Yes, Grant Robertson’s pre-Budget speech has now been posted on the Beehive website and we can officially confirm that not all funding allocated in the COVID Response and Recovery Fund has been spent. Our Finance Minister has almost $1 billion of unspent dosh to play with (and the Taxpayers Union is reminding him he is under not obligation to spend it).
He also confirmed he has a new job (but we imagine he won’t be relinquishing any of the others). He will be leading the establishment of a team which will ride shotgun on the implementation of “critical” initiatives.
This means he will set up a new team to do the PM’s job of ensuring ministers actually do what she wants them do and what they are paid to do, in other words.
As part of the Budget preparation, Robertson told the Wellington Chamber of Commerce, he asked each Minister to look again at COVID spending for which they were responsible to see if it was still needed or is still a priority, and whether underspends could be reprioritised.
And hey – this exercise has yielded around $926 million worth of savings.
“I am pleased that we have found these savings, and they can be returned to the fund to aid our recovery from COVID-19 and targeted to where it is needed the most,” Robertson said.
Taxpayers – we imagine – will be pleased, too, although they will be keen to learn what he intends doing with this money.
According to Robertson, it will be pumped back into what he calls “a Recovery Budget”.
He gave an idea of his objectives for this three-year term. Besides keeping New Zealanders safe from COVID-19, the Government is focused on accelerating the economic recovery and addressing “the big three foundational challenges” – housing affordability, climate change and child wellbeing.
Over the three Budgets of this term, there will be a continued focus in areas that drive productivity – infrastructure, skills, research and innovation, trade connections and export growth.
More immediately, Budget 2021
“ … will take a balanced approach that continues to emphasise investment where it is needed most, alongside careful fiscal management”.
Thanks to the country’s economic performance being stronger than expected, the government has more options than it had expected to invest in critical services, but [and here comes an important “but”]
“… we are also mindful that we have an obligation to future generations to prioritise spending and over time reduce the debt we incurred fighting a one in one hundred year economic shock.”
Oh, yes. Robertson discussed this further down in his speech.
The levels of debt taken on by the government “to save New Zealanders’ lives and livelihoods” are projected to reduce from the middle of the decade.
He is confident he is in a good position to handle this debt.
Interest rates are low and Robertson’s fiscal objective as outlined in the Budget Policy Statement remains to stabilise debt by the mid-2020s, then reduce it “as conditions permit”.
He is comforted that even at their higher levels our public debt is significantly better than almost every country with which we compare ourselves: General government net debt data produced by the IMF show New Zealand’s current levels of net debt are slightly below 22 per cent of GDP, less than half of Australia’s level of close to 49 per cent, and well below the United Kingdom at 97 per cent and the United States at 109 per cent.
As a small economy subject to external shocks, Robertson said, it is sensible to reduce our public debt as the economy returns to full health.
But he won’t risk undermining the recovery.
“A turn to austerity measures will simply mean it takes longer for us to rebuild society in pursuit of numerical goals that ignore the real world we are living in. It is all about getting the balance right, which we have shown through the COVID period that we can do. We will move to reduce debt and return to surplus as a responsible government should, but not at the expense of our people or the hard won stability and security from our COVID response.”
So what about government spending?
For starters, the government will be spending on the new team that will keep any eye on the work (and spending, no doubt) of other ministers.
Or as Robertson put it, the Government is determined to deliver on its core priorities, which is the reason for the Prime Minister asking her doughty deputy to lead the establishment an Implementation Unit based in the Prime Minister’s Department.
The Unit will be funded through Budget 2021.
Its job will be to
… monitor and support implementation of a small number of critical initiatives, particularly where multiple agencies are involved in the work. This includes areas such as mental health, infrastructure, housing and climate change mitigation.
The Unit will report to Robertson as Deputy Prime Minister and will engage closely with Minister’s offices.
Robertson backgrounded the Budget against the country’s economic performance.
Annual sales of logs, fruit and wine are rising while dairy and meat are holding up well. Global demand for New Zealand’s dairy products continues to be high, with Fonterra expecting to pay $7.30 to $7.90 a kilo of milk solids. This will pump more than $11.5 billion into the economy.
Firms appear willing to invest more on the back of an improving environment, with imports of capital goods strengthening.
Standard and Poor’s gave New Zealand the first ratings upgrade of any economy since the pandemic began and the first for New Zealand since 2003. Moody’s has reported on the New Zealand economy, maintaining our AAA rating and noting our “very strong institutions and policy effectiveness”, along with our “robust fiscal position when compared with its peers”.
But the on-going economic impact of the pandemic is uncertain and most forecasts continue to emphasise the likelihood of continued volatility. Supply chain issues are set to affect the economy for much of the rest of this year, and perhaps into next year as well.
Robertson was keen to highlight achievements in skills and training as part of our COVID response.
Since we made apprenticeships and targeted trade training free on the 1st of July last year more than 100, 000 people have taken advantage of the programme. This includes nearly 58,000 apprentices in areas from construction to community health care. We have seen significant growth in women and older New Zealanders in these numbers. This is the kind of COVID response that will allow our recovery to continue at pace.
Then he got into the business of governments picking winners (something economists typically insist is better left to the market to sort out).
The government (he said) wants
… to grasp the opportunities of adding value to the industries we have and taking the step into areas where we see our sustainable future. Industry Transformation Plans in agritech, the digital economy and advanced manufacturing are leading the way. We continue to develop our strategies for space technology, hydrogen and other renewable energy technologies.
The acceleration of our recovery also needs to look at some of the challenges we face post COVID. Tourism is a particular example. Now is the opportunity to look to reset this industry. Pre-COVID many in the industry and outside were concerned that the growth in tourist numbers was not sustainable, from an economic or environmental perspective.
Minister Stuart Nash is working with the sector on developing a new model that will lift the value of what NZ offers and on putting in place the infrastructure for the industry to thrive when tourists return.
This will take time and the industry will look different when it does happen, but there is a future.
We have no doubt it will look different. Whether it does the economy and society much more good than has been done by the model that is being discarded – let’s face it – is something of a gamble.
Robertson mentioned the government’s interest in immigration, too.
Beyond the immediate term, the Government believes that immigration will continue to play an important part in our economy in years to come. We will continue to be strengthened economically and socially by people who come here to fill essential skills gaps and make their lives here.
But we also know that in some sectors immigration has seen an entrenchment of low wages and a failure to make technological changes that will improve productivity. Minister Kris Faafoi has work under way to look again at our overall immigration settings and policies.
To support that he and I have asked the Productivity Commission to focus on immigration for its next inquiry. The terms of reference were released yesterday. It is time for the country to have a mature debate about immigration, its positives and negatives, and I welcome Dr Nana and his team being involved in this work.
And the burning political issue of housing?
Robertson brought this into his speech when discussing how the three Budgets this term will aim to make significant progress in addressing foundational challenges in our economy.
He recalled that in March the government announced a significant package of housing initiatives to address both demand and supply issues, including a $3.8 billion package to accelerate infrastructure development.
Turning around a housing crisis decades in the making will take time, but we are committed to improving affordability and accessibility of housing.
Then there’s the much more momentous matter of climate change and the economic implications of measures taken to counter it.
On this, Robertson referenced the report of the Independent Climate Commission (he said it marks a pivotal moment in our transition to a low carbon economy)
Almost every sector of our economy is affected by the carbon budgets that have been outlined by the Commission.
Robertson said he will have more to say at Budget time about our approach to meeting the targets the government has set,
… but we will continue to look for not just the measures we must take to reduce emissions but the possibilities and opportunities that exist to create high paying and sustainable jobs as we make that transition.
The speech also mentioned child wellbeing, welfare benefits, the modernising of the health system, the replacement of the RMA, the Three Waters Reform programme.
Robertson concluded on a bright note:
We have an excellent opportunity to secure the recovery in a way that gives every New Zealander a fair go, and to deal with the debt that we have incurred along the way through accelerating the growth of a sustainable, more productive economy.
Now let’s see how this is expressed in the Budget.