Bryce Wilkinson

Hardly anyone has questioned the merits of the Government spending taxpayer money in response to Covid-19, or examined its implications for public debt levels and future tax burdens.

Next week’s Budget 2020 will reveal those fiscal implications. The document will make grim reading. Spending is likely to be way up and revenue way down on Treasury’s December 2019 forecasts.

In the minister of finance’s own words, the $12.1 billion to support business incomes and jobs is ‘‘unprecedented’’ before adding that the ‘‘first stage of our economic response represents over $20b’’ of spending.

At about $11,000 per household, that is a hefty potential tax hike. To the best of my knowledge, no measures to judge the success of this spending have been proposed. This means New Zealand should prepare for big fiscal deficits.

This Government was a big spender before the virus struck. It turned a pre-election 2017 forecasted fiscal surplus of $5.7b for the year ended June 2020 into a forecast $900 million deficit by the end of last year, despite higher tax revenues of $2.9b.

Public debt will now spiral upwards. Treasury’s December 2019 fiscal forecasts showed it would need $18b to fund capital spending for the year ended June 2020. That is nearly $6b more than Treasury’s preelection 2017 forecast for 2020. The Government’s January 2020 announcement of $12b additional infrastructure spending will push the trend line up beyond 2020.

Grant Robertson expects to announce further spending plans to stimulate economic

Budget 2020 cannot be expected to solve this within a three-year forecast period. However, what will count is the credibility of the strategy to avoid a repeat of the pre1984 debt spiral.