Labour Party finance spokesperson Grant Robertson admits to overspending in one area, his own personal home sound system, but he doesn’t regret it. 

“I probably spent more money on stereo equipment than [I should’ve], but I get a great deal of joy out of it,” he said, after Interest.co.nz asked for an example.

It turns out he is something of an audiophile and a huge fan of Flying Nun Records and the Dunedin Sound which were a pop culture phenomenon in the 1980s. 

Robertson also doesn’t regret using the Crown’s borrowing power to insulate New Zealand’s economy and workers from the worst effects of the pandemic and its response.

Steering the country through the crisis and coming out the other end with a bigger economy and record employment rates was his greatest accomplishment, he said. 

More than $70 billion was spent on wage subsidies, low-interest loans for small businesses, the health response, vaccines, managed isolation, and other pandemic related things. 

This caused net debt to climb from just $5.4 billion in 2019 to about $71 billion today, or from 1.8% of gross domestic product to 18.1%. 

Despite the sharp increase, debt is forecast to remain below the 30% ceiling recommended by the Treasury. This is a ceiling for business-as-usual debt and leaves room for a crisis response. 

“You could go above but you wouldn't want to be there for very long, was Treasury's advice, essentially,” Robertson said. 

In a serious economic shock, the Government could potentially raise debt levels to 40% or 50% of GDP without threatening the financial stability of the country. 

“It's not desirable. It's not what you want to do. But in a crisis, the government will always step up … Our economy is resilient. The reason we can do that is because the underpinnings of it are strong”.

“But there's also an obligation for a Minister of Finance to make sure that we don't unnecessarily strain the economy, especially at a time when cost of borrowing is quite high”.

Duelling mandates

Borrowing costs are high because central banks around the world have been hiking interest rates to stave off a post-pandemic inflation shock. 

Inflation is incredibly unpopular with voters and it has given political momentum to a pre-existing critique of the Labour’s decision to broaden the Reserve Bank’s mandate. 

In 2019, the Government amended the central bank’s legislation to make monetary policy a committee decision and to formalise its role in supporting employment. 

This dual-mandate, price stability and full employment, has been the model used by the US Federal Reserve since 1977 and the Australian Reserve Bank since 1957. 

The National Party has promised to remove employment from the RBNZ’s mandate in its first 100 days, if elected.

Robertson said this would be a step backwards. The central bank's primary job is to keep annual inflation between 1% and 3% — but that is a fairly wide channel to swim in. 

“We also believe that when decisions are being taken about [price stability], the broader economy also needs to be borne in mind”. 

The best proxy for economic well-being was employment and so the RBNZ was told to ‘support’ the maximum sustainable level, as determined by the bank itself. 

It is also inherently linked to price stability, as inflation tends to pick up when employment is above sustainable levels and fall away when it is below those levels. 

Robertson said the dual mandate was important and could have a significant impact on monetary policy in the future, but it hadn’t done so yet. 

“Adrian Orr has made clear that in the period since the mandate changed, they wouldn't have changed an individual decision because of that,” he said. 

“There's no problem here. The Reserve Bank knows what its job is, and if the Federal Reserve can do it, and the Reserve Bank of Australia can do it, and to a certain extent, the Bank of England can do it, then I think RBNZ can do it as well”.