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Budget 2020: Expert Reactions

The Government has published its Budget 2020 'Rebuilding Together' this afternoon, announcing a $50 billion to deliver a COVID-19 response and economic recovery plan.

Among several announcements, the Budget includes a $3 billion infrastructure investment and 8,000 public house build programme, and a $400 million targeted Tourism Recovery Fund, alongside the extension of the Wage Subsidy Scheme and a domestic tourism campaign.

The SMC asked experts to comment on the following aspects of today's announcement.

  1. Infrastructure
  2. Tourism
  3. Science research
  4. Jobs
  5. Taxes
  6. Housing

Anthony Scott, 
Chief Executive, 
Science New Zealand

Comments

"We're very pleased to see the commitment to the increase in the Strategic Science Investment Fund, both in the programs and in the infrastructure side - which includes the Nationally Significant Databases and Collections. We have previously had some increases of a kind in the Strategic Investment Fund, but this is the first major significant increase since the fund was established. That's great because this is the fund that will help build the capability New Zealand needs to play our role in the COVID-19 recovery and rebuild.

"The Endeavour Fund increase is also great to see. That increase was previously signalled but to have it continue when we're obviously facing a very constrained future as a nation is also a really good signal from the government about the importance of innovation, science, and research in the COVID-19 recovery and rebuild."

No conflict of interest.

 

Dr Jeff Seadon, 
Programme Director of Postgraduate Programmes in Built Environment Engineering, 
Auckland University of Technology

Comments

“Job creation in this budget has focussed on short term and low-waged opportunities. Construction jobs provide short term employment – when the building is finished, the job ceases. The tourism and hospitality industries are low waged, continuing the cycle of poverty.

“Over 22,000 long term jobs throughout the country can be created if we reuse or recycle our waste that we send to landfill each year. International experience has shown that these jobs pay above the national average.

“Initiatives in the waste sector will require building onshore processing facilities (creating extra short term employment for the building sector) and developing internal markets for the goods we now discard. The results will be reduced imports, less pillaging of the earth’s scarce resources and skills development for low- to non-skilled people employed in this area. That is a strategy to build a more resilient economy by not relying on globalisation to succeed.”

No conflict of interest

 

Professor Adrian Sawyer,
UC Business School, 
University of Canterbury

Comments

"Budget 2020 is without precedent in recent times. Arguably it has close links to the First Labour Government’s budget and approach to New Zealand’s recovery after the Great Depression. It is a budget in the tradition of Keynes, such that to get NZ out of difficult times, the government spends well beyond its means, necessitating substantial borrowing.

“The good news is that New Zealand is well placed to be able to borrow, with very low Government debt as a percentage of GDP prior to COVID-19. The bad news is that in the months and years to come, government debt will have increased by more than $150 billion.

“Much of what has been announced by the Government for new spending cannot be faulted in terms of what is needed to rebuild the economy. What may be questioned is whether all decisions should be made by the government, or that more opportunity be given to New Zealanders (especially NZ businesses) to make decisions and advise where support is most needed.

“My main interest is taxation, and Budget 2020, like Budget 2019, contains almost no specific measures that are tax related, although many of the initiatives will require Inland Revenue to administer them. Prior to Budget 2020, the Government announced a number of COVID-19 tax-related measures, including the wage subsidy (to be extended in a targeted manner as per Budget 2020), tax cashflow enhancement through changes to allow loss carrybacks, reinstating depreciation on commercial buildings, and a number of other initiatives. All of these changes were enacted under urgency without the normal public consultation that is a hallmark of NZ’s tax policy process (which incidentally led to the wrong version of legislation being enacted – another story).

“The big unanswered question from Budget 2020 is tax-related – how will NZ repay the debt that the Government, has, and will, be incurring, on behalf of New Zealanders (estimated to grow to be $80,000 per household)? This, unfortunately is left to determination in the future, importantly after the 2020 general election. Assuming Budget 2020 is passed by Parliament, the gap to be made up through increased government revenue should in part come from economic growth leading to an increased tax take. This will be far too little to bridge the gap, so the future for NZ must be increased taxes. The mix of these tax changes and associated variations in tax burdens, including potentially the introduction of new taxes (such as a capital gains tax or some form of wealth tax), is yet to be revealed. The future, from a tax perspective, like COVID-19, will be unprecedented in NZ’s (recent) history.”

No conflict of interest.

 

Dr Lucy Telfar Barnard, 
Senior Research Fellow, He Kainga Oranga/Housing and Health Research Programme, Department of Public Health, School of Medicine & Health Sciences,
University of Otago, Wellington

Comments

"It's great to see this extra investment in increasing public housing, as well as income-related rent funding to go with it.

"Our homes are where we spend most of our time, even when we’re not in lockdown. It’s hard to stay healthy when our rent takes up too much of our income; we struggle to stay warm and dry; and we’re worried we might have to move. Building new public housing is a good way to address all three of these problems, since new public housing is a higher standard and more affordable than cheap private rentals, and tenants know their tenure is safe. That makes investment in public housing a health investment as well as a social investment, targeted at those who need it most.

"Along with the government’s increased spending on retrofitting insulation under the Warmer Kiwi Homes programme, this budget allocation is another step towards warmer, drier, safer homes for all New Zealanders. The allocation for urban papakāinga and other Māori housing initiatives is particularly welcome.

"However, there will be challenges. As with KiwiBuild, there’s the question of where to find land, or how to free up existing public housing land without disruption to current tenants.

"There’s also a clear gap in the spending allocation: new public housing will mean those who get to the top of the public housing list have warm, dry, secure homes. Additional spending in the Warmer Kiwi Homes programme will help people insulate if they own their own homes. But I don’t see anything in this budget to help improve the standard of people in poor quality rental homes, where our most vulnerable households live, and where new healthy housing legislation can only do so much."

No conflict of interest.

 

Professor Iain White, 
Environmental Planning Programme, 
University of Waikato:

Comments

"The country was in a fortunate position going into the pandemic. Its debt was low and it had the experience of the GFC to fall back on. You can see how the budget reflects both these aspects.

"The first takeaway is the size and scale. It is gratifying to see the government significantly increasing state spending to offset the contraction in private sector investment and lower consumer confidence that we know is happening. Those countries that did this in the wake of the previous economic crisis had a shorter and less severe recession than those who used the false analogy of household spending and cut spending as income dropped. Even if we were more isolated than most countries from the effects of the GFC, it is clear we have learned the lessons. This is the rainy day.

"Turning to specifics associated with the recovery, the COVID Response and Recovery Fund to invest in infrastructure seems much lower than many may have suspected. It is an initial $3bn, but the total of the ‘shovel-ready’ projects submitted was $136bn. There are going to be many disappointed people, and, if it is spread around the nation as previously indicated, that figure will not go very far at all.

"That said, this decision might not be a bad thing. It feels more like an attempt to keep some powder dry and a desire to get infrastructure investment right rather than about limiting the total sums that will flow into this area.

"This leads to the other issue I’d like to flag up as a feature of the budget: flexibility. The economic forecasts and numbers associated with budgets tend to sound accurate, but in reality I suspect the government have realised that this time round they are very, very soft. All projections are right now. We simply do not know what the effects will be and how long it will last. So the language peppered throughout of ‘phases’, ‘steps’, or trailing future interventions, appears to be a realistic way to reflect the specific nature of this crisis. In contrast to previous budgets, this feels more like a start of a long haul of state spending that will unfold throughout the year and beyond, rather than a one-off annual event."

No conflict of interest.

 

Professor Michael Hall, 
Department of Management, 
University of Canterbury

Comments

"The budget initiatives demonstrate positive short and longer-term initiatives to help tourism and New Zealand as an attractive destination.

"Investment into funding a domestic tourism campaign is essential. While for the year ending November 2019 there were 3.89 million international visitors, in that same time period there were 3.08 million trips abroad by New Zealanders. Encouraging them to travel within New Zealand will help combat the loss of international arrivals this year. It doesn't entirely close the gap but it is a good start.

"Domestic tourism already was the mainstay of many tourism businesses. For example, for the year ending December 2019, regional domestic tourism spend was $300 million more than international. Only in the gateway of Auckland and in Otago, because of the significance of Queenstown, was international spending higher.

"Extension of the wage subsidy scheme and other support for the sector should help many tourism and hospitality businesses to keep going until both the domestic tourism campaign begins to take effect.

"Trade training will help people retrain people who have lost jobs in the sector as well as potentially improve skills in some areas of the sector as well.

"Longer-term initiatives that will serve to help New Zealand become more of a sustainable tourism destination including the environmental jobs and projects schemes. Obviously these will have positive effects for other sectors but will help provide a stronger basis for protecting New Zealand's branding and positioning as a destination, especially in light of climate change.

"However, also critical will be how the infrastructure support is put into sustainable transport and mobility initiatives.

"The tourism and hospitality sector is one that has always been marked by high rates of business birth and death. Clearly, the government wishes to try and support those attractions and businesses that are core to the country's tourism strategy as well as those in the best position to survive.

"Nevertheless, in the re-imagining of New Zealand tourism there is going to be a real challenge to get the tourism industry to focus more on sustainability. This has always been an issue for international tourism to the country.

"In many ways COVID-19 provide a first glimpse of elements of what a low-carbon tourism transition for New Zealand might look like. Greater encouragement of domestic travel, less reliance on international.

"This will require new ways of thinking about tourism - not only by the industry but by consumers as well. And this will possibly be one of the greatest challenges as this is not about being cheap but by focusing on value.

"The government and tourism industry's immediate task is to provide people with a sense of security with respect to their wellbeing when they travel.

"For promoting New Zealand to the domestic market, it is about creating a sense of value - both financial as well in terms of cherishing the things we have. We have attractions that people come from the world over to see. It is now time to encourage New Zealanders to visit them."

No conflict of interest.

 

Associate Professor Nicola Gaston, 
Co-director, MacDiarmid Institute for Advanced Materials and Nanotechnology

Comments

"Under normal conditions, I might describe this as a disappointing budget for science. There is a tiny bit of cash put aside to increase Strategic Science Investment Fund Platforms programme funding for Crown research institutes, acknowledging attrition of funding; there is a small capital injection of $15 million into ESR – and that appears to be it. There is $150 million for business loans to support R&D – that number appears to be what Treasury pointed out last year was needed to move government spending towards its stated 2% target, so is not accidental – but this, while a welcome complement to the science sector, does not replace investment in the development of skills and capacity in research. That said, the increase of the per student subsidy for tertiary education is welcome though overdue, though it is a relatively small scale investment alongside the money put into trades to encourage people to retrain in selected industries.

"More than an increase in specific numbers, I would have liked to see a more holistic approach taken to recognise how the research ecosystem can support recovery and develop the resilience of the New Zealand economy over the medium to long term. Under COVID-19 conditions, the budget was never going to be what it would have been prior – and I would never suggest that Research, Science, and Innovation should be higher priorities than Social Services, Health, and Education right now – but it would have been reassuring to see budget signals designed to create activity in the science system in the right places. The biggest threat to the long term stability and success of our research and innovation ecosystem right now is that we lose capacity as people disengage, fail to complete their studies or research programmes due to economic impacts, and that these losses are compounded by disrupted career paths and lost opportunities due to closed borders over the next year or even longer time frames. We are going to need to be agile and proactive in order to retain talent – and in the short term, I would have liked to see more emphasis on immediate retention strategies, rather than retraining alone. It is always possible, of course, that some of these outcomes will be able to be achieved by work being done within the sector and within MBIE – for example, by re-prioritising Catalyst Fund expenditure to support International Research Relationships, to support postdocs based in New Zealand – but I do think the time is ripe – or in fact, now urgent – for a well-designed postdoctoral fellowship scheme that would retain and develop talent within New Zealand to support our high impact, low footprint industries in sustainable innovation and green tech.

"So what is most disappointing to me, in fact, is to see yet again that this opportunity has been missed. But if we are to discuss what is missing in this budget, the leading contender would be our Zero Carbon goals: they appear to be missing not merely in action, but in aspiration. This cannot and must not become our new normal."

No conflict of interest

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