Inflation is back under control, interest rates have dropped, GDP data is showing growth has returned, export receipts are up and business confidence is on the way up ... surely Nicola Willis is a happy finance minister?
Well, yes, she is, but every silver lining has a dark cloud, and for Ms Willis that is how much debt is on the government’s books. It is that net Crown debt — $182 billion according to figures released recently by Treasury — which has been paramount in her thinking she prepares for her second Budget, which she will deliver on Thursday next week.
"Fair enough. New Zealanders don’t wake up each morning worrying about government debt or the government’s deficit — that’s our problem," she told the Otago Daily Times.
"We need to focus on that and give them confidence that we’ve got it sorted. But I do sometimes find that my political opponents talk about spending decisions as if we’re in clover, and we’re not. We are in a high-debt position relative to where we’ve been historically — we do have the biggest deficit by one measure in the developed world — so there’s a job to do to get things back in balance.
"So I do think I need to regularly remind people we’re not just being careful about the spending for fun — it’s because we’ve found ourselves in a position as a country where that’s necessary and we can sort that through consolidation over time. We’ve opted for a gradual course. We will get there, but it is going to require us to stay disciplined."
Ms Willis’ pre-Budget speeches, including one given in Dunedin on May 3, have been a careful exercise in managing down expectations.
Her opening salvo was to reduce the operating allowance in this year’s Budget (the amount of additional new government spending) to $1.3b. She has followed up with repeated reminders of how much the government spends on debt interest each year (about $9b) and how many government department annual budgets that figure amounts to.
Add into the mix the fallout from US President Donald Trump’s "Liberation Day" speech, casting uncertainty on the NZ Treasury’s predictions and upending the international trade system, which New Zealand relies upon for its economic prosperity.
Ms Willis said while Mr Trump’s tariffs announcement was not completely a bolt from the blue given he had campaigned on introducing them, the extent to which it had affected global markets and trajectories for global growth had been significant. Hence why she took the unusual step of calling a press conference to assure jittery markets that New Zealand felt it could manage its way through the uncertainty to follow.
"I felt that it was important that in the midst of that, that New Zealanders had a sense that the government was aware of what was happening, was monitoring it carefully, was appropriately prepared and that they didn’t need to worry that the rug was going to be pulled out from under us," she said.
"In terms of the Budget, we had been putting it together in such a way that we’d been stacking up those potential savings, stacking up those particular investments and of course in light of the Trump stuff we first of all looked at what impact that would have on the books.
"That was when we saw that if we didn’t make any changes we wouldn’t be able to post a surplus within the forecast period. The books wouldn’t reach balance because of his impact. So we decided that we did have the room to make some changes to ensure that we were still getting the books back in balance while making the investments we wanted to make."
Hence the operating allowance adjustment, among other things. Most people would not say that $1.3b was a small amount of money, but in the context of the government’s multibillion-dollar Budget it is a tiny percentage.
Ms Willis has been open that the money will be spent primarily on health, education and defence, as well as some targeted business assistance and cost-of-living initiatives. Few would argue that these are all area sectors for the government to spend more money on, but once sliced thinly between them can $1.3b really make a difference?
"We’ve fallen into this pattern, I think, under the last government, where the focus was always on the layer of icing on top of that cake, and that’s the operating allowance, which is a very small proportion of the overall spending," Ms Willis said.
"I’m trying a different approach which is instead of starting from the position that says how do I divide up the operating allowance into a number of initiatives, let’s start by saying let’s look at the whole cake that we’ve baked in that all of those other tens of billions and assess is there anything in there that we think is no longer driving the impact, that is no longer as higher priority, and if there isn’t put it in the bucket as a potential area that we could reinvest.
"That has actually been our first port of call and in doing that we’ve created ourselves some options about investments that can happen elsewhere and that is to say that we will have more for new investments than is just what’s in the operating allowance."
Such savings and re-prioritisations are yet to fully manifest themselves — a significant one, the altering of the criteria for a pay equity claim, was announced and passed into law after this interview.
Further ahead and more uncertain are contingencies, expenses to which the government has committed to pay the bill but which it does not yet know the final cost. Again, think pay equity claims ... but also things like buying new ferries, the final cost of compensation paid to survivors of abuse in state-operated care facilities and the final cost of the many hospitals the government is committing to build, including the new Dunedin hospital.
The government’s dogged determination that the new Dunedin hospital will only cost $1.88b, despite its many previous cost blow outs, will require every inch of Ms Willis’ much-touted more disciplined approach to procurement and infrastructure delivery if it is to become a reality.
Each suggestion that a project of regional significance faces possible cuts sparks outrage from ODT readers, who often compare the money being spent on other areas — notably defence — to the hospital budget.
Not withstanding that the government has to pay for both those things, Ms Willis was quick to assure the people of the South that the government understood the hospital was critical to the people of Otago and Southland.
"We agree that Dunedin hospital is a vital priority and we are ensuring there is the funding available for it. So this isn’t an either or, this is an and," she said.
"Second I’d say that no country can hope to deliver good public services if it’s not a safe and secure country and the world is far less stable and safe than it once was and New Zealand can’t take for granted our security. Our plan to rebuild the capability of the Defence Force will allow us to do not only our duty I think in terms of being able to support our Pacific family when they need us, whether it’s following a disaster or whether it’s helping surveil this part of the world, but we’ll also ensure that we’re doing our bit for our ally Australia and that they continue to see us as a reliable partner and those other countries around the world with whom we work see that we are able to contribute to upholding values that are important to us."
Former Finance Minister Grant Robertson liked to describe the three Budgets of a government’s term as a trilogy, a term which might appeal to the English literature major in Ms Willis.
For her Budget one was a "tidy up" Budget and Budget two is about economic growth.
"I will reserve judgement on what the next Budget will have to be because I’m conscious there’s a lot to unfold between now and then," she said.
"But I think in this Budget we are putting down foundations for the future that will be significant not just for what happens frankly at the next election campaign but there are a couple of changes that we’re making that I think will set much better foundations for the future of the country for future decades and I think that’s an important test for a finance minister: did I just do the things that would help me win an election or did I do things that meant that I could turn around to my kids look them in the eye and say when I had the seat when I was at the desk I made changes that made a difference for you?
"And in this Budget we’re doing that."
