The Beehive Budget battle

Winston Peters’ headline-making actions over the past week look like having been a show of political power intended to strengthen his hand in Budget negotiations.

It was no accident that his State of the Nation speech was as it was.

He made it as New Zealand First Leader, not as Deputy Prime Minister, and therefore, there was little the Prime Minister could do about it.

Peters was scrupulous that his Ministerial staff were not involved, only his political advisors. Julian Paul, the president of the New Zealand First Party, took over the media role.

But the giveaway came at his brief media conference.

When asked if the coalition government could afford all the policies in the coalition agreements, he replied simply, “Our ones, yes.”

What this said was that Peters was fighting for his part of the coalition agreement.

The New Zealand First agreement includes two big-ticket items: the regional growth fund and increased funding for Pharmac.

The Pharmac issue was a centrepiece of the New Zealand First convention last year, and Peters made a rare intervention in a remit debate to support the funding.

So, New Zealand First’s manifesto promised an increase of $1.3 billion in funding for Pharmac, but it wasn’t clear whether that would be a one-off increase, an annual increase, or spread across the Government’s term.

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Asked about it last night, Peters replied: “Every item is under pre-budget examination now. The Pharmac budget is also expected to increase over the term.”

That “pre-budget examination” and yesterday’s comments from the IMF New Zealand Mission Chief that no details about the Government’s fiscal plan were available yet indicate that the coalition is still negotiating over the Budget.

The Budget Policy Statement next week may not be much help since it will only spell out the overall Budget allowances without showing how they might be broken down.

However, New Zealand First wants more than increased funding for Pharmac; it also wants $1.2 billion for a revived Regional Growth Fund.

POLITIK understands there is a debate between the Beehive and Treasury about how this should be accounted for.

There are questions about whether it should be one appropriation or whether it should be spread across three years and whether investments that will end up outside government ownership should be regarded as operational rather than capital expenditure.

If that were the case, then the fund would have to compete with all the other Budget bids for operational spending, and it is abundantly clear that is in very short supply.

To complicate matters, ACT has apparently revived a long-standing proposal to scrap Fees Free.

NZ First also wants Fees Free scrapped for first-year tertiary students and shifted to students in their final year.

ACT were obviously forced to accept this compromise in their coalition agreement.

However, New Zealand First does not want it implemented until 2025.

ACT Leader David Seymour has said the scheme costs $340 million a year so scrapping it now would save over $900 million across the term of the Government.

It may be that NZ First is being asked to agree to that scrapping to help pay for the operational side of its Regional Growth Fund.

The former United Future Leader, Peter Dunne, who frequently clashed with Peters over the course of his Parliamentary career, thought he saw a method in what appeared to some to be Peters’ madness.

“Peters wants to be seen as the dominant power within the government, even if his party is the smallest part of it,” Dunne wrote on his blog yesterday.

The problem for the Government is that the more that Peters wins, the less money there will be to cover its tax cuts, and other big-ticket items, such as the police pay claim, that are starting to appear.

Rhetoric on the tax cuts has softened in recent weeks, and it seems likely there may be some modification to make them fiscally feasible.

On Wednesday, the IMF New Zealand Mission Chief, Evan Papageorgiou, suggested that changes might be considered.

“Our advice there has been to look at everything; to look at the state of the entire economy and to take into consideration the forecasts that Treasury is providing, and consider that as a whole,” he said.

“Whether the Government decides to go ahead, this year or later, I think any sort of outcome should be done in a fiscally neutral way.

“This could mean in many ways, potentially on the timing and also on the size of those proposed measures.

“So, it could be a combination of these things.”

In his speech on Sunday, Peters said he agreed with Sunday Star Times journalist Vernon Small that a $5.6 billion fiscal hole would open up across the next three years if the Government accommodated the tax cuts at the rates promised in its manifesto.

In his party speech, Peters said that Small was right, “of course.”

Asked in Parliament yesterday whether she agreed with Small, Finance Minister Nicola Willis said: “What is not the case is that Vernon Small’s figure bears any relation to the affordability of our tax package.”

Which as Speaker Gerry Brownlee might have said, addressed the question even if it didn’t answer it.

But then Willis went on to say that the tax cuts would be funded through reprioritisation.

She did not mention the other possible funding avenues for the cuts that might still survive from the “Back Pocket Boost” manifesto of the election campaign.

But what is clear is that there is a political battle-royal going on in the Beehive over the Budget, and what that old political master Winston Peters knows is that real power in the Beehive comes from the outside, from popular support.

By raising the stakes, he also creates the fear that if he doesn’t get what he wants, he could walk away, as he has done in the past.