Dunne Speaks: Where's The Plan, Grant?
I saw 33 Budgets and many other financial statements introduced during my years in Parliament. Each had their own drama attached to them – some much more than others. The 1984 “Rogernomics” Budget of Sir Roger Douglas and Ruth Richardson’s 1991 “Mother of All Budgets” were probably the most sensational. However, none of them was developed and introduced in quite the dramatic circumstances of this year’s Budget.
For that reason alone, it is a remarkable yet most unusual document. No government has ever announced a spending package remotely approximating $50 billion over a four-year period, yet never before, not even in wartime, has a government had to deal with such a rapidly emerging and pervasive crisis as Covid19.
To its credit, and despite the obsequious obligatory references to the now canonised first Labour Government, the Minister of Finance resisted the urge to delve into Labour’s ideological back-pocket to fund his solutions (although that day may well come when the time comes to pay for all the spending he has announced). Rather, with unemployment projected to rise to almost 10% by election time, he has focused on trying to save up to 140,000 jobs over the next two years, and the various means by which that can be achieved. And he has shown himself unafraid to run massive deficits - $28 billion in the coming financial year; almost $30 billion the following year, dropping to $16 billion by the time of the 2023 election – to achieve that.
The immediate urge to turn to more taxes to fund those deficits has been resisted for the time being (the months before the election) but cannot be ruled out in the future. In the meantime, the government is relying on the strong balance sheet it inherited to bridge the gap through borrowing, increasing the debt to GDP ratio from around 19% at present to almost 54% by 2024. Even that figure is low by current comparable standards in other countries – Australia’s current debt to GDP ratio is around 42%, which they laud as low by world standards, and which will undoubtedly rise as a consequence of Covid19, Britain’s debt to GDP ratio is predicted to be 95% by the end of the year, and Germany’s is projected to be at 75%. So, the Prime Minister was right to an extent when she spoke of being able to spend the money previously set aside for a rainy day, assuming another does not come along in the meantime.
Along the way, the government has been able to commit spending on a mix of capital and other projects that will fix infrastructure deficits (upgrades to the rail network and new interisland ferries, for example) – although its record to date on delivering major projects leaves considerable doubt whether these will happen – and packages to protect and create jobs. The extension of the wage subsidy scheme for a further eight weeks will be welcomed by many businesses, although there must be big questions about what happens at the end of that period. Especially since the election will then be right upon us, and the combined effects of a cold winter and consumer demand perhaps becoming a little more restrained will be putting even more pressure on business and employment than is happening already. Maybe that is what a fair chunk of the currently unallocated $20 billion additional expenditure is being held for.
Overall, the government appears to have front-ended much of its response to get the economy ticking over as soon as possible. It must be hoping that the uptake and forecasts of strong economic growth from 2022 will provide much of the revenue to sustain its future spending projections. Clearly, mounting international demand for loan finance from other countries seeking to rebuild their own Covid19 shattered economies will make it harder for the government to raise funds offshore in the years ahead, despite currently historically low international interest rates and the government’s strong balance sheet.
Here is where the overall methodical nature of the Budget’s provisions starts to look shaky. While much activity has been announced or foreshadowed, it has been done in the absence of any demonstrable strategy for the journey ahead. The commitment to keeping jobs is certainly a laudable objective, but it is no substitute for a forward-looking view about how the New Zealand economy might develop sustainably and prosperously in the changed international environment now facing us. To that extent, it is a very introverted document, sadly at a time of international crisis when New Zealand needs to be looking as much to its future trading prospects as it does to protecting the current jobs of so many.
Budgets have often been criticised for being long on ambitions, and short on practical policies to achieve them. This Budget goes almost to the opposite extent. It is not obvious where the government wants to see New Zealand by the end of the decade, when it is clear worldwide that a lasting consequence of Covid19 will be a profound change in the way economies operate and interact. In the absence of even a mere inkling in the Budget of the government’s thinking in this regard, it is hard to escape the conclusion the Budget is primarily a marking-time document, aimed first at getting through the coming election, and then buying a little time thereafter to consider wider future implications.
There is perhaps another explanation for this pedestrian aspect of the Budget. This is, after all, a government of three parties facing an election in a few short months. Each therefore needs to be able claim some achievements in the budget as its own. For New Zealand First, the already announced rescue package for the racing sector, and the big increase in New Zealand assistance to the Pacific stand out. The Greens are laying claim to the billion dollar “Jobs for Nature” package. Labour will no doubt focus on the wage subsidy extension and the commitment to building 8,000 homes as part of its public housing programme. With each party having its own audiences to appeal to, it makes the task of presenting an overall coherent Budget theme that much more difficult.
The Minister of Finance faced a uniquely difficult balancing act in bringing this Budget together. Typically, the budget process begins around the end of the previous year and comes to fruition in late March to early April, just after the time the Covid19 crisis hit here. So, rather than finalising a generous election year Budget at that time, as had been widely expected, the Minister and his officials virtually had to go back to scratch and start almost all over once again. He has therefore done extraordinarily well in bringing such a full Budget together in just a few weeks.
In these circumstances, his lack of boldness for the future is understandable. At first glance, his critics on both the left and the right seem disappointed by various aspects of the Budget, for different reasons. The Minister may therefore be tempted to conclude he has got it “about right.” The team of five million – the ones who made the real sacrifices of recent weeks – may well agree, at least in the short term. But as things get worse before they start to get better the question will be asked whether this essentially conservative Budget has done enough to secure the country’s longer-term future.