The pot of gold wish-list
Analysis: With a $7.5 billion surplus and $12b kitty to spend on infrastructure, the Government has options to spread the riches, writes Bonnie Flaws.
This is the year for the Government to open the purse strings and help the poor and ramp up spending on much-needed infrastructure projects, economists say.
Unemployment is at a record low of 4.2 per cent and the economy is predicted to grow by 2.5 per cent for the next two years, which is good news for the country.
But Susan St John, associate professor at the University of Auckland business school, says the benefits of the strong economy are not flowing through to the many families who can’t afford even the basics.
The Government should put more cash into the hands of those who will spend it to help meet their immediate need and to stimulate the economy, she says.
Others say the country is at an economic crossroads and now is the time to take decisive action on big infrastructure projects, for which the Government has set aside $12 billion.
But international geopolitical issues, natural disasters and financial market gyrations can be expected to lob a few economic curve balls.
The Sunday Star-Times asked five economics experts for their views on what the Government should deliver in 2020.
Susan St John, associate professor, University of Auckland Business School
An immediate boost to family income is needed because so many are in crisis and so many children are simply not thriving. The long-term costs of this neglect puts more pressure on health services, more hopelessness, more incarceration, and more lost potential. When families have little money to buy even the basics, local businesses falter and fail, so it is extremely bad for the economy. It is also shortsighted with an ageing population increasingly dependent on a well-educated, healthy younger workforce.
Cash in the hand is needed right now, not only if Labour is re-elected. It can be done.
The $2 billion yearly contribution to the New Zealand Super Fund is not high priority spending and could fund: an early start to the Winter Energy Payment or equivalent to boost welfare payments; the full Working for Families package for those on benefits who are excluded from at least $72.50 a week for their children; a realistic earnings level so beneficiaries can work 10 hours at the minimum wage instead of under 5 before the benefit is cut; a Work and Income debt forgiveness programme to reduce the drain of debt repayments.
Yes, more infrastructure spending is good, but it won’t feed the immediate need.
Max Rashbrooke, senior associate, Institute for Governance and Policy Studies
Sometimes compassion and good economics align. That will be the case this year, as Finance Minister Grant Robertson looks to keep the economy ticking along.
Robertson’s multibilliondollar infrastructure package, as announced recently, will provide good jobs and a long-term pipeline of work. But infrastructure projects are slow to start. So what could Robertson do with more immediate effect?
Put money in the hands of people who will spend it directly.
This could be done through tax cuts, but they’re not very targeted: everyone benefits from them, even millionaires. The best move would be to increase benefits, as the Welfare Expert Advisory Group recommended earlier this year, by up to 47 per cent.
Current benefits, which provide as little as $11,000 a year, leave recipients struggling to stay afloat – hardly a firm foundation from which to get one’s life together and look for paid work. Higher benefits, combined with better retraining schemes, would allow beneficiaries to live with greater dignity and look for work from a position of strength.
Beneficiaries would also spend the money immediately, having after all no other option. This would provide immediate economic stimulus. Kindness and a strong economy, in other words, can be close bedfellows.
Christina Leung, principal economist, New Zealand Institute of Economic Research
There are signs businesses and households are feeling more confident, and this is supporting an improvement in demand. The latest GDP data suggests economic activity is picking up across a range of sectors, and the chances of a recession hitting the economy over the coming year looks slim.
To the extent uncertainty has hampered long-term planning and in turn affected investment intentions, improved certainty should boost demand.
Now part of this uncertainty relates to the global growth outlook and is largely out of our control. But the Government can help to shore up certainty in New Zealand by being clear about its investment plans, in terms of exactly which areas the new spending will go into. This will help firms to plan their own spending and in turn boost demand.
Benje Patterson, independent economist
New Zealand enters 2020 at an economic crossroads.
Strong growth over recent years has enriched many, but has not transformed living standards for all. We have now reached a part of the economic cycle where upside is harder to find and some people will inevitably be squeezed. I want to see less hui, more do-ey in 2020.
The Reserve Bank has cut interest rates so low that the cost of debt is immaterial. Robertson must now pry open his purse. Government debt is cheap, and the books are in good shape. Robertson has already announced some new infrastructure spend, but his plan lacks detail.
Projects must be named and shovels in the ground quick smart, but money can’t be allocated senselessly.
Economic development is about helping people and places thrive in a sustainable manner. Money can’t just be funnelled according to political geography. Where people choose to work, live, play and do business must guide where the Government’s geographical focus sits. That way projects will be more realistic, will resonate better with the regions, and will have a higher chance of being effective. The disconnect between policy, community, business aspirations and actions must stop.
Sharon Zollner, chief economist, ANZ
Let’s be honest, over a one-year horizon quite a lot is going to come down to luck.
The weather: droughts can really throw around GDP.
Commodity prices: they’re holding up remarkably well in the face of slowing trading partner growth, but how long can we ride our luck?
No meltdown in global credit markets or upscaling in global geopolitical tensions would be a very useful backdrop, and no earthquakes or other major natural disasters would help too. And could the New Zealand dollar please behave itself?
That’s nearly half my word allowance gone and I still haven’t gotten onto stuff we can reasonably hope to affect through the choices that we make. That’s life in a small, open, agricultural economy on the Pacific Rim. Turning to our economic choices, we need a Goldilocks housing market – warm enough to keep the vibe on the street positive, but not so hot that it starts leading to silliness and exacerbated financial stability risks.
The Reserve Bank will need to steer carefully. We need sensible choices in how the Government spends its $12b – infrastructure projects that enhance the already improving business vibe regarding the future of our economy. And we need credit to keep flowing, it’s the oil in the economic engine.