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Labour finds ‘unexpected budget challenges’

Labour opened the hood on the Government's books and found National left a few unexpected budget challenges. Bernard Hickey reports.

Officials have briefed new Finance Minister Grant Robertson about a number of unexpected "budget challenges" left over from the previous Government that could force Labour to rejig its plans longer term, or even change some policies.

Robertson told Newsroom in an interview that some of surprises revealed to the new Government were around big projects and big spending areas, including housing a fast-growing prison population and dealing with a creaking and leaky school property portfolio.

"In terms of what we are finding under the hood, we are inevitably finding challenges we weren't aware of. We'll have a bit more to say on that in the coming weeks," Robertson said.

"There are a number of areas where there are high level of expectations in the community about what should happen, and we want to meet those expectations, but we are certainly taking some time to get our heads around just what's been left for us," he said.

Asked about the areas or items of previous Government spending that had surprised him, Robertson was cautious, but said: "The Prime Minister mentioned in the house the other day the education capital side, and I'm looking at other areas where there is large expenditure expected of us. I won't say anything on that today."

Jacinda Ardern talked in her address-in-reply speech in Parliament last Wednesday about a potential blow-out in the likely cost of repairing and rebuilding New Zealand's stock of schools.

"If you want to talk about hiding data, then there will be a lot of time in this House to talk about what we've discovered in the school properties portfolio, but that time will come," she said then.

Asked for more detail on the possible cost blowouts uncovered in early briefings to ministers, Robertson said: "The scale of it and perhaps the lack of progress in some areas."

Robertson did single out one area where forecast costs were higher than most expected.

"Another one that has been mentioned publicly is the question of the prison muster and what that means for expenditure for Government," he said.

The new Government was looking for more advice on the multi-billion dollar prison building plan inherited from the National Government.

"The scale of the growth in our prison muster was one that I don't think everyone appreciated in New Zealand. Crime was increasing at a small rate and the size of the prison muster was increasing at an exceptionally large one. And the projections going forward are no better," Robertson said.

He indicated that any response was more likely to be a policy one rather than a spending one.

"It's not just a fiscal thing. It's a policy approach and we can make some changes to the policy."

Justice Minister Andrew Little has already cancelled the three strikes policy, although that is not expected to reduce the prison muster much. The biggest increase in recent years has come around tougher bail laws that have increased the number of prisoners on remand dramatically.

Robertson would not divulge more detail about unexpectedly higher costs, but suggested they could be around large infrastructure projects in their early stages of planning.

"There's just a one or two areas that we're digging in to, and we'll have more to say about that soon," he said.

"We're taking a lot of advice at the moment. It tends to focus around the some of the bigger scale projects that the Government has to undertake."

Robertson said the unexpected Budget challenges would not change any of the items in Labour's 100 day plan, including the big-spending items around the families package and fees-free tertiary education.

Asked if policies beyond the 100 day plan would be affected, he said: "Not overall in terms of the budget responsibility rules. We're committed to meeting those. What they do, those unexpected surprises, is they mean we have to factor them in to the prioritisation, the phasing of what we do, or whether there are things we choose to carry on with."

Robertson said the fresh economic forecasts continued to show solid growth, albeit with headwinds from a slowing housing market. These forecasts had not changed the Government's spending plans for the year ahead.

"It appears to me it's completely possible to implement our plans within the forecasts we've been given," he said.

'Mini-budget' due before Christmas

Elsewhere, Robertson confirmed the Government planned to release a series of announcements about the costs of the 100 day plan along with the usual half yearly fiscal update (HYEFU) and Budget Policy Statement some time in December. The HYEFU is usually released in the first two weeks of December.

"If you put those things together that's a mini-budget," he said.

"The net impact of which is that by Christmas people will be able to see the direction of travel in terms of our fiscal and budgetary strategy, the immediate impact of the 100 day plan legislation and related policy things," he said.

Robertson would not say if all the items would be released on one day.

"We're trying to bring them together into a coherent package," he said.

Inflation mid-point unlikely to be in PTA

Robertson said the Government was proceeding with the first stage of its monetary policy review with an eye to providing guidance on what should be in the first Policy Targets Agreement (PTA) with the new Reserve Bank Governor.

He indicated that the current two percent midpoint in the one-to-three percent target range was unlikely to be included again. The PTA was also likely to include some language around maximising employment, even though reforms to the Reserve Bank Act are unlikely to be passed before it is signed.

"There are ways of doing that and that's the important work of the review. The goal was to ensure that maximising employment appears there. The language that we use in order to do that is now the work of the review. I'm very open to the way that we might express that, which would then flow through to the PTA," he said.

"We've committed to the one to three per cent range. I'm happy to take some advice on whether or not, within that range, there needs to be greater flexibility on the grounds of having changed the objectives and having a slightly different approach."

Robertson said he had not committed to removing the two percent mid-point, but that more flexibility in the one to three percent range was being discussed.

Robertson repeated that he had asked Reserve Bank board chairman Neil Quigley to ensure that any candidate for Governor submitted for the new finance minister's acceptance or rejection was someone able to manage a change process.

"The chair of the board gave that assurance," he said.

"The Act provides for me to accept or reject the recommendation of the board. I hope we don't get to the position where I don't feel comfortable. That's why undertook the action I did (to ask for the assurance), and we just have to follow it through."