The $20b blank cheque

Jacinda Ardern says the Budget is a plan. Simon Bridges says the Budget is an apology for a plan.

It is an argument they will have for the next couple of months. They are both right.

It is a plan to spend $50 billion in response to the Covid-19 economic crisis; we just don’t know what on.

So the real questions are whether the spending plan we do know about — $30b — is justified and whether the Government is justified in giving itself a $20b blank cheque.

There has been little criticism of the known expenditure. Most of it is unsurprising — jobs, training, infrastructure, housing, subsidies — and most of it could have occurred to varying degrees under a National Government in a bid to keep workers attached to work and businesses afloat.

The alternative would be higher spending on social welfare benefits and a slower recovery.

Spending big in an economic downturn is not in dispute. It is the orthodox thing to do.

The unorthodox part is the blank cheque or “slush fund” as National has started to call it.

Given that we can’t be sure where we are in the economic crisis — the middle or just the start of it (definitely not at the end) — it is impossible to know how much will be needed or when.

But given the fact that $10.8b has already been spent on the wage subsidy in two months, it is not unreasonable to expect that $20b over the next four years could easily be soaked up.

If there is hope in the Budget, the “fund” may give some people hope that Government assistance will not fall off a cliff when the wage subsidy ends. For most people, it will be a comfort to know it could be called on, even if it is a rather expensive security blanket.

And of course there is no imperative to spend it.

It gives Ardern and Grant Robertson an advantage in the four months before the election on September 19.

It gives them options to either spend or make expensive promises, which is National’s big objection.

It is not actually a separate fund but a way of organising expenditure and setting some expectations.

Treasury’s forecasts are predictably grim, with the current year ending in a $28b deficit and the next two years not much better. The operating deficit declines to just $5b in four years, a trend in the right direction. Debt is forecast to rise from $89b to a previously unthinkable $200b in four years.

The trouble with trends is they are only as good as the forecasts on economic activity and as Robertson said yesterday: “Economic forecasting is more of an art than a science at the best of times, but more so than ever now.”

There is no question that he has delivered his third Budget with his fingers crossed.

The ‘fund’ may give some people hope that Government assistance will not fall off a cliff.