Budget – big numbers but little vision?

The 2020 budget has unusually big spending numbers due to trying to deal with the Covid-19 pandemic and associated economic crisis. Current New Zealand debt is about 20% of GDP, the budget would over double that to 50% with a reduction back to 40% forecast over the next ten years, so the target is double the relative debt.

But the budget has been slammed as lacking in vision, with a big chunk of money earmarked but not yet committed to anything in particular.

Sam Sachdeva (Newsroom): Robertson’s huge numbers fit the Covid-19 moment

The $50 billion figure tacked to the centrepiece Covid Response and Recovery Fund is in some respects a case of magic with numbers.

Nearly $14b of that had already been spent, with a further $16b laid out in the day’s Budget.

Importantly, that leaves nearly $20b of fiscal headroom for further announcements in the months leading up to the election.

Government staffers were quick to state the $50b number was a cap rather than a target, but Robertson undermined that somewhat by saying it would almost certainly be spent within the next few years.

There were still some striking omissions, however. It was little surprise the Green Party came under pressure from supporters for a lack of policy and funding wins.

…Indeed, Bridges’ canned line that the Government was “turning a $50b problem into a $140b problem” seemed underpinned by the roughly $50b of extra borrowing the last National government took out to cover the costs of the global financial crisis and the Christchurch earthquakes.

Bridges is gambling that voters’ historic concerns about debt levels will outweigh their desire for sweeping support – Kiwis faced a “tsunami of debt”, as he put it.

But Robertson’s statement that the country faced a 1-in-100 year global shock, forcing drastic measures, seemed more closely aligned to the national (and global) mood.

Ananish Chaudhuri (Newsroom): Budget’s worrying debt-to-GDP red flags

First, the prediction that nominal GDP is poised to fall by 4.6 percent this year and more the following year before starting to grow again. Unemployment is tipped to grow to nearly 10 percent. These are pretty dramatic. This is worse than the recession that followed the global financial crisis, when real GDP declined by 2.2 percent and the unemployment rate peaked at 6.9 percent.

What is even more striking is the prediction that by 2023, debt will be more than 50 percent of GDP. I am assuming this is public debt and does not account for private debt. I am by no means a deficit hawk, but this level of debt-to-GDP ratio poses risks for most nations, let alone a small island nation very much dependent on global economic trends.

This level of borrowing will certainly put upward pressure on real interest and exchange rates and counter-act to an extent RBNZ’s quantitative easing efforts. The net effect is anyone’s guess since a lot of it will also depend on what is happening to rates in other countries.

Overall, the budget much as expected but with some significant red flags in terms of the steeply increasing debt-to-GDP ratio.

Bryce Edwards (RNZ): A Budget with big numbers, but little vision

It’s a politically-astute Budget, but anyone looking for big transformative change will be underwhelmed by Grant Robertson’s Budget 2020, according to Bryce Edwards of Victoria University of Wellington.

Politically astute as in good for this year’s election campaign? Big handouts claimed by each of Labour, NZ First and Greens, with a lot more available to be announced before September.

Elements of the Budget that will be praised include the free trades training scheme, expansions to welfare programmes such as Food in Schools, and the significant increase in social housing.

Expectations of welfare and tax reforms were not met. The Wage Subsidy Scheme is rolled over, albeit with much more targeting. This continues the trickle-down approach of hoping that the provision of money to the private sector will flow through to workers who will keep their jobs. Noticeably, there has been no increase in income support.

Generally, even though the government is now spending much more money, the size of the state isn’t actually getting much bigger. For example, there’s a big focus on job creation, but not through a heavy state role.

Perhaps the most interesting element of the Budget is the $20bn of unallocated spending as part of the Response and Recovery Fund, which the government is keeping aside to make spending decisions on in the weeks and months to follow. Some will call this a slush fund, which is probably unfair in a crisis with no end in sight, where not all spending can yet be determined.

It will depend to an extent to how extra spending is announced and what it is used for heading towards the election. Greens have already been promoting the campaign benefits of what spending they say they have initiated.

Max Rashbrooke: Robertson goes for repair, not rebuild

Crises can be an opportunity for sweeping change. Many people, especially but not only on the left, have decided that the coronavirus’s economic shock, alongside pre-existing problems of environmental degradation and widespread poverty, is the perfect platform for transforming their society and their economy.

The Budget does spend extraordinary sums: $50 billion for the Covid-19 rescue fund, against the normal Budget allocation of a few billion dollars extra. But that spending goes largely into propping up existing businesses – $3.2b for extending the wage subsidy – or into existing structures, as with the extra $3.9b for health.

There are some small green (or indeed Green) shoots of transformational change. Free trades training, in construction and related areas, for two years. An extra $1.2b for rail, which could be part of a transition to a low-carbon way to live. A $1.1b for a green jobs fund designed to employ 11,000 people restoring wetlands and planting trees beside rivers. A further $20b of the rescue fund still to be allocated, of which $3b is for infrastructure.

Mostly, though, this is a measured budget.

This relative caution has several explanations. New Zealand First is understood to oppose many of the sweeping changes the Greens and Labour would like to see. Scaling up programmes is also not as easy as people think.

Stuff: Budget 2020 winners and losers

Winners:

  • Workers
  • The film industry
  • Education
  • Health
  • Transport
  • Public Housing
  • Māori
  • Corrections

Losers:

  • Debt
  • .Hospitality and Tourism (somewhat)
  • Beneficiaries
  • Media
  • Climate change
  • Police

The lack of much for beneficiaries and climate change have been particularly disappointing for the left (which is more Green territory).

Stuff (editorial): Government’s Budget a plan to navigate Covid-19

The Government has laid out its plan for getting the economy back on its feet, coupled with an assurance the country will get through the tough months ahead.

Whether it’s done enough to reassure the public will not be fully known until September’s general election.

Stuff: Parties look to nab wins from $20b ahead of election

A $50 billion Covid-19 rescue package poured out of the Crown coffers yesterday when the government revealed its rebuild plan – but it is the $20b blank cheque that has got the Opposition crying foul.

With just four months and four days until the election, the National Party has labelled it a slush fund for election bribes.

The campaign has unofficially kicked off and even New Zealand First and the Greens started singing from their own songsheets within hours of the Minister of Finance delivering his election-year Budget.

Greens seem to have used the budget to kick off their election campaign (via email):

We have now officially kicked off our Green Reset from the COVID-19 crisis with the release of Budget 2020. We’ve secured massive investment in Green initiatives which will create thousands of jobs while improving life for people and protecting the natural environment.

Voters will decide for themselves whether the Covid-19 pandemic gets sufficient priority over policy opportunism and cynical campaign boosting. It hasn’t helped that Green leaners seem to have been underwhelmed by the budget.

Perhaps there has been some big vision 0 as far as the election and means of Government and political survival.

Leave a comment

15 Comments

  1. Alan Wilkinson

     /  15th May 2020

    Throw money at everything and hope something works. Panic lockdown followed by panic budget.

    Reply
    • Corky

       /  15th May 2020

      I worry about the panic that’ll ensue as people realise all that money they’ve been given will be swallowed up with price increases and add-ons.

      One chap on talkback said a cafe had charged him a $1 seating fee.😃🤔😮

      Reply
  2. duperez

     /  15th May 2020

    Today we go into the typical ‘day after Christmas’ mode. The mess is on the floor, scrunched up bits of wrapping paper, tape and tinsel strewn all over. And the eyeing up of who got what.

    In my naivety I used to think of the budget as a statement of the country’s books and announcements about things which those figures allowed us to do from the list of what we wanted to do and where we wanted to be heading.

    The exercise though is one of ‘what I want, what I expect and why I should have.’ Naturally, given the world we live in, the next phase is ‘winners and losers.’ No Christmas style media hiatus for this event. Like the new USA Black Friday it is a media event, for the media it is nothing more, nothing less

    Earnest, invigorated journalists will be in their element tripping over ‘losers’ to tell their stories and the doomsayers released from their incarceration are ready and hopeful of being able to spread their good news.

    A few days down the track when the trimmings are binned and the floor vacuumed some might even say “What the hell was all the fuss about?” And life will go on.

    Reply
  3. David

     /  15th May 2020

    It’s purely an election budget which is fine we have an election before we try and spend a ludicrous amount of cash for little measurable benefit.
    I am flat out, we are taking on more staff its bloody busy and people we do business with are saying the same thing. The forecasts are appallingly wrong

    Reply
    • Duker

       /  15th May 2020

      Thats what I was thinking.. tourism is shot but people are spending like its no tomorrow…younger generation to blame , they arent like the pannicky oldies

      Reply
  4. 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.

    Reply
  5. Pink David

     /  15th May 2020

    There is plenty of vision. The government will run far more of your live than every before, and it’s going to borrow money on your children’s behalf to achieve it for the next decade.

    Reply
    • Duker

       /  15th May 2020

      Get it right …it was Bill English who borrowed on your childrens behalf ( had no plan to pay it off as he wanted tax cuts and more borrowing) …this is for the grandkids

      Reply
      • Gezza

         /  15th May 2020

        It was interesting -& I thought good of him – to hear Grant right at the start of his budget speech pay tribute (“…thanks to Michael Cullen & Bill English”) to Bill for the sound state of the books which enabled him to start his Pandemic Budget from a better financial position than most other countries.

        Reply
  6. oldlaker

     /  15th May 2020

    People are surprised there is little in the budget for climate change? Faced with an immediate CV crisis including huge unemployment, it would have been political suicide to push that line.
    I suspect far fewer people care about climate change (or believe NZ can do anything about it) than the media wants us to believe. The problem it is very dangerous to say so out loud.

    Reply
    • Alan Wilkinson

       /  15th May 2020

      It took its rightful place at the bottom of the priority list.

      “They stopped the economy and the climate kept right on changing.”

      Reply
    • Pink David

       /  15th May 2020

      Don’t worry, Greta has already found a new bandwagon to jump onto. She can see Covid-19 in the air don’t you know.

      Reply
      • Duker

         /  15th May 2020

        I bet her puppet masters will love the ‘remote’ format , as they can feed her lines…as she is barely knowledgeable about climate, epidemiology should have her fall flat on her face….however the outcome will be a few pre written soundbites and some scowls which will lauded in pre written stories. Perhaps some questions about Sweden …

        Reply

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