BUDGET 2020

Labour’s back-to-basics Budget has hewed back to middle New Zealand and delivered a Budget aimed at them and their families

This was a Labour Party Budget but one that unmistakably bears Grant Robertson’s imprimatur. It is short on grand ambition while acting decisively to cushion the Covid-19 crash that became inevitable when the country was locked down in late March.

It is unashamedly aimed at middle New Zealand, buffeted by a global pandemic, and staring a sustained pay cut in the face.

Budget 2020 is not one for modern Labour’s base constituency of public sector professionals. It is aimed at helping people, primarily in the private economy, to keep their jobs – while also boosting cash for the public sector.

It also has a nod to the battlers, and shows the influence of NZ First – for the first time in at least four years there are no new taxes on alcohol and cigarettes. It’s a recognition that things are going to get tight enough, particularly at the bottom of the socioeconomic pile, without increasing the cost of life’s guilty pleasures.

At the same time, Robertson has resisted what must have been a great political temptation to fire up the fiscal helicopter and drop cash payments on each and every New Zealander.

Instead, he has remained true to his word since before the first Covid package on March 17. Money is targeted at those who need it and ploughed into staterun programmes to build up New Zealand – something this Government has long been in favour of. The spending is expected to boost national gross domestic product by 6 per cent.

And it is definitely a recovery budget. The apparatus of the state is not being reimagined, and any new progressive initiatives have been left on the Budget cutting floor. It has been designed to keep enough cash flowing to keep the economy afloat while financing this quite conservative Government’s vision for the future – better infrastructure, and well-funded public services such as health (district health boards got an extra $3.9 billion on Tuesday), education and public housing.

And audaciously, the Budget effectively asks for Parliament to approve $50 billion for the Government to spend however it wishes over the next four years.

However, $30b of that cash is already spoken for, making it more like $20b. The Government is keeping it in reserve; the deputy prime minister says it will be invested.

The Budget will pass Parliament, but it is a pretty extraordinary way to try to handle the years ahead.

That higher level of spending will lock any future governments into a new normal that will be hard to pare back.

And there won’t be money for anything else significantly new without tax hikes or cuts elsewhere.

And while the deficit is only forecast to last for six years before clawing back to surplus, government debt will creep up to more than 50 per cent of GDP. By global standards that isn’t bad, but for a small and open trading economy at the bottom of the world it is massive – basically comparable to net debt in 1992 that was run up by New Zealand’s 1980s spending binge. Robertson hasn’t spent this amount of money lightly.

Politically, that will be the most difficult part of the Budget and the most worthy of legitimate debate. Even if well justified, New Zealand will be lumbered with years of deficits, running up a huge debt burden.

Under John Key and Bill English the National Party was extremely effective at making economic management turn on Budget surpluses. So effective, that Robertson has also used that as his yardstick. Now he has to argue that those surpluses that he inherited and continued were

precisely for this rainy day. The National Party has a much more difficult path to navigate in arguing that the money was needed – but just not this much, or not in this manner.

Unemployment is expected to peak next month at 9.8 per cent, which is much lower than some predictions at the start of the lockdown. But still, on Tuesday the Reserve Bank estimated that the economy would shrink by 21.8 per cent in the June quarter.

This Government’s record will stand or fall over its handling of the coronavirus recession. After the initial phase of the well-designed wage subsidy ends in mid-June, it will be extended by another eight weeks, but reined in. Still, by the time of the election the subsidy will have run out for those worstaffected firms – primarily in hospitality and tourism. The Government will be hoping that further Covid restrictions can be loosened and even a transTasman travel bubble can be up and operational by that point.

All of this is underwritten by cheap money and an assumption that the Government will be able to borrow extremely cheaply for an extended period.

This Budget will influence the political and economic fortunes of several future governments for at least a decade to come.