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Image: Tina Tiller
Image: Tina Tiller

OPINIONPoliticsMay 4, 2022

The young need an even higher debt ceiling

Image: Tina Tiller
Image: Tina Tiller

In the hope that governments can catch up in the long term, the finance minister has finally lifted the debt limit that strangled investment for 30 years and squeezed infrastructure spending down into a $104bn deficit. But is it enough?

This is an edited version of a post first published on Bernard Hickey’s newsletter The Kākā.

The big question following finance and infrastructure minister Grant Robertson’s announcement yesterday of a new net public debt ceiling of 30% of GDP, which is effectively 30 percentage points higher than that restrictive older one, is whether it’s enough to both fill the deficit and deal with another 30 years of population growth in a way that improves housing affordability and reduces climate emissions.

My view is the 30% of GDP limit is not nearly high enough to achieve what’s needed and there are no good reasons why it couldn’t be lifted. There’s also the problem of whether politicians would choose to use it if they had it. Robertson is choosing in budget 2022 not to use any more of that headroom for investment because he is worried about adding fuel to the inflation fire, as are more than a few voters, opposition MPs and Reserve Bank governor Adrian Orr. The opposition have yet to agree to the new limit, but are making as many noises as they can about not wanting to use that fiscal headroom.

Grant Robertson (Photo: Hagen Hopkins/Getty Images)

In short, a higher public debt ceiling allows today’s politicians to use the government’s balance sheet to pay for expensive infrastructure up front and then smear it out over decades so the many generations that use it pay for it over those decades. The trouble is there are often short-run costs that today’s voters and asset owners don’t want to pay today, and those who would benefit in the long run either don’t vote today or haven’t even been conceived yet. And zygotes don’t get to vote either.

So how did we get here, and what might happen next?

It’s all about choices, balances and timeframes

Politicians running governments have to make choices every day that they hope will make most voters better off in the short and long runs, and will get them re-elected in the short run at least. The aim is to balance the winners off against the losers in ways that make re-election more likely. The holy grail is to make choices that create two sets of winners in both the short run and long run.

Sadly, the winners and losers in the short run can flip to being losers and winners in the long run respectively, but it is the collective pain and joy of the winners and losers in the short term that usually decides who are the political winners and losers for all time. Perverse incentives and results abound from these political choices and the timeframes over which the winning and losing plays out. A decision that imposes pain on one group of voters in the short run may actually be better for them and everyone else in the long run. Or vice versa. Often, there is a balance to be struck.

This framing of every political decision around “striking a balance” is a clever way to shut down the complaints of the losers, and to give the impression of neutrality divorced from the score-settling and vested interests of party politics.

It is a favourite tactic of Robertson, who is deputy prime minister as well as running the budget and setting the direction for infrastructure spending. In his speech yesterday, the word “balance” came up four times in his arguments for the higher debt ceiling and why he didn’t want to use it yet.

There are plenty of balances to be struck in creating and then working within this framework of a debt ceiling and a budget surplus rule, including:

  • firstly, the risk that overspending by the government in too short a time might overstimulate inflation and therefore boost interest rates higher than they otherwise would be;
  • secondly, there’s a risk that underinvesting in the short run creates costs and liabilities in the longer run, such as decisions not to invest in more infrastructure for housing now creates higher housing, transport, health, education, justice and carbon costs in the long run;
  • thirdly, the risk that choosing to invest in public assets that create services for all over the long run comes at the expense of lower taxes in the short run that help some more than others; and,
  • fourthly, there’s the risk that setting a debt ceiling too high might force up interest rates so high that they squeeze the life out of the rest of the economy and force the debt over a tipping point that means the servicing costs spiral ever higher.

The real question to answer therefore is: what is the right balance to strike with this new debt ceiling rule? It has to be low enough to avoid an interest rates spiral. It has to be high enough to allow investment in infrastructure that creates a positive spiral of rising productivity, real wages, taxes and ultimately, wellbeing.

Treasury recommended a ceiling of net Crown debt of 30% of GDP under a measure that is more widely comparable with other countries. As of the latest forecasts from the IMF (and not far off those from Treasury in the May 19 budget), New Zealand’s net debt is due to peak at 21.3% of GDP next year, and then fall back to 16.4% in 2027.

New Zealand’s peak will be half that of Australia’s, a third of Britain’s peak and a fifth of America’s peak. We share the same AAA credit rating of these borrowers, but they are bigger and therefore can “get away” with higher debt before it becomes a problem. But are we that much smaller, weaker and more vulnerable that we need an extra “buffer” of 30-40% of GDP?

Image: Getty Images

Judgment calls about balances

Ultimately, it is a judgment call about bond market sentiment, the political will of any government to cut spending or increase taxes to get back to surplus and reduce debt, and how fast our economy might grow.

Treasury recommended Aotearoa could handle 90%, but it would be prudent to have a 40% buffer back down to 50% (which is the same as 30% with the new definition).

Wrapped up in that judgment or assessment of the right “balance” is one unknowable but very real risk: sacrificing the wellbeing of future generations by not investing enough. Even Treasury acknowledges that risk in its advice to Robertson:

“There are other costs of constraining spending, such as the lost opportunity to increase an economy’s productive capacity or improve living standards,” Treasury wrote.

The problem is those unknowable future generations don’t have any ability to influence the balances struck by politicians. Instead, they have to hope the politicians have the imagination and enough of a “pay it forward” approach to overcome the short-run demands of getting elected.

New Zealand made the wrong call for a generation by being too restrictive with its debt limit. It risks doing the same again, given the Infrastructure Commission’s advice that the existing deficit and the future needs for infrastructure would require over $200bn of investment over the next 30 years, which is closer to 60% of GDP than 30%.

Yet again, the non-voting young and the yet-to-be-born are getting the short straw in all these political decisions about “striking balances” to get re-elected.

Bernard Hickey’s writing here is supported by thousands of individual subscribers to The Kākā, his subscription email newsletter and podcast. Here’s a special offer to readers of The Spinoff of 50% off for the first year. The Kākā also has a special “$30 for under 30s” offer for all those aged under 30.

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Matt King and Winston Peters have been issued with trespass notices banning them from parliament. Image: Tina Tiller
Matt King and Winston Peters have been issued with trespass notices banning them from parliament. Image: Tina Tiller

OPINIONPoliticsMay 3, 2022

Trespassing former MPs from parliament is a gift to the occupation crowd

Matt King and Winston Peters have been issued with trespass notices banning them from parliament. Image: Tina Tiller
Matt King and Winston Peters have been issued with trespass notices banning them from parliament. Image: Tina Tiller

Whatever you think of Matt King’s politics, banning the leader of a fledgling party from parliament for two years is daft in principle and plays into the hands of a crowd desperate to fuel paranoia, argues Toby Manhire.

Update: Shortly after this post was published former deputy prime minister Winston Peters, who visited the occupation briefly, revealed that he too had been issued with a trespass notice by parliamentary security, which in the honest view of the author is even more dumbfounding, bizarre and bound to backfire horribly.

I was trespassed from parliament once, too. It was  September 1997 and I was editor of Salient, the student paper at Victoria University of Wellington. In protest at proposed reforms in tertiary education, a gaggle of students had floated pamphlets from the public gallery into the house of representatives. The speaker, Doug Kidd, was furious. Parliamentary security issued trespass notices to these paper wretches ordering them to stay away for two years. One was addressed to me. Only trouble was that I had no involvement in the flyer-drop. I wasn’t even there – at the time I was back at the Salient office, playing Tetris on a Macintosh Plus.

I called the head of parliamentary security, who conceded that they were “a bit vague” on some of the identification, alerted the local media (by fax, naturally), and finished up winning a small cash settlement which I spent on an OE. 

My experience was a relatively trivial sideshow to a bigger story: the arrest of several dozen students, among them someone called Chris Hipkins, who were wrongly arrested and roughed up after being trespassed. They ended up winning a formal apology and compensation. But the memories trickled back yesterday upon seeing the trespass notice received by Matt King, the former National MP for Northland.

Two months after the occupation of parliament came to an ugly, fiery finish, King had been sent a trespass notice almost indistinguishable from the one I got in 1997. There is no case of mistaken identity here, but there’s a boat-load of vagueness. It’s not clear, for example, whether everyone who took part in the protests once Trevor Mallard declared the grounds closed has been or will be issued with their own ban for two years. King was hardly a ringleader; he attended on a couple of days and spoke in support of the anti-mandate crowd, but he didn’t camp out. He couldn’t be fairly described as an organiser of the occupation, and there’s nothing to suggest that those who were instrumental in running the event – the Convoy 2020 and Freedom and Rights Coalition leaders, say, or Sue Grey, Chantelle Baker, the Counterspin crew, the Voices for Freedom trio, the list goes on – have been sent similar letters. If they had been, it’s a safe bet they’d be making a noise about it.

The trespass notice shared by Matt King on social media

If King gets a trespass notice, what about Jason Kerrison? The ark-loving musician was there longer than him. Another former MP, Rodney Hide, spoke to an adoring crowd. What about Russell Coutts? Winston Peters? How about the day-trippers who strolled through gawping like tourists at Christiania in Copenhagen?

Matt King has pledged to stand again for parliament as leader of a newly formed but yet to be registered party called Democracy NZ. In my view, he has been hoovered into a conspiracy-sympathetic orbit, promulgates ideas that include dangerous misinformation about vaccines and gives succour to insurrectionist outfits like Counterspin by cheerfully taking part in their disinformation-spewing videos. But as history attests, talking nonsense is no grounds for being kept out of parliament. The bar for banning any New Zealander, let alone one who wishes to take part in democratic processes, should be set high. The letter sent to King fails even to detail the reasons for requiring him not to step foot anywhere in parliament until 2024. 

In the (admittedly unlikely) event that King were elected to parliament next year, meanwhile, it would set up what someone who understands such things better than me calls “a doozy of a constitutional collision”, given that he would not be able to sit or vote as an MP until he takes an oath of allegiance, something which the speaker is tasked with administering in the House of Representatives, which happens to be a place he is prohibited from entering. I was personally impressed that no sitting member of parliament chose to address the occupation crowds, but I’d be completely appalled if they were banned by parliamentary security from their own workplace for two years had they done so. This is teetering on the edge of farce.

Quite apart from questions of principle, the ban, issued by the security manager acting with the authority of the speaker, Trevor Mallard, is manna from heaven for the self-described “freedom movement”. Not unlike a priggish student journalist back in the day, they’ll delight in making a meal of it.  

The end of the occupation and the end of most of the mandates took the air out of the convoy tyres. The various participants scattered to Peka Peka, to Marsden Point, to a deeply sad fortnight-long “Unite” protest event in Wellington that was attended by almost nobody. Many turned their remaining energies to misinformation about masks, to imported American conspiracy theories, to appointing themselves as sheriffs, even to defending Vladimir Putin’s invasion of Ukraine. And they turned on each other, with mud slinging back and forth about political ambitions, about who had done what with donated funds, about who was a “crackhead”, who was “in bed with the police”. 

For a diluted, disenchanted and divided movement, a trespass notice landing out of the blue is a blessing – a chance to rally against a perceived common enemy and cry (as King did) “tyranny”. It’s a blessing, too, for King, in attempting to steal a march on the countless political wannabes that are seeking to harness the energy of the occupation. I’d be amazed if he didn’t soak up the spotlight and take it with him to court, challenging the two-year ban from parliament and seeking to summon a cause celebre.

As police continue the process of prosecuting those who were arrested during the occupation and riot, as picnickers and a range of protesters return to the reseeded lawns of parliament, the last thing that is needed is provocation, especially if it’s democratically dubious and serves the purposes of misinformation super-spreaders. If the goal is to rally, unify and animate the unlawful campers of parliament, this may be the most effective tactic since sprinklers and Barry Manilow.


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