts of that includes making sure that we adequately fund public services. The member, in her earlier contribution, referenced the Budget allowance for the previous set of Budgets, not the Estimates we’re debating here. The member well knows that includes multi-year funding—for example, for the health sector but also for the justice sector and natural resources—as we attempt to make sure that we do drive efficiencies by making sure we give people the ability to plan for the long term. That’s just one example of the way in which we have done that.

The measurement of whether a Government is succeeding or not is in the macro indicators. We have managed, over a long period of time, to ensure that net debt remains one of the lowest in the developed world. We have been able to see that the economy has grown. We have set ourselves fiscal rules and we are aiming to make sure that we achieve those.

We have faced significant challenges, as I hope the member would recognise, when it comes to, for example, COVID. Pre-COVID, we were able to be in a position where we had surpluses and we were going to move forward from there. Post-COVID, just as the previous Government discovered when it was dealing with a large shock through the global financial crisis, it takes some time to get back to a level of fiscal surplus. Clicking one’s fingers and saying, “We’re just going to do that.” does mean significant cuts to public services.

I’ve acknowledged it in the House before, our colleagues from the ACT Party: I might think that their fiscal plan is completely barmy, but at least it’s out there; at least they’ve said how they’re going to do it. It means enormous cuts to public services and provisions of programmes, but at least it’s there.

So it is a balance when one is putting a Budget together. Events do occur in between different parts of the Budget process—that is the reality of being in Government. But from my perspective, putting a Budget like this together—the one that’s being debated in the Estimates here right now—requires a careful balance. There are savings in here, they are offsetting some of the cost pressures we’ve got which have been caused by inflation. While inflation does add somewhat to the Government’s income, it also adds to the costs that the Government faces. Those kinds of costs have to be met, and then along comes a cyclone that requires billions of dollars from the Government to actually help communities rebuild and recover.

Again, I haven’t heard much from the Opposition about what they would do there. It would seem they don’t think that there’s any costs there and that they just simply wouldn’t be helping those communities. Well, that’ll be an interesting debate to have over the next few weeks.

Thank you, Madam Chair. I have several questions—and I think things that I would like to see on record, if the Minister will indulge me. First, can I congratulate him for his balanced approach in the Budget and for the maintenance of that low debt that successive Governments have sought to achieve. And indeed, I think actually Labour Governments have a far better track record than other Governments. I do note the irony in the member opposite commenting on ratings agencies, when perhaps her fear is that the ratings might drop to what they were under the last National Government, when this Minister of Finance has actually seen some of those ratings rise. But let’s put that to one side—

Nicola Willis: Oh, the next National Government: it’s on its way!

Hon Dr DAVID CLARK: It’s a long way away, we all hope. The reprioritisation in the Budget: I wonder if the Minister could tell us how much that’s been this time, because I know significant effort went into that reprioritisation exercise and it was larger than—I don’t know, perhaps just about any that I’m familiar with. And could the Minister also confirm that the economy is actually bigger now than it was prior to COVID? Because we’ve had questions about debt servicing, which seem to be ignorant, or not addressing the fact that the economy has grown and therefore that we can continue to invest in infrastructure to address the infrastructure deficit through the effect of having a larger economy—an economy that’s actually grown, as I understand it, under this Government, if the Minister can confirm that.

My final question for him is if he would be willing to elaborate a little bit on the Budget themes and how these were arrived at: the focus on the cost of living, things like the free public transport measures. I guess the public’s familiar with the removal of prescription fees on medicines, and so on. If he could talk a little bit about how he arrived at the themes of the cost of living—public services, maintaining public services and how those will support New Zealanders, and, you know, the services they rely on—and how recovery and resilience was added in. I think that has been touched on a wee bit, but I’d appreciate any further elaboration. And fiscal sustainability and whether fiscal sustainability, in his mind, involves striking a balance there and addressing the infrastructure deficit through continual capital investment? Thank you.

I thank the member David Clark for the questions, and I think all of them are on topics of importance, so I’ll try to cover all three of them. On the savings point, as noted, there were $4 billion of savings in reprioritisations across this period—

Hon Dr David Clark: $4 billion?

Hon GRANT ROBERTSON: Yes, $4 billion. And I do actually want to acknowledge that, and just to give a broad breakdown of where they came from. So $1.5 billion of that was a result of what was started by the previous Prime Minister towards the end of 2022, when she asked Ministers to go away and take another look at what we were doing to make sure that it was necessary, it was being delivered well, and it was a priority for us in the face—as we’ve been discussing previously—of needing both to get our expenditure back down to levels that were more sustainable post-COVID, but also an acknowledgment of the overall deteriorating global economy. As a result of that, around $1.5 billion of savings were found, the largest component of which was the ending of the clean car and social leasing schemes that were within there. Colleagues will recall the exercise that went through and the new Prime Minister picked that up from the old Prime Minister and carried through that work.

We then went through, as is done in the March and October baseline updates, which is when on a six-monthly basis, essentially, Government agencies come through and say, “Here’s how we’ve got to with our spending, here’s what we’d like to roll over to the future, here’s what we can bring back to what’s called the centre.”—that represented about $1.1 billion of that, and then another $1.5 billion which we did during the Budget process, where we literally went through each Vote and said, “Are all of these programmes necessary? Can we find ways of saving ourselves money?”, and that was about $1.5 billion. So that brings us to the $4 billion of savings.

The answer is 6 percent—a just on 6 percent larger economy than we had until before COVID. The New Zealand economic story in COVID is one that is worth telling, in the sense that it did require a significant investment from the Government to support businesses and households to get through. But as a result of that, we didn’t experience the levels of unemployment that had been expected. And today we saw unemployment at 3.6 percent, a tick up from where it’s been, but significantly below where it was when we came into Government, and very much below where people thought it would get to. And that’s because of the actions that we took. So, yes, the economy is larger—several sectors have been very challenged through this period of time and it is tough out there for a lot of businesses. It is tough out there for a lot of households, but we have been able to get the economy through at a macro level in a way that I think has been very helpful.

And then briefly, on the themes of the Budget, as the member requested—I mean, quite clearly the cost of living was always going to be one of the main themes in this Budget. What we did was we went looking for things that could support New Zealanders with cost of living pressures, but that would not unnecessarily exacerbate inflation and had other benefits. And so if you think about things like the removal of the $5 prescription charge, that’s an example of where we know that will improve health outcomes. We know that will mean that fewer people will end up presenting, in some cases, to the emergency department. So it removes pressure within the health system while also taking a cost of living pressure off. It’s evidence-based and it remains important to me and in the Budgets that we do. There was a fantastic University of Otago study that identified that about 135,000 New Zealanders weren’t picking up their prescription each year because of the cost; we responded to that with that. So that cost of living theme—and there are many other examples which we don’t have time to go through right now that fitted within that theme as well.

We did also want to make sure we continue to deliver the public services New Zealanders need. You know, it is absolutely clear that in a high-inflation environment, we need to put more money into our health system, more money into our education system to make sure that we are able to keep up with and employ people and pay people, and so that was clearly a big theme.

Recovery and resilience, as the member has noted: there was a significant investment in making sure the regions of New Zealand could recover from the weather event, but also to make sure that we’re making our economy more resilient, with a big investment in infrastructure, support for skills and training, apprenticeships and so on—the core kind of building blocks of that strong economy. And then the final theme was around fiscal sustainability, because we do need that journey back to those more sustainable levels of spending, and so that’s why the savings programme that we talked about before was so important. So those broad themes were the themes of the Budget. They were the right themes for the Budget that we were dealing with. They are a balanced approach; they are a part of a long-running approach that we’ve had that we support people to get through difficult times, but we also are making sure that we do that in a way that looks after future generations’ financial stability.

Tēnā koe, Madam Chair. Thank you. I wanted to ask the Minister if he thinks it’s fair and responsible to be asking New Zealanders and our public services to be making savings, to be scratching around, looking for all opportunities to cut costs, when we’re not asking a few sectors that have had sustained supernormal profits, like the four big banks, to contribute more to New Zealand’s infrastructure. Those companies are only able to make excess profits because of the investments that New Zealanders make collectively in infrastructure and our people.

It seems not right to me that a few big companies should be allowed to essentially make what even Treasury has dubbed “supernormal” profits, and not contribute more to our infrastructure and recovery, and support for people during times like the COVID pandemic, or in the wake of severe weather events, which we’re going to see more and more of.

So I’d just like him to speak to the fact that he—you know, that if we’re looking for savings, why aren’t we also looking for revenue from private sector areas that are profiteering at the expense of New Zealanders?

I thank the member for the question. As the member will be aware, having seen the Budget proactive release as it’s come out, one of the things we did look at was whether or not there was a case and the need for us to be able to, to use the members language, look at supernormal profits of banks. We did quite an amount of work on that, and I would recommend to people to have a look at the work that was done because it does throw up some interesting issues. The decision was made in the end that we didn’t actually need that money because we could manage the cost of the recovery and the rebuild through the resources of Government, through some reprioritisation, and indeed through using our balance sheet to be able to do some of the long-term rebuilds.

However, what did emerge out of that discussion was the need to take a closer look at our banks, and to make sure that we believe that New Zealanders are being treated fairly. That’s why the decision has been made to do the market study, to have the Commerce Commission take a close look at the way banks are treating New Zealanders and their customers, and to whether or not, among other things, their profits are fair.

There is, as I said, in that material some quite interesting studies. The member didn’t use the phrase windfall profits, so I don’t want to put words into her mouth, but the question of whether there was a windfall per se from COVID is, you know, in that documentation, not a proven case. Are the profits of New Zealand banks higher than some comparable jurisdictions? Yes, they are. So, therefore, what is the reason for that? That is most definitely a debatable proposition. But equally, as I’ve said on many occasions, New Zealand banks need to justify to their customers that level of profit. What you see in the documentation that’s been released is, for example, that the revenue that has been brought in by banks through things like bank fees and so forth and so on isn’t that much proportionately higher than other countries. What you do see is that the cost profile of the New Zealand banks are lower than other countries, seeing that much—that higher profit.

Digging into that, understanding why that is, is exactly why we’ve set the inquiry in place. So I absolutely appreciate that the member thinks that the case is done, and that we should simply do that. We believe that we actually do need to do the work properly. We’ve made a start on it in the work that we did during the Budget, but that’s why the case was made for us to do the Commerce Commission.

My question for the finance Minister is: does he actually understand what public spending restraint is? Because he has claimed that is something he has required on an ongoing basis, and the figures in this Budget shouldn’t lie. What they show us is that Crown expenses, as a proportion of the economy, have exploded under that finance Minister’s watch from 27.7 percent in 2017 to 33 percent next year. So my first question is: how is that explosion in Government spending consistent with his road to Damascus description of a culture of restraint?

My second question is: has he taken pause to reflect that maybe the decision to, as a first gesture, remove the Better Public Service targets which ensured a focus on delivery against patient waiting times, NCEA achievement, and the like, might have been quite a good device given—despite spending literally a billion dollars more every week—last night there were 12 ambulances ramping at Waikato Hospital because it can’t deliver the services needed.

My next question is this: is it actually the case that he has asked for a culture of restraint and it exists, or is it in fact the case that, as I stand here today, the IRD is merrily going on its programme to spend more than $30 million refurbishing and redecorating its offices even while superannuitants go hungry? Isn’t it the case that he’s allowing his Ministers to collectively spend $1.8 billion on consultancy reports just to help prop up all of the information they already get from the additional 14,000 public servants? And isn’t it, in fact, the case that the Minister has quite happily overseen an explosion in Government spending with the smallest results to show for it of any Government in recent history? And could he please, as I say, come back to that first question: what exactly does he understand “restraint” to be?

I just want to note for the member that in the forecasts—and she was reading off the same page I am in the Budget documents—it would see core Crown expenses peak at around 34.6 percent of GDP. If we took the table just back a little bit further, that’s in here, we would see the impact of both the global financial crisis and the Canterbury earthquakes on the previous Government. And it is what a responsible Government does when something happens: we use the balance sheet to look after New Zealanders; we invest, we make sure that we’re putting the money in where it’s needed.

I stood in this House and responded to members of the Opposition throughout the COVID period saying, “Spend more.” Do you know what? As we started to get ourselves in a position where the Reserve Bank was getting a bit nervous and wanted to start increasing rates, the Leader of the Opposition—the current Leader of the Opposition—put out a programme to spend vastly more, in the face of that. So it is what a responsible Government does, to invest. We have been careful with the way we’ve done that. We’ve been balanced with the way we have done that, and we have a plan to bring that back down.

The kinds of things that the member’s approach would require would be mass cuts in the spending of education and of health and of housing. So the member has to, herself, front up with what it is that gets cut, because it’s not just the expenses that are here; it’s the extra things that the member is proposing—the tax cuts that the member is proposing that have to be paid for somehow. So I stand by the decisions we’ve made, yes, but it’s there in black and white—it’s led to an increase in the percentage, just as it did when the previous Government was doing what it did.

The member asked me to comment on things that haven’t got much to do with what’s in here, but her party’s previous Better Public Service targets—I vividly remember one of them around NCEA achievement when they set it and they suddenly realised after they set it that it was actually below where people were currently achieving. So they had to quickly rush back and change it.

The danger with those targets, which we saw and I remember raising questions about it in the House, was that it’s the classic kind of “teach to the test” thing that, actually, you set those targets, you set them in such a way, in some cases, that you can just achieve them without—as I say, in fact you already were there, or you end up with a situation where people end up chasing those targets. We are investing significantly in the resources and the services that we need.

Then finally, on the question of consultants, you know it is true that pre-COVID we’d managed to get expenditure on consultants and contractors down to I think it was 10 percent of Government personnel spending, and it’s crept back up. A big chunk of that is to do with the response to COVID. But I do think the member needs to be a little bit careful about who it is who’s going to be planning the roading, and who it is that’s going to be delivering the IT changes that might be needed by a Government, because they’re sectors which are dominated by consultants. Unless the member is proposing to recreate the Ministry of Works—which some members in the House might appreciate to do—that would be one way to do it but in the absence of that, consultancy expenditure is required. We all agree in this House we want to limit that to the greatest extent possible but it sounds like what the member’s telling us is that she isn’t going to have any of that and that will be another cost that the member will need to fund from somewhere.

Thank you, Madam Chair. Thank you, first of all, for recognising ACT’s alternative Budget, Minister Robertson. I’m happy to have a lamington and a cup of tea with you tomorrow to share how we constructed that with no cut to front-line services at all. So, you’ve added a new portfolio tonight, which is “Minister of Fiscal Misinformation”. I also can show you how to save $38 billion over four years, if some cross-party decisions could be made.

But now it makes sense to me, because the ex - Deputy Prime Minister—and I’ll ask this question: is it a $20 billion revenue shortfall or is it $10 billion? Because these appropriations, since the Budget, have moved and moved and moved, and now today it’s the first time I’ve heard you ever saying we have a deteriorating economy. Usually when people come here at question time, there’s patsy questions saying, you know, “Tell us what reports into the New Zealand economy you’ve got.”, and I think what’s happened now in Cabinet, unless I’m mistaken, is that the Hon Mr Parker came and said, “Houston, we have a problem, and we need more taxes or we’re going to have a massive shortfall in revenue.”, and the Prime Minister’s gone, “Hey, don’t worry about it. We’ll use debt.” So we have to prepare ourselves now either for a debt-driven strategy to get us out of this or a revenue shortfall. So the question is: is that $20 billion figure that you said today not accurate, or is it $10 billion? What can we do to help?

Secondly, with regards to this misconception about ACT cutting services, I’d like that stopped, please, because we just want value for money. We’re not promoting austerity, we’re not promoting anything other than a responsible fiscal attitude. So is that $20 billion figure from the outside world accurate, and will it be adding to the debt servicing cost if there is a shortfall in revenue?

Thank you, Madam Chair. Because I said I would, I want to go back to the member’s earlier contribution around the returns from the Super Fund. I was nearly right—it was 9.65 percent, so that does compare very well; the average New Zealand Treasury bill return was 3.37. Obviously, returns are volatile over a period of time, but I do think the Super Fund has performed relatively well.

In terms of finance costs, if you look across New Zealand’s history, we’ve seen finance costs as high as 6.3 percent of GDP in 1990 and a fairly consistent move around the 11.5 percent. It did come down under 1 percent in 2021 and 2022 and it’s popped back up again, and according to the Treasury’s estimates, out to the end of the forecast period it’ll be about 1.8 percent of GDP. So I accept the fact that the raw numbers have increased, but I just wanted the member to have those percentages.

In terms of what he’s saying here, I just do want to repeat—and I’ve already done this for the member Nicola Willis, but when the Crown accounts came out in July, I made it clear at that time that those numbers were not what had been predicted in the Budget in May. Now, the Treasury do their forecasts; they do those independently of the Government. They finalise them somewhat in advance of the Budget, but, you know, not miles in advance of the Budget. By the time we got the Crown accounts for the month ending 31 May in July, there had been a deterioration, and I said—I said it at that time, and I have said it a number of other times—it’s the reason why we do need to continue to be careful, prudent, balanced, look for the things that we can do more efficiently and where we can find savings. So that is the situation that we’re in.

I don’t want to prick the member’s fantasy bubble that he has in his head about what might or might not have happened at Cabinet with Minister Parker, but suffice to say the documentation that’s been released would show to the member that what was being considered was a tax switch—nothing to do with just creating extra revenue; it was revenue that was coming in and then going out. So the member is not accurate in that regard.

Where we end up will be the subject of the Treasury’s forecast at the pre-election fiscal update. Everybody will get to see those, everybody will be able to make their own decisions about that and their own judgments about that, but it fits within a framework where all political parties will have to say how they’re able to pay for what they do. I don’t want to get into an elongated debate tonight with the member about the ACT Party’s alternative Budget, but I think even he would have to concede that some of the things in it would mean that services, things the Government currently does, wouldn’t be done anymore. That’s actually kind of part of what the member is proposing. I don’t agree with those, but as I said, the ACT Party’s at least had a decent go at working out what cuts they will need to make to fund the things that they believe are important for New Zealanders. We’re never going to agree on that, but a cup of tea with the member before he leaves this place would be a very pleasant occasion.

I want to ask the finance Minister about the fiscal bomb that went off today, the little land mine in the Budget. There are a lot, I’m told, and that was the one relating to the teacher pay settlement. How is it that the Government so under-provisioned the funding available in this Budget for the teacher pay settlement that, today, we are told that the finance Minister has resorted to raiding future Budgets in order to fund a settlement that should have happened last year? How is it that so much money has gone into backroom bureaucracy and wasteful money that the finance Minister hadn’t provisioned enough for a decent teacher pay settlement? And would he care to explain to this committee why it is only today that the education Minister saw fit to say, “Oh, well, look, you know, there’s $300 or $400 million worth of savings we can find overnight down the back of the Ministry of Education’s couch.” So wasteful are they that it’s just that easy to find it. And where exactly does the Minister think the sacrifice will come in relation to the rating of future Budgets that has had to go on to fund that settlement? Could he outline for us his thoughts on that? And could he rule out for the committee that there aren’t any other ticking time bombs in this Budget that will go off the way the teacher settlement one did today?

So, to answer the member’s question about the arbitration process delivered to the Government and the need to find about another $660 million, around $3 billion had been provisioned for the teacher and principal bargaining. I think that was a reasonable provision at the beginning of that exercise, and we continued to monitor where it was. It’s a negotiation. So we continued to negotiate in good faith, but we reached a point—and this I think is a very interesting question for the member—where we, along with parents, students, and teachers themselves, felt like we were at an impasse. I did not want to see another day of children’s education lost. Through COVID, we had seen enough disruption—

Nicola Willis: You locked down Auckland.

Hon GRANT ROBERTSON: Ho! There it is, the great, ultimate revisionist history from the National Party! Suddenly the lockdowns were wrong. All the hindsight starts coming out now, doesn’t it? Well, here’s the thing: what we have managed to deliver in terms of teacher pay vastly—vastly—outsizes what the National Party did over 9 years. Once again, we are making up for the failure of the National Government to invest properly in our education system and to invest properly in our teachers. What I said when I met with teachers was that the offer that was on the table was the extent of the money that we had. So, therefore, arbitration happens, and we have to go and find more. And we did. We went, and we went back, and there are things now that won’t happen that had been set to happen—some of those around what’s called the bank staffing hours that schools are able to draw on; some of that is around further work on the public-private partnerships that we—

Nicola Willis: Taking from the front line.

Hon GRANT ROBERTSON: No, not at all, because that’s the point. The front line are the teachers. And, once again, what we’re hearing from Nicola Willis is, “Don’t care about them, don’t care about the parents, don’t care about education.” That’s the record of National. Today, we have managed to find ourselves in a position where we can do this. It will cause some issues in the broader delivery of our education sector. Some of that means the Ministry of Education will have to cut back, and some of it, yes, comes from looking at Budget 2024. In every Budget there is an allocation for cost pressures into the future, and we have said this is the priority for that—in education. This will lead to some tough conversations at Budget 2024, but the judgment we have made that our kids getting into the classroom, learning, and having teachers who are paid well and paid properly is the priority—clearly not for the National Party.

Members, the time has come for me to leave the Chair for the dinner break, and the House will resume in committee at 7.30 p.m.

Sitting suspended from 6 p.m. to 7.30 p.m.

Mr Chair, thank you very much for the opportunity. Minister, I wanted to cover three key areas in regards to building on some of the conversation we had before the break. And in particular the area, firstly, is in regards to the significant increase in Government debt, but more in particular around that, looking at the Crown financing costs of that debt profile—and, as you’ll know, in 2022 per our accounts, we’re looking in the region of $2.8 billion of finance costs. The actual 2023 forecast goes up to in the region of $6.3 billion and 2024 up to $7.5 billion.

My questions are, in terms of those proportionate costs of Crown finance against total Government expenditure—Government expenditure sitting at around 125 going up to 130, so not a significant increase there, but the finance cost obviously, as a proportion of total cost line, represents in 2024 the fourth largest Government expenditure line, above welfare, health, and education, and then finance, and dwarfing law and order and other underlying issues. So I’m interested, from the finance Minister, in regards to how much of a factor is the, in effect, $4.5 billion difference in interest costs between 2022 and 2023 in regards to dealing with what is in effect this growing fiscal hole, and the considerations around what role the Minister foresees that playing as we go forward. Because the interest rate environment definitely looks probably more sticky than what it was, you know, even three to six months ago.

The other is in regards to the Climate Emergency Response Fund, and I’m interested in the Minister’s observations in regards to the fact that two of those auctions have subsequently failed—the quite significant, nearly a billion dollar, shortfall in funding in regards to that fund. And I’m interested, from the Minister’s perspective, how he sees that that gap is going to be filled and whether he’s confident the changes announced recently actually are going to be orders required in order to provide certainty there.

And the last aspect is around the climate adaptation and the fiscal consequences on the Crown balance sheet in regards to this liability—and the Minister’s observations in regards to the fact that in reality we have absence of a clear framework for decision making in regards to compensation for loss, or at least a mechanism that I think we should have. Particularly to deal with not only the shortterm implications, which we are dealing with post Auckland floods and other aspects, but, if we think about the fiscal liability on the Crown’s balance sheet in the next five, 10, 15 years from now, how and what are the mechanisms that we’re going to have in play in order to be able to determine and drive the capital decision-making required in regards to that? But also I think, more importantly, where is the line drawn between the compensation for loss conversation, and on what side of the line does central government sit on that versus local government and, of course, other players in the market? Thank you.

As the member noted, we did cover a little bit of ground around the question of finance costs earlier on, before the dinner break. But just to reiterate, the member’s correct in terms of the levels of core Crown finance costs and where they go, where they are, and where they are projected to go. Obviously, there’s a very significant lift in there, and, as we discussed before the dinner break, we are in a period of particularly high interest rates, and that is across the world and that’s bearing out in the finance costs.

As I did note before the dinner break, where we are in terms of the 2023 final projected number, forecast number, it’s 1.6 percent of GDP. I can at random pick out other years where it’s been at that level, 2002 being one of those. As I say, we had it around that 1 percent level running into COVID. And, unfortunately, the high global interest rate environment means it does pick up. According to the Treasury’s forecast, that is to 1.8 percent of GDP. So it’s a much higher number or much higher percentage and much higher number than it has been, but it is reflective of the borrowing that was done during the COVID period. As, again, we’ve discussed a number of times in the House and at the committee, that was necessary, it was an important part of getting New Zealanders through, but now we do have to do as we always knew we would do, and manage the costs of that whilst also looking long term to steady our level of debt and bring it down as well. So it is what it is. It is where we are, and those are the numbers.

On the Climate Emergency Response Fund, the member is right to pick out some of the volatility of the carbon price. I used his question to quickly google up where it had got to by the end of today. It’s just sitting a little under $60 now. It had been up above $65, I think, even on Wednesday of last week, and it’s settling just around that $60 mark, as a result, largely, as the member points out, of the announcements that the Government made in response to the decisions of the courts.

Simon Court: Which is that, the Government of Argentina?

Hon GRANT ROBERTSON: It’s a market mechanism. I know Mr Court’s a big fan of those and therefore that is what will dictate what will be available in terms of the Climate Emergency Response Fund. What we did in the Budget that we’re dealing with here, in these Estimates, is top up the fund somewhat, because we did recognise that on the projections we would need to do that. It’s important for us that we continue with the climate action that’s needed and the investments that we need to make to reduce emissions and develop that more sustainable economy. But I’m confident, given where we are now, that we will come back and we will have further resources in there on top of the $1.5 billion that was left.

I think the member’s last question is a really interesting one, around adaptation and the costs of adaptation, and I would be the first to say—and I’ve said a number of times publicly, particularly in the wake of Cyclone Gabrielle—that I think the ad hoc approach that we’ve been, effectively, forced into now is not good. I think as a country we do need a framework that can give people much more certainty that can be rolled out much quicker.

And I think it would be fair to say—and this is not a criticism of any political party at all—that there’s been a lot of attention around mitigation of climate emissions reductions, which there should be, but not so much on adaptation. And when I met—myself and James Shaw—with our Australian equivalents earlier in June, this was one of the topics we had, because they similarly were saying, “We don’t know that we’ve got the metrics. We don’t think we’ve got the framework, the measurement, the common language even to talk about adaptation.”

The Government has the national adaptation plan, which is out there and everybody can see it, and the adaptation Act that will be coming through the system shortly; they’ll provide some of that framework. But when it gets to the crunch of what happens when people do need to leave where they live or there needs to be significant investment in creating a situation where they can stay there—flood protection, stop banks, etc., etc.—how do we resource that well and adequately? I believe that is a challenge that future Governments will need to address rapidly. And certainly we’ve been giving some thought to that and what that might look like as well.

It’s not reflected in these Estimates. What’s reflected here is the National Resilience Plan—the $6 billion we put aside to look at creating a more resilient and adaptive infrastructure. Most of the first couple of years of that will now be spent looking out and rebuilding for those who’ve been affected. But I think it’s an area where I’d like to see some cross-party work over time, because it’s definitely a long-term issue for New Zealand.

There has been growing speculation about just how bad the financial situation is for New Zealand, and that is emerging in these Crown accounts. In these Budget documents we are discussing, after six years of deficit, it is forecast that New Zealand would, under this Labour Government, return to a wafer-thin surplus in 2026. My question is very specific: does the Minister have reason to believe that surplus date is now in doubt?

The ability to know that will only come when the pre-election fiscal update (PREFU) is produced. As the member knows, that pre-election fiscal update is the Treasury’s document, and they will produce that and we’ll all be able to make our judgments.

What we were discussing earlier, before the dinner break, is that anyone who’s been taking notice of the Government’s accounts as they’ve been released in recent times will notice that the revenue forecasts that are in this Budget haven’t been met in the Crown accounts to the end of May. On 5 July, I put out a press release about that exact subject, and noted that the Government’s spending was in fact coming in under what had been forecast but the revenue that the Treasury forecast was also down. So, from the Government’s point of view, when you look at measures like real Government consumption, when we look at the GDP figures or through the monthly account, the Government’s doing its bit to make sure that our spending is being careful and being managed and is in fact under what is forecast. But, unfortunately, in those Crown accounts to the end of May, you saw revenue coming in lower.

What Treasury will be doing is working out over time what that looks like, how baked in that is, and so that will be something that, as we come towards PREFU, there will need to be discussions about. From the Government’s perspective, we’ve made really clear that our fiscal rules are that we keep net debt below 30 percent of GDP and that we achieve an operating balance before gains and losses surplus across the forecast period. So that’s what guides me in my consideration of what happens. But as we’ve seen over the course of the last little while, there can be a lot of volatility when it comes to the Government accounts, to the global economic environment—but, as I noted in July, challenging times; and the Government, as it announced at the Budget it would do, needs to keep looking for efficiencies and savings.

Now that the finance Minister has acknowledged that—I would characterise them as emergency meetings; he may characterise them differently—significant meetings have occurred today with Public Service heads in which they have been asked to find savings, can he please outline for the committee what precipitated those meetings? Is it simply a declining revenue position, which is already known, as the Crown accounts have shown the recession has driven down tax take, or is it also a combination of emerging fiscal risks?

Today, we had one bomb go off, which was that the Government had not provisioned enough funding for the teacher settlement and is now having to raid future Budgets in order to reach that settlement. Is the Minister aware of any other risks of that sort that have now come to pass that have contributed to the need for the meetings today, which we are told are responding to a multibillion-dollar hole in the Government accounts as compared to what was set out in this Budget?

The member’s imagination is most definitely getting away on her here. What the Government does and what the Government has said it will do, both at this Budget—and in these Estimates—and in previous ones, is that we will continue to look for savings and efficiencies. We actually outlined—we gave it a name. We said it’s a sustainability and efficiency programme that we wanted to develop. That requires us—

Nicola Willis: Why don’t you call it KiwiBuild, or “SavingBuild”?

Hon GRANT ROBERTSON: Well, because the member, if she was reading all of the Budget documents and had made it all the way to page 64 of the Budget documents, she would’ve seen it there: the “fiscal sustainability and effectiveness programme.” That is to drive better value for money; that is to look for how we can be more sustainable. So there will always be ongoing discussions with Public Service chief executives and others about how we do that.

I’ve already answered the member and referred her back to 5 July, where I was talking about this in response to the May accounts. I repeat again that the Government’s expenditure is actually running under where it was forecast, so we will see where that gets to, but it does behove everybody to be able to be very, very clear about how they’re paying for what they’re committing to.

Which brings me to the second part of the member’s question, which we’ve actually already covered in a previous question around the teacher settlement. Just to say that, quite clearly, once one gets into an arbitration process, that means you have to take seriously what happens there. We told the teachers when we met with them that we had exhausted the allocation we had, which is now being utilised, but we prioritised making sure our kids get back into the classroom, making sure that parents have certainty about that, making sure that our teachers actually do get pay increases that will be, I think, very attractive for people. We’re doing that by finding some further savings within the education area and also by looking at the cost pressures that would’ve gone to education in the next Budget. That will make for some challenging discussions in Budget 2024, but we have prioritised that. It is not the hyperbolic way that the member has described it.

So is it the Minister’s position that the savings drive outlined today is simply on par with the incredibly weak efforts that have been driven in the past, and are our public servant heads therefore wrong to interpret that there is, in fact, a stepping up in concern and anxiety about the state of the Crown accounts? Because has the Minister realised he can’t have it both ways? He can’t, on the one hand, say to the Public Service “It’s really, really bad now, we’ve genuinely spent the cupboard bare”, and then also turn around to this House and say “Oh look, this is all just in line with what we’ve done previously,” because the efforts previously to deliver any kind of backroom savings have been extremely poor. So which is it? Has something changed, or hasn’t it?

I just want to bring the debate back to the Estimates hearing and some of the questions that were asked in the hearing when we met as the Finance and Expenditure Committee, and just ask about some of the new productive economy initiatives in the Budget, because I think that was one of the things that we covered off in the committee and came away quite impressed with. I think, for the benefit of the House, it would be good to hear a little bit more about some of the funding—all private and personal interests aside—around game development, also around some of the science initiatives, and apprenticeship development, and also the green initiatives in the Budget. I think all of those things point to a higher-value economy in the future—and even Opposition members, I think, in the committee were impressed with some of those initiatives—and they have not been discussed in this debate. I wonder if the Minister would make a contribution on that.

Thank you, Dr Clark, for that question, and noting his acknowledgment of the important role that these initiatives play in creating the kind of economic growth that I think we all want, and that is economic growth that is sustainable, that is low emissions, and that actually does create those high-paying jobs that we’re all after.

I’ll just quickly highlight a couple of those. The first of those—and we’ve talked about that infrastructure, we talked a little bit about skills in this debate. I do think the investment in the game development sector is a really good example of that, and it’s not coming from nowhere. The member who asked the question may be familiar with the concept of the Centre of Digital Excellence that has been developed in Dunedin. That is starting to bear fruit. We have seen investment across the country in the digital economy.

What we did in this Budget and in these Estimates is actually step in, particularly to the game development sector. Now, in part, that has been driven by the fact that this is a very competitive sector, and one where, particularly in Australia, subsidies have been provided, and we were at risk of losing some of the talent that we have been developing. So a 20 percent rebate, that’s something that’s been asked for over many years. There were Ministers, previously, who’ve done the work—I know how modest the member is, he wouldn’t want me to mention his role in doing that. I do want to acknowledge Ginny Andersen for her role, however, in doing that work. It’s a really important investment, one that will create and retain jobs here, and a good example of the kind of thing the Government can do.

The second one I will briefly mention is around the question of what’s called the—colloquially, the “science city” initiative. The three big investments in new multi-research hubs—multi-institution research hubs to bring together the best of our private researchers, our Crown research institutes, our universities, to actually find those opportunities both for big scientific breakthroughs, but also for commercial opportunities. So three of them, one in the area of health, one in the area of oceans and climate, and one in the area of advanced manufacturing nanotechnology—new technologies. Really big opportunities there for us to harness the benefit of all of that work across many parts of our science and innovation sector. So I thank the member for raising that.

Also, referring back to the last intervention from Nicola Willis, I think it’s really important for everybody to remember here that the Government, any Government, relies on the forecasts that are given to it by the Treasury. We have to make sure that we put together Budgets that are in line with those forecasts. That’s exactly what you see here. It is a responsible Government that makes sure that it continues to work towards, as we are, our fiscal rules, and to make sure that we do everything we can to support that.

As I’ve noted three times now for the member, anyone who is paying attention when the May Government accounts came out would have been able to see what was happening there. There is work to be done in response to that, and work to be done to understand what the trend of that looks like. But the problem here is for people who are promising things that they don’t know how to fund. If you’re doing that, and you’re doing that in a situation as we are now with the global economy deteriorating—the IMF concerned about China, issues that are still there for many New Zealand businesses and exporters. If, like the National Party, you don’t know how you’re going to pay for your promises, then these sorts of situations are tricky. For us, and from our point of view, as we did in this Budget, and as we will do into the future, we will carefully balance, we will look at what is there, and we will respond to that in the context of the fiscal rules we have.

Have there, Minister, been recent changes in the Crown borrowing programme?

Not beyond those that were signalled at the Budget.

Thank you, Mr Chair. Minister, have there been changes in Treasury’s forecasts that have led the Minister to believe that there is a declining fiscal position?

Treasury’s forecasts are updated at the Budget Economic and Fiscal Update, at the Pre-election Economic and Fiscal Update, and at the Half Year Economic and Fiscal Update.

Has the Minister received any information or indications in advance of the Pre-election Economic and Fiscal Update which would lead him to believe the Crown’s fiscal position has deteriorated beyond that updated in the last set of Crown accounts?

The Crown accounts to the end of May have been discussed. They show a picture of the New Zealand economy and a picture of the revenue side of the forecast from Budget that has not kept pace. We all await the next set of those, but the job of the Minister of Finance is to look across the forecast period, to look across the macro-economic indicators, and to do the right thing by the New Zealand economy. From my perspective, we’ve done that by getting the balance right. We will always continue to work towards our fiscal rules while supporting and providing what we need to do. These are challenging times for many New Zealanders, for many households, and indeed for the world as we look at the global economic environment. We need to react and respond to that responsibly and in a balanced way, and that’s what I intend to continue doing.

What was the purpose of the meeting with the Public Service Commissioner and Public Service heads today?

I don’t go around talking about every detail of my diary. What I do do, as I’ve done throughout my time as Minister of Finance, is meet regularly with the heads of Public Service agencies to talk about the way in which our programme develops. The member will be well aware that if the Government wants to achieve its goals, it needs the Public Service to be working alongside it, so all the contact that I have with the Public Service is in that context.

But I repeat what I said earlier: we do here have a situation where people like the National Party are promising all kinds of things to the electorate with no idea how they are going to pay for them. As a Government, what we are showing is that, actually, our expenditure is coming in under where it has been forecast. There are challenges to the revenue side of the ledger, as outlined in the May accounts. We will continue to monitor that and deal with it, as appropriate.

Why, when the spending picture has been out of control for several years—as measured by Government expenditure to GDP, as measured by increases in operating allowances, as measured by increases in deficit, as measured by increases in debt—why, against that backdrop, has the finance Minister continued to add spending fuel to the fire, has watched the House burn, and is only now reaching for the savings hose?

The member is just wrong. What we have done consistently, over the Budgets that I have been here, is respond to the circumstances that are in front of us. When we got to Budget 2019, we saw ourselves with a level of debt—using the old measure—around 19 percent of GDP, under the target that we’d set for us. We had the books in surplus.

COVID came along. Now, the member might want to write that out of history. But quite simply, she can’t. The Government responded; we did what we had to do to get New Zealanders through the situation, and now we’re returning ourselves to a more sustainable fiscal position while balancing that against the needs of public services. I believe that in these Estimates—in the documents in front of us—we have done what we needed to do to keep that balance.

I move, That the committee report progress presently and move to consider the Spatial Planning Bill.

Motion agreed to.

Progress to be reported.