- Hon Nicola Willis
Treasury's latest report highlights the dangers of excessive government spending, Finance Minister Nicola Willis says.
The Treasury's Long-term Insights Briefing released today explores the role of fiscal policy in economic shocks and crises including the way government finances were used during and after the Covid-19 pandemic.
It says the response, which wound up costing $66 billion, about twice the cost of the Canterbury earthquakes (as a proportion of GDP) also shows the challenges of using big spending measures to respond to one-off shocks.
"Treasury's language is spare and polite, but its conclusions are damning," Nicola Willis says.
"The report makes clear significant errors were made in the fiscal response to Covid. Treasury is urging policy makers not to repeat those mistakes. Our Government will not.
"The briefing notes that the COVID-19 Response and Recovery Fund was established in May 2020 to 'support a timely economic response and public confidence' but as the economy recovered, the then-government was advised against further stimulating in favour of more targeted support.
"Unfortunately, the Labour government ignored that advice. The consequence was undisciplined spending that pushed up inflation, eroded New Zealand's previously low public debt position, and fuelled a cost-of-living crisis.
"The briefing makes particular mention of programmes 'not tied to the shock (that) had a lagged impact on the economy and proved difficult to unwind in later years'.
"That is a very diplomatic way of saying New Zealanders are still paying the price of the previous government extending a big-spending approach initially intended for a pandemic response.
"The lesson from Labour's mishandling of the Covid response is that while there are times when governments have to increase spending in response to major events the fiscal guardrails should be restored as soon as possible.
"Kiwis can take confidence from the current Government's commitment to strong and responsible fiscal and economic management."
