The voters’ choice: lives or consequences
And with a bang the lockdown was over. Well sort of, in a socialdistancing sort of way. And the Government has set aside $50 billion to ease the transition back to a new world in which restaurants can reopen – but only with fewer people and more staff and in which 11 people constitute a potentially illegal party.
But the Budget had a sting in the tail: over $200b in debt, peaking at 53 per cent of gross domestic product. It will have to be paid back. That will mean a ‘‘discussion’’ around tax at the next election as Finance Minister Grant Robertson put it yesterday.
People in politics tend to be idealistic – even those at the more pragmatic end. Never waste a good crisis for an economic or social transformation. If anything, that seems to be the criticism Robertson has been receiving. He had a chance to do something big, but bottled it.
That assessment, however, is unfair. The Budget process is usually mostly wrapped up by March, but this year that is when it effectively started. Transformation takes time. Robertson also, while getting out the fiscal bazooka, did not commit to any lavish long-term spending programme.
Most of the money spent to date is going on the Covid-19 wage subsidy, while some is being set aside for an expansion of state house building and new infrastructure. Those are commitments, but they are not inbuilt and permanent programmes that will be almost impossible to remove later.
The world will change postCovid, but probably not as much as we think. Most likely life will continue much the same as we move through all the alert levels.
But the pandemic will change several key things for New Zealand in particular. First, tourism income will be gone, with only a trans-Tasman bubble possibly returning to the next few months. That will be felt nationwide.
Second, a lot of people are going to get a pay cut. A Horizon survey published by Stuff this week found that almost a million Kiwis had either lost their jobs or had their hours of work or pay reduced. That’s almost a third of all adults.
And thanks to the amount of money being sunk into the Government’s Covid response, there is now unlikely to be any tax relief and no extra Government spending programmes in the near term. Welfare got a one-off $25 per week increase when the first stimulus package was announced on March 17, but there was no extra boost for Working for Families or other core government payments in the Budget.
Budget projections have it that unemployment will top out at 9.6 per cent, snapping back to 4.2 per cent in two years, yet economic growth is forecast to remain negative until 2022. Time will tell, but that seems wildly optimistic.
Add to that real-life politics: it took National under Bill English six years to wrangle the Budget back into surplus, and that was with a much lower level of deficits.
Robertson is expected to do similar, but with a party and Government that have higher spending wired into their DNA.
The golden rule of fiscal management around the world – and the reason why the bond market matters so much – is because it is always much more difficult to dig out of a Budget deficit than get into one, so governments have to issue debt to pay for the shortfall. Look across the Tasman.
Before Covid-19 hit, Australian Treasurer Josh Frydenberg was expected this week to deliver the first Australian Budget surplus 12 years after Wayne Swan had told Australians during the global financial crisis that the Rudd Government would run a ‘‘temporary deficit’’. And until the pandemic, Australia had not had a recession in almost 30 years.
The deficit is necessary, and isn’t Robertson’s fault. But it will be tough to reverse.
Another story overshadowed by the Budget broke this week: Bunnings might be closing seven stores around the country, and big-box retailers are feeling the pinch after lower than expected sales under level 3.
While it is understood that, in the context of the Bunnings empire, these stores had limited potential for the sort of growth the company demands, they were never being really looked at for closure until the lockdown.
Now the uncertainty created by having to start again from zero – and not knowing at all what consumer spending habits will be like coming out of lockdown – has led to the trigger being pulled. And these conversations will be going on at firms around the country. Because the lockdown was so tight, even if a small business’ shop was shuttered during the lockdown and can reopen much as before, it will have to start anew on what its sales expectations are: that means reexamining staff, wages, everything.
The tragedy for the Government is that the more successful it seems to be at defeating Covid, the more it raises questions over the necessity of the lockdown. And it will always be arguable whether the right balance between public health and economic freedom was struck.
If a slow rolling maul of closures unfolds – particularly for stores such as Bunnings that probably would have done quite well out of the lockdown had they been allowed to operate – it will focus voters’ minds on the fairness aspects and necessity of the lockdown. And it will all add to the economic mood music leading into the September election.
That is what the National Party will be honing in on. Make no mistake, providing Covid more or less stays defeated, the conventional rules of politics – which were suspended during lockdown – will now resume with urgency. And the Nats already have their lines sharpened: heard about the $80,000 in Government debt per household yet? If not, you will.
The Government’s Covid response centrepiece – the wage subsidy – has been a success in keeping connected to the workplace, even if it doesn’t feel like it. And clearly Covid has not taken off in New Zealand. That will be the story the Government parties are trying to tell. National will be trying to talk about the consequences. Both matter.
The deficit is necessary, and isn’t Robertson’s fault. But it will be tough to reverse.