TLDR and TLDL: Grant Robertson has revealed he has nudged the operating and capital allowances in the Budget due next Thursday slightly higher, but has again emphasised the need to keep a lid on debt and to ‘strike a balance’ between debt reduction from the mid-2020s, and delivering on the Government’s child poverty, housing and climate change.
I went to Robertson’s speech in Auckland yesterday and was part of the ‘stand-up’ news conference held shortly after. I’ve included our questions and answers in the audio above. I asked why he was prioritising debt reduction from already low levels over reducing child poverty, why he was calling for pay restraint when there were skill shortages and a low inflation problem, and how the Government could use the public sector to achieve its longer term aims with that pay restraint.
In essence, the Government has chosen to keep longer term interest rates slightly lower than they otherwise would be, which will keep mortgages rate low, instead of spending immediately to increase benefits and reduce child poverty immediately.
A headache for the RBNZ too
This fiscal restraint also creates problems for the Reserve Bank. It is running out of Government bonds to buy because the Government is not borrowing as much, which will force the Reserve Bank to look at taking the Official Cash Rate negative so it can lend more directly to banks at low or negative interest rates.
The Government is choosing to keep interest rates low instead of reducing child poverty, knowing that will put extra upward pressure on house prices. This is the perverse outcome of focusing on debt reduction in the interests of emphasising Labour’s ‘responsible’ approach.
The strategy is working though to improve business perceptions and target the median voter, who is likely to be a home owner and small business owner. The gap between business perceptions about the wider economy and own activity has narrowed in recent months to Key-English Government levels of 2016-17.
Briefly elsewhere in our political economy
In the global political economy
Charts of the day
Some fun things
The sun rose at 7:08 am this morning in Auckland. It will rise tomorrow at 7:09.
Dawn chorus: 'Striking a balance' in favour of home owners