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.
One thought on “Covid-19 has given Robertson the chance to break records with his Budget (but he will wonder where the surpluses went)”
Reblogged this on The Inquiring Mind and commented:
Useful commentary, but unfortunately I suspect we will get a response that will hinder not help.