26 Mar 2024

Fiscal holes as a political weapon

From The Detail, 5:00 am on 26 March 2024

Fiscal holes, a double dip recession and a shrinking economy. How bad are the figures and what do they really mean?

National party MP Nicola Willis

Photo: RNZ / Angus Dreaver

Fiscal holes, a double dip recession, inflation untamed, a weak manufacturing sector and a shrinking economy.

Figures are starting to emerge that don't paint New Zealand in a flattering light. 

We're going backwards economically - but are things as bad as they sound? 

Today on The Detail we look at the terminology of economic gloom and doom, to work out which phrases are real and which are being used as a headline-generating political weapon. 

Newsroom senior political reporter Marc Daalder says the term 'fiscal hole' is a fiction really.

"It can kind of mean what you want it to mean. There's no agreed definition of it, there's no economic definition of it, it's not a term that's maybe taught in economics classes. 

"The fiscal hole concept was first I think introduced by Steven Joyce at the 2017 election when he alleged Labour had a fiscal hole in their plan. Economists checked it, they found there were no errors in there, it would be tight spending in the later years of the term, but that in and of itself does not make a fiscal hole.

"Then National did appear to have some errors in their 2020 fiscal plan... here came the allegation from Grant Robertson that National had a fiscal hole. 

"And now it's become a maybe-too-common term to describe any situation where maybe things don't quite add up." 

It's also a challenge to the government's credibility. 

Marc Daalder

Marc Daalder Photo: supplied

"Given that it seems to be effective, I think parties are very happy to weaponise it." 

Now the weapon that was designed for Labour is being turned against National. 

"National campaigned on being a safe pair of hands for the economy but also for the government. They were very strenuously insisting throughout the campaign that their tax plan would add up, and that was in the face of basically all of the expert commentary we heard from economists on the left of the political spectrum, on the right of the political spectrum, right in the middle as well, saying 'no, this isn't going to work'.

"I think the situation we've seen in the months since the election has proven them right."

The government has been able to get out of quantifying their foreign buyer tax plan on the basis that the coalition agreement nixed it. 

"That's a handy excuse for them," Daalder says. "Now they don't need to go and put that to the test, but there are still other elements that are coming in differently to what they promised in the campaign." 

The 'fiscal hole' term is one that seems to have been exported to the world, reflected in headlines from Australia, the UK and the USA. The fact that it makes for a good headline could be the key to its success. 

"I would be curious to know if you stopped someone on the street... whether they remember the fiscal hole from 2017, and then if they remember if it was true or false. Because very shortly after the allegation was made it was very clear that it was false, but that first headline tends to go quite a bit more widely than the second one."

The term recession is an economic one, with a real definition - two quarters of negative growth, dictated by Gross Domestic Product figures. But Daalder says people have started calling this recession a 'technical' recession. 

"To some extent this was an intentional recession, that the Reserve Bank in particular wanted us to have in order for us to slow inflation. When the economy is not growing, when people feel like their money is getting tight, they're not going to be going out and spending on things they don't need. That brings price growth back down to a more reasonable range and then the economy can return to normal," he says. 

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