Budget wishlists: Reform, retraining, repurposing
Cash grants for businesses, money for retraining the unemployed and extension of the fees-free study scheme are on economists’ wishlists for this year’s Budget.
Finance Minister Grant Robertson will deliver the Budget on Thursday.
The Government had planned for it to build on last year’s Wellbeing Budget, prioritising a transition to the low-carbon economy, the future of work, helping Ma¯ori and Pacific needs, child wellbeing, and physical and mental wellbeing.
But Robertson has said spending in those priority areas has had to be ‘‘re-assessed’’ in light of Covid-19.
He said the Government would do everything it could to push back on rising unemployment and falling business investment and confidence.
Sharon Zollner, chief economist at ANZ, said she hoped the Government would not waste an opportunity.
‘‘Economic downturns free up productive capacity – don’t waste that, invest in things that pass the cost-benefit analysis and don’t crowd out private sector activity.’’
The Government would also need to implement policy that was aligned with the realities of the crisis. Propping up unviable businesses would be a waste of taxpayer money, she said, and could make it harder to meet the Government’s productivity objectives.
The Government needed to be open about the fact there would also have to be tough decisions made about things such as the pension system, she said.
‘‘The costs are huge and future taxpayers are going to foot the bill. Intergenerational equality should bring the topic of New Zealand’s superannuation settings into the spotlight.’’
She said there would also need to be support for people who had been most affected by Covid-19.
‘‘Economic crises can wreak havoc on mental health, general health, poverty, and crime. Fund it, but make sure it can be scaled back as and when demand reduces.’’
Gareth Kiernan, chief forecaster at Infometrics, agreed many people would need support, particularly those who required training after becoming unemployed.
‘‘We are currently undergoing a major change in the structure of the economy, which will mean that many people can no longer find employment given their existing skill set.
‘‘We also know that there was already pressure on many occupations with the rise of automation. This is an ideal opportunity for the Government to assist in lifting the overall skill level of New Zealand’s workforce, something which should also have payoffs in terms of our economy-wide productivity over the medium-term as well,’’ Kiernan said.
‘‘Ultimately, what we most want to avoid is having a pool of people who end up being out of the workforce for more than six or 12 months, as occurred following the early 1990s recession, and which we didn’t completely recover from until almost a decade later.
‘‘In terms of specific initiatives, the extension of a year’s worth of fees-free study to all people who haven’t already utilised it either last year or this year would be a good start, particularly given the restrictions that were in place if people had previously undertaken any night classes, for example. I’d potentially be looking for additional initiatives on top of this one though.’’
Economist Tony Alexander agreed funding for training was important.
‘‘The failure of the 1984 to ’92 reform period was the way in which people laid off as a result of the restructuring were left to fend for themselves,’’ Alexander said.
‘‘That can’t be allowed to happen again and it is far better that resources are directed at assisting affected people to regain useful productive employment than throwing money at all and sundry hoping for a boost in spending which will mainly benefit factories overseas.’’
Kiernan said the Provincial Growth Fund should be repurposed to provide help for new businesses.
‘‘We ultimately need new businesses to be established to replace those that are disappearing due to the pandemic, particularly in those areas hit hard by the loss of international tourism.
‘‘However, people’s willingness to take on risk is likely to be lower for some time, so a cash grant – not a loan – of $5000 or $10,000 to help them get over that initial hurdle of getting going would prove helpful over the next couple of years.
‘‘The Government needs to have a relatively loose set of criteria for qualification. We don’t want every application to be closely assessed as PGF applications have been, and we also don’t want the Government trying to pick winners as has been the case with regional development policies at times in the past,’’ Kiernan said.
‘‘The Government would need to accept that there will be some losses from such a scheme because not every new business will succeed.
‘‘At the moment, while we’re still in the worst of the downturn, a scheme like this would not be that effective, but it will take some time to set up, and if it’s announced and the set-up work commences now, by early 2021 the grants can become available right when we’re trying to kickstart the economy’s recovery.’’
Kiernan is also pushing for a state housing programme to provide 9400 new houses a year to get New Zealand’s waiting list back to a 2015 level.
Any cash payments should wait until there was less uncertainty about the future, he said.
‘‘Any money that people get now is going to be saved, or used to reduce debt, which is essentially the same thing, rather than being spent. The Government would be better to keep its powder dry and consider announcing a one-off payment to households at next year’s Budget, or maybe the half-year update in December this year if things stabilise more quickly than I’m currently anticipating.’’
Economist Shamubeel Eaqub said the Government would need to make clear the cost of the crisis so far and how much it expected tax revenue to reduce, and welfare payments and debt to increase.
He said it would also need to lay out how it planned to reduce borrowing in the future.
Intergenerational equality should bring the topic of New Zealand’s Superannuation settings into the spotlight.’’
Sharon Zollner
Chief economist at ANZ