(Photo: Getty Images)
(Photo: Getty Images)

BusinessMay 20, 2021

Budget 2021: Government ‘could have done more to push the envelope’

Guest writer
(Photo: Getty Images)
(Photo: Getty Images)

While today’s budget had some positive and progressive news for society’s most vulnerable, experts say the government is still being cautious when it should be bold.

With the government facing social and economic battles on a number of fronts, today’s budget was something of a buckshot, firing billions of dollars at hundreds of different agencies and programmes. According to Kiwibank chief economist Jarrod Kerr, the government hit the mark with its decision to increase benefits from between $32 and $55 weekly – by far its most courageous, and prudent, announcement.

“I think it was the one major positive from today and obviously, with that wellbeing lens and focus on reducing child poverty, it’s a very positive step,” Kerr said.

“It goes on the advice of the welfare advisory group and it will go some way to solving some of the problems that we have with the most vulnerable in a society. But the most vulnerable still need to be able to find employment, get to employment and have a house to live in, and I don’t think we’re doing enough on that front.”

Kerr said the rest of the budget was cautious, with the government being as conservative as possible in order to secure lower debt and higher revenue in the medium to long term. He said it stood in stark contrast to the Australian budget last week, in which its government announced huge borrowing and spending packages, leveraging low interest rates to stimulate economic growth and target systemic issues.

“I was surprised that they [New Zealand government] were as cautious as they were. They want to show themselves as being fiscally prudent – but it wasn’t an exciting budget. The Australian budget last week was an exciting budget and one that pushed the envelope. It targeted jobs, targeting growth, using this once-in-a-generation opportunity to right the wrongs of the past, whereas we’ve taken a more conservative approach.”

“Many a year we look at budgets and we see a government which is a little too optimistic, whereas this is the opposite. This is a government that’s being cautious. I’d just like it be more front-loaded.”

However, there was still a significant chunk of money announced for infrastructure and operation spends: $3.8 billion more of operational spend, $3.9bn for capital expenditure, along with an additional $11.5bn for infrastructure every year for the next four years. Kerr said that the capital expenditure was less than he’d hoped, but the infrastructure figures were “healthy”.

“We do think they could have done more to push the envelope on this. To sit here and say the Australians needed to do it and we didn’t is wrong. 

“We have a lot on our plate; we have to tackle a chronic shortage in housing, we need to tackle child poverty, and like every other country on the planet, we’ve got climate change and ageing demographics to deal with. I think we should be doing more today to tackle those long-term issues.”

According to the government’s forecasts, the new budget will mean debt levels will peak at 48% of GDP by 2027, down from the 55% forecasted last year. Kerr said this pursuit of low debt was not factoring in the nature of current low interest rates, which should allow an economy to borrow while it’s cheap, grow and then pay it back once it is in a stronger economic position.

“The caution around debt is that one day interest rates will rise and you’ll never be able to pay it back. Well, that’s just not backing yourself. All you need is your nominal GDP to be materially higher than your interest rate. We’ve got that already and we should be able to continue that for quite a while.”

Other than increasing benefits, one of the other standout budget announcements was a $380 million targeted housing fund that would create 1,000 new houses for Māori families. Housing advocate Jacqueline Paul said the announcement was heartening as it targeted a chronic issue within the Māori community.

“Many Māori are living in severe housing deprivation and with declining homeownership rates and increasing rates of homelessness. It’s really difficult to see the realities of many whānau struggling to put food on the table and using a high proportion of incomes towards housing costs.

“This investment is so critical to strengthening the Treaty partnership by enabling and funding Māori housing programmes and initiatives directly.”

She added that the announcement to ring fence $350 million for infrastructure to enable housing for Māori from the $3.8 billion Housing Acceleration Fund would enable Māori to take control over their own affairs and determine their own solutions.

“What Māori need and require is funding. This is something to look forward to and many iwi, hapū and marae operating in the sector will be able to access these funds.

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“Although it won’t address the increasing demand and need for housing from Māori, the detail of ring fencing of funding for infrastructure is important to note given the lack of infrastructure, especially in rural areas.”

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Finance minister Grant Robertson delivering the 2021 budget (Photo: Hagen Hopkins/Getty Images)
Finance minister Grant Robertson delivering the 2021 budget (Photo: Hagen Hopkins/Getty Images)

OPINIONBusinessMay 20, 2021

A balanced budget. But ‘balance’ today is a political word, not an economic one

Contributing writer
Finance minister Grant Robertson delivering the 2021 budget (Photo: Hagen Hopkins/Getty Images)
Finance minister Grant Robertson delivering the 2021 budget (Photo: Hagen Hopkins/Getty Images)

Lifting benefits so soon after the economic hit from Covid-19 shows the government has not been spooked into a return to austerity. But neither has it grasped an opportunity to do more, writes economist Rosie Collins.

The highlights of today’s budget were the significant boosts to benefits and the strong focus on Māori development. The increases to benefits are unprecedented and will materially help those struggling week to week. It’s a direct approach to boost incomes that is less messy than coming up with fragmented policies to mask poverty.

Grant Robertson tried to be both generous and miserly at the same time, a tricky – if not impossible – task. There is so much need, and yet the spectre of “irresponsible’” fiscal management hangs over the Labour government. Debt is cheap – an economist might have done more, but a politician perhaps not.

I was looking for more investment in climate-resilient infrastructure, boosts to social housing, and targeted support for those out of jobs to get back into work. This budget has bits and pieces in these areas, but no big punch.

The investment of $380m over four years for Māori housing is an example of that. Māori make up 17% of our population, but half of our social housing waitlist. While 1,000 houses for Māori will go some way to fixing this, there are 11,000 Māori families on the waitlist. It’s still grossly inadequate.

Still, resources to make projects like papakāinga development easier will be encouraging for many who have been tirelessly advocating for this. Māori have land, but other barriers have long made housing an unacceptably awful situation for too many.

The budget plays at the fringes of government spending, but the signals of additional spending are important for stimulating the economy. This budget contains $3.8bn of average new operational spend, and $3.9bn for capital investment this year, over and above the $108bn of usual spending each year (on programmes that already exist, like health, education and justice).

Together it provides some stimulus. This is good, because the Reserve Bank can’t do much else for the real economy at the moment, just inflate house prices. Taking interest rates from “low” to “lower” can only do so much to spark productive investment when things are this uncertain.

We could have seen more on public infrastructure to help lock in longer-term stimulus. $11.5bn per year over five years is a stand-still figure (last year we spent $11.7bn). We needed to see that up by at least 50% to be confident we can climb out of our $75bn infrastructure gap.

While $300m for Green Investment Finance sounds good, it’s a small number in the scheme of things.

The advantage of infrastructure spending is that it’s spread out over many years, it creates jobs and economic activity, and it boosts the productive capacity of the economy. To get climate change ready and to relieve pressure on the Reserve Bank to do the heavy work, we needed to see more here. Debt is cheap – why not take the opportunity to set up for a better future?

One big positive today was the return of the training incentive allowance and some early hype for a social unemployment insurance scheme. These are both good if they help people find better job matches and reduce wage scarring – one major cost of becoming unemployed is that your income will often not recover for several years after you re-enter the workforce.

If the average cost of a jobseeker benefit is $12,000 average per person per year (and the lifetime cost is around $140,000), targeted spending to reduce this toll is a good thing. Part of this is preventing people from falling into poverty if they’re in between work, and supporting them to upskill if they can.

Active labour market policies haven’t been a strong suit of ours by OECD standards, so it’s great the government is doing more here. The OECD has been recommending this sort of policy action for New Zealand for some years now. I’m glad to see it.

The economic outlook is much improved from the height of Covid-19 only a year ago. Lifting benefits so soon after the economic hit from Covid-19 shows the government has not been spooked by boffins into a return to austerity.

But neither has the government grasped an opportunity to do more. Need is high and funding costs are low. There was a favouring of operating expenditure in this budget, at the expense of longer-term investment. I’m happy overall, but wanted more. Infrastructure is a can that can’t keep being kicked down the road.

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