Steven Joyce’s $11.7 billion hole is now an open cast mine

Steven Joyce was villified when he pointed out that the government’s proposed new spending would leave them with an $11.7 billion hole. Everyone called him out for it. Media people from everywhere ridiculed him. Even business writers refused to give him any credit. He was dismissed as being guilty of political mischief even though, at the time, he was the current minister of finance and probably had more idea of the true situation regarding government spending than just about everyone else.

But everyone else was infected at the time by stardust, and that included economists such as Cameron Bagrie. Here is quote from Bagrie in September 2017.

ANZ chief economist Cameron Bagrie

Bagrie told Newshub there’s no hole.

“But [Labour] don’t have a lot of money to play with in the 2019 and 2020 budgets. They’ve basically computed up front to what they are going to do for three years. That’s fine but the wheels of government still need to turn and be funded.”

Read my lips. There is no hole.

Except that there is.

Ahead of the 2017 election, then-Finance Minister Steven Joyce alleged Labour had an $11.7 billion hole in its planned spending and would break its Budget Responsibility Rules to reduce crown debt to 20 percent of GDP.

Labour denied the claim and a list of economists at the time agreed there was no hole.

A leading economist says Steven Joyce’s 2017 claim that Labour had a hole in its planned spending will soon be proven correct.

On The AM Show on Friday, economist Cameron Bagrie said the Government was facing “fiscal challenges” after host Duncan Garner asked if there would indeed be a hole in the years ahead and the Government would need to borrow more.

“When Labour came into power and delivered their plan, they had spending front-loaded but they didn’t leave much wriggle room for the out years or the unexpected,” he told host Duncan Garner.

“Things such as teacher pay, public sector wage demands – I don’t think they factored that in and we know those demands are becoming pretty ferocious and they are pretty expensive.

“So they are going to need more wriggle room for 2021/2022.”

In other words, the fiscal hole always existed, exactly as Steven Joyce said it did.

But wait… there’s more.

“He [Joyce] said what they haven’t taken into account are the wage demands or the pay rounds of Labour’s old mates… Joyce was right,” Garner said, to which Bagrie agreed.

“He is going to be right, technically I think his number of $11.7 billion – the real number is going to be a little bit bigger than that,” said Bagrie.

Newshub.

So it is going to be more than $11.7 billion? Why am I not surprised? This is the reason why the Crown debt target will be moved to a ‘range’ rather than a specific percentage of GDP, because this government already knows it will not be able to stay within the maximum of 20% of GDP.

Of course, as Grant thinks 1% of GDP is about 800 million, then maybe we don’t need to worry. That only amounts to about $4 billion of extra spending rather than the $15 billion that is predicted.

Just out of interest, how do you feel about having a prime minister who does not know the difference between the Crown accounts and GDP, and a minister of finance who confuses capital and income and thinks $800 million is 1% of GDP when in fact, it is about $3 billion? It doesn’t make you feel confident that they know what they are doing, does it?

Still if nothing else, we are starting to see a bit of pushback on this. Bagrie might still describe the government’s debt ratio as ‘world class’, but it is clear that we have started the slide down the slippery slope.

This is the first time the government has essentially admitted that it will not be able to stay within its self imposed debt limits, and it only took them 18 months to do it.

I wonder, with some trepidation, where we will be by 2023 if this government does get a second term. I think the books will look pretty ugly by then.