Now that we've all had a weekend of post-budget rest, it's time to answer the question that has, no doubt, been on everyone's minds: How big is that bulge in Cullen's pants, when is he going to whip it out, and where is he going to stick it?
Ahem.
Perhaps I should rephrase it a little more conventionally - is there a huge sum of money sitting around somewhere? If there is money in the system, when will we see it again? And where, when it comes out, is it going to go?
To answer these questions, I asked John Pagani, former Spin Doctor for Jim Anderton and owner of Molesworth and Featherston. Coverage will be split into two parts. This post will deal with the unadulterated fiscal wonk. The second part will deal with the way budgets are released these days, student loans and how they sit on the accounts, as well as the pooper of a tax adjustment. (See end of post.)
First, the easy stuff. There is no Scrouge McDuck-style money bin where Cullen keeps the billions, says John. (Awww...)
"There are not piles of cash sitting in a bank vault somewhere. How much the government has to spend is a matter of policy choices.
"Think of it like your household budget. Each year you can divide your spending up into buying groceries (and other expenses), paying the mortgage, making hire purchase payments, saving something and what is left over, which you could describe as the amount in your cheque account you have put aside for the ebb and flow in your monthly spending patterns.
"This amount left over is the cash surplus Dr Cullen is talking about. It is not an important figure AT ALL. You don't have to pay off the mortgage at the speed we are doing it. You don't have to be in a superannuation scheme, and if you are, you don't have to put in that amount.
"Staying with the household analogy, we might buy a house. That shows up on our balance sheet as both an asset (the value of the house), and a liability (the mortgage on it). Dr Cullen puts this into the frame saying 'we can't afford to buy groceries this year because we have bought a house'. He is funding capital purchases out of current expenditure. This is a very controversial thing to do in public accounting. But it has some justification - the government basically 'buys a house' every year. The analogy with a household budget is inexact because the government's capital account is much more active than yours and mine. However, it is probably more orthodox to exclude capital purchases and liabilities, and only show the financing costs (the 'weekly mortgage payments' needed to buy the new house, not the cost of the house). Making this change would release about another billion dollars in the short-term, though obviously it borrows it from the future."
So, bottom-line, how much does the Govt have to blow on booze in the weekend? It depends. "You need to make judgment calls about how much more slowly you think debt should be repaid, or capital should be purchased and so on."
The corollary is that the Government has chosen to spend its booze money on paying off debt and purchasing assets. Looks like Cullen has been reading Rich Dad, Poor Dad.
John says that the rate at which the Government has been paying off debt is significant.
"Michael Cullen is very aggressively paying off debt. He hasn't always believed this is a good thing to do. In the 1996 election, for example, he promised to fund Labour's promises by spending the surplus (in fact, he probably would not have been able to, and Labour would have broken an awful lot of promises and been a one term government had Winston Peters chosen Labour in 1996).
"At the time he admitted he would have paid off debt more slowly, and there was an interesting debate about what the appropriate 'gearing' (i.e. debt level) for government would be. But around that time, Bill Clinton was decisively proving the economic power of fiscal surpluses. Aggressive US surpluses helped produce the best US economy in a generation and the Third Way disciples learned that social democrats should be fiscal conservatives."
While Jordan Carter points to the surplus-hoarding as part of a long-term strategic buffer against baby-boomers (we're watching you, future old people!), John sees more immediate strategic value in strong surpluses.
"In my view they are the single most important economic policy change compared to the 90s. The government is not competing in the debt market to borrow money, so some pressure comes off interest rates; the government is not weakening our account with the world through tax-cut-fuelled import binges; there is reduced pressure for policy changes and therefore the accompanying uncertainty which slows investment; we have paid off debt quickly.
"I personally felt, five years ago, that the strategic value of large surpluses was overstated, I have completely changed my mind, because I think the case has been proven.
"But anyone who advocates spending more almost certainly would look at slowing the reduction in the government's debt. That means the government has to pay more interest on its debt, but it frees up a lot of cash which would otherwise go to repayments of capital. Of course, Dr Cullen is right when he points out that those who sold assets 'to pay off debt' have no place now advocating slower debt repayment!"
However, either the prosperity or the frugality is coming to an end, according to the projections.
"At the rate we are paying off debt, we will one day not have any more. But this year's budget says we will keep it at around 20% of GDP from the time it gets that low - next year (06/07). In last year's budget, the 20% level was expected to be held for a few years and then head towards zero debt by about 2020. So the Government is no longer expecting to pay off all the debt, or even to keep paying it off at the present rate. We will keep the same level of relative debt for ever - 20% of GDP.
"This is an important change. It suggests the government has decided to drop one of the pillars of its economic performance to date (although there are other wonky ways to read this). Bottom line, those projections never have and never will come true. Policies will be changed before 2020, I think we can be certain."
[At the Great Blend last night, a panel of people who knew what they were talking about and myself talked about political coverage and blogs. It was a bit daunting that there was over a century of journalistic experience at the table - Gordon Dryden had over half a century by himself! I thought the extra table was the kiddies table, for me. Gordon namechecked about a dozen MPs from back in his day, and the only one I knew was M. J. Savage. Talked about "The War", and the "Communists", too. Uh... are they albums or something?
Anyhoo, I lamented the fact that so much political coverage "these days" are stories about stories or commentary about commentary, etc.
Having the media looking at how stuff will be received by the media is interesting for those of us who are interested in this sort of thing, but misses the point of actually looking at whatever the hell it was that the media was supposed to be looking at in the first place.
So, while the PR rationale behind the budget and how it was leaked is admittedly sexy, I figured that an analysis of the budget itself was more important. Hope you agree...]