Covid-19 has given Robertson the chance to break records with his Budget (but he will wonder where the surpluses went)

Grant  Robertson,   when he  took on the Finance  portfolio, almost certainly   did not envisage the  kind of  records  he would be setting  in  next week’s  budget.    Surpluses have  evaporated:  instead he   will be setting  records   in deficits  and borrowing.

For long  enough he has  cited  international   agency  reports to underline how  orthodox he has been  in handling the  nation’s finances.  Now the challenge is to  sustain that  faith,  as he  embarks  on saving the  NZ economy  from  a  disaster  worse than the  Great  Depression.

ANZ  Bank  economists  are saying Treasury’s Budget Economic and Fiscal Update (BEFU) will show rapidly widening fiscal deficits in the near term that will send debt spiking higher.

“For our part, we expect net core Crown debt will lift to 40-50% of GDP, with the total Crown OBEGAL recording a near-term deficit close to 10% of GDP. This could see bond issuance lift to around $145bn over the next few years, $100bn higher than December’s Half-Year Update”.

 Those  are   breathtaking  numbers.

Where   last year  Robertson  brought  down a  “well-being”  budget  that aimed to  give a  lift to  those NZers struggling at the  bottom  end of the  economic  ladder,   now  he has to  repeat the  exercise—but  for  the  nation, and  on a  scale  beyond   the scope of  any of  his predecessors.

The  longer  the  lines of  the  unemployed grow,  the  harsher  the  judgement of  voters  will be  on  September   19.  Shortening  the  dole   queues  will be  a  top  priority.

But  whatever    rainy-day  fund  he  has to call  on  for   unemployment  relief,  Robertson’s  task is  much greater: he has to   pull   NZ   back from the  brink  of the abyss,  and then redirect  the  economy towards the road  to  recovery.

This  is   more than  the  state  “picking  winners”,  or  in the   nostalgia   so beloved   by  the Deputy Prime Minister   Winston Peters, of  returning   NZ  to the  “economic  greatness”  of  the  past.   It has to  sustain, and expand, the  industries which have  been  the   backbone of  the economy,  and  still  hold  the  capacity to  earn the  foreign  exchange to  pay for the  essential  imports  NZers  need,  not  least  the medicines for the  collective  health of  the  nation.  .

Robertson   will have  to  frame a  totally  refreshed  monetary and  fiscal   strategy.  As the  ANZ team put it:

While uncertainty is extreme, it’s important the long-run objectives and the spirit of the new fiscal strategy be maintained as we navigate the volatility ahead”.

In  some  quarters  it is  argued the government   must go  hard  and   fast  with   financial  relief.  But  just   channelling   “helicopter  money”   across  the  economy won’t  put  the   country  back  on  the road  to  prosperity.

Already  divisions   are  appearing   within  the  coalition.   Peters  is  railing  against  globalisation,  pointing to  the fragility of  global supply chains,  while  the Greens  are demanding a renewal of the battle  against  global warming,  with the fiscal  stimulus  being applied only to  “sustainable”  industries.

Meanwhile  Labour  itself has  to  be  concerned that inequality is widening,  as  brain-workers  can work  from  home but  manual  workers  lose their  jobs.  For  many on the  Left  of  politics, the time is  ripe  for   “taxing the  rich”.

But  the  government,  if it  were that way inclined, might see  it  as untimely  to  legislate  such a  tax change  in the run-up to an election.  (And where would NZ  First  secure some  campaign funds if it has conspired to raise taxes  on its rich mates?)

Commentators    like  Simon Wilson in  the  NZ  Herald  see  the potential  in the  present  situation as    “the  makings   of  a great  achievement of civilisation”.  He  says politicians  who usually insist  the  market  knows best   have fallen  silent.  Neoliberalism, he argues. is  dead, and NZ  could now  be  shifting  to  a  “fairer and  more  just  NZ”.

Wilson  believes  if  money is given to  poor  people,  they will spend  it, and  everything  will be  fine again.

Former  Labour  Finance  Minister   Sir  Roger  Douglas  also  has some  advice for Robertson:  he calls  for “unnecessary spending and  waste”  to be  eliminated  from the  government  budget totalling $15bn.

He describes the  government’s  wage  subsidy   as  “unfairly  advantaging”  big  business and the professional  elite.

Economist  Michael Reddell  reckons  getting  back to full  employment   must be a policy priority but this needs  to  go hand in hand   with measures  encouraging  investment  in  the medium  term in sectors   that  can compete  internationally.   The  policy  mix    should include a  much looser  monetary  policy  and  measures   (lower business  tax  and  immigration)   which  support a  sustainably  lower   exchange  rate.

Few   dispute   NZ’s  exchange  rate  has  been  over-valued  for  most of the  past decade,  and  though it has  inched downwards  in  recent  months,  it  is  still,  at  around  60USc,  not   competitive enough.

A   lower   exchange  rate   would strengthen  a  range  of   NZ’s   export industries, and raise   their profitability, encouraging  them  to  employ  more labour.

ANZ  economists  are picking the government will announce a national retraining programme  to support the transition to  the new, post-Covid economy.  They  note  that transforming tourism workers into “aged-care or forestry workers, for example” would be no easy feat and would take time.

They   also  see  the  possibility of an extension of some targeted wage subsidies and an increase in Working for Families tax credits.  But  for some businesses, wage subsidies would just be “delaying the inevitable, at a huge cost to taxpayers”.

Returning   to  Point of   Order’s  main theme,  management of  the  books   through  the  post-pandemic crisis    would truly  test  the  skills of  the sharpest  and   most experienced  of  finance  ministers.

For   Robertson,   it’ll  be    a chance to  write himself into  the history books.  And for  the  Labour coalition, a  make-or-break exercise.

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