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Image: Tina Tiller
Image: Tina Tiller

OPINIONPoliticsMay 20, 2022

When Labour turns on the money hose, who gets drenched?

Image: Tina Tiller
Image: Tina Tiller

Budget 2022: After 2021’s budget opened the spending floodgates, this year’s version couldn’t help feeling like a damp squib, writes Danyl Mclauchlan.

Ah, budget day! The most magical day of the year, when the finance minister enacts that scene from Fury Road. The one where Immortan Joe throws open the floodgates and rewards his wretched worshippers with torrents of fresh water. But instead of water we’re drenched in money! One hundred and twenty eight billion dollars in spending this year! It is by Grant Robertson’s hand that we will rise from the ashes of this world.

Some of us are more drenched than others. The most worthy recipients in the 2022 budget are probably the solo parents on benefits who will no longer have their child support deducted by MSD to “offset” the cost of their benefit. This policy change only costs an estimated $70 million a year; as with the public transport supplements rolled out back in March, it’s astonishing how cheap it is to help the poorest, most vulnerable people in the country.

It’s interesting that this change wasn’t foregrounded by the government, either by pre-announcing it, or including it in their top-line announcements yesterday. Last year was Labour’s “compassionate budget”, in which Robertston and Jacinda Ardern used their absolute majority to pass the reddest of red budgets, with the largest increases to welfare payments in a generation alongside massive investments in health. Back then they were proud to be increasing benefits. Now, billions of dollars later, they’ve seen most of those increases wiped out by inflation and suffered a dramatic decline in popularity. This is still a Labour budget, but it’s far more muted.

Instead the topline policy is the new cost of living payment, $350 to everyone who earns less than $70,000 but doesn’t get the winter energy payment. The government reckons that’s about two million people, and this feels like a cohort spat out by a pollsters algorithm, rather than a reflection of who genuinely needs help right now. It closely resembles National’s old “independent earner” tax credit, which they introduced in the late 2000s and scrapped a few years later, because not even John Key could justify such a blatant electoral bribe to his caucus.

Other than that there were few surprises. Huge amounts of debt moved around the health sector. The government continues to try and build houses. There’s just under three billion going into the Emissions Reduction Plan to transition us to a low carbon economy, and it’ll be many years before we know whether this is money well spent. The agriculture and forestry sectors get $710 million over the next four years. The energy sector gets a billion. and I think it’s worth comparing that to the $70 million a year to solo parents I talked about earlier. It’s a shame they can’t all club together and hire themselves a lobbyist.

Grant Robertson, flanked by fellow ministers, on his way to parliament to deliver the 2022 budget (Photo: Hagen Hopkins/Getty Images

But maybe buying off the worst emitters is just the grubby reality of what effective climate policy looks like. And if the dairy sector uses that money to develop genuine low carbon solutions to farming, we could export them all over the world and make a real difference to global emissions. Or maybe they’ll just take the cash, keep on polluting and furiously resist any real change. It would be nice to be pleasantly surprised on this one.

Labour began this term with unprecedented popularity and two very strong assumptions. The first was that the government should give money to people who need it. The second was that it should invest in the public sector, especially education and health. The 2021 budget was a very confident implementation of those values, but the last 12 months have called them both into question. Because if the government increases benefits and minimum wages, but that contributes to inflation, which wipes out the value of the increases, then they haven’t really helped anyone.

And the modern day public sector is very far from the one Michael Joseph Savage built, or even the walk-shorts and glide time stereotypes of the 1970s. It’s an amalgam of public and private entities: departments and ministries and commissions co-existing with law firms, consultancies, public relations companies, NGOs, corporations and other private sector providers. It’s carefully optimised to redirect vast amounts of public spending into private hands, and this is a problem this government struggles to confront. Which is why its ministers routinely find themselves being torn apart by interviewers like Corin Dann or Tova O’Brien, struggling to explain why some previously announced multi-million dollar policy has only helped a tiny handful of people, or failed to build any houses, or to translate into real-world action at all.

This budget doesn’t solve those problems. Which shouldn’t surprise us – they’re hard to solve. I’m sure it’s very clever in terms of its political positioning, buying off a large number of swing voters while presenting the government as prudent and disciplined. But, unlike last year, it’s harder to see what Labour’s project is. What are they doing with the most powerful electoral majority in our modern political history? Why do they get to laugh maniacally as they throw open the money floodgates, instead of Chris Luxon and Nicola Willis?


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Image: Tina Tiller
Image: Tina Tiller

BusinessMay 20, 2022

Short-term pain, long-term gain – but the budget can’t fix a deteriorating economy

Image: Tina Tiller
Image: Tina Tiller

The economy could well shrink in the near term, interest rates keep going up and supply chain shortages aren’t disappearing any time soon. But the budget’s focus on the long term is praise-worthy, experts say.

Inflation is at a 30-year high, living costs are on the rise, and supply chain woes and labour shortages are pushing business expenses up. At the same time, the long-term game of building good-quality roads, hospitals and train tracks, and addressing climate change, demand immediate investment. Today’s situation requires short-term relief and future-proofed thinking.

It’s in that context that finance minister Grant Robertson delivered his fourth “wellbeing” budget. Titled “A Secure Future”, the budget came in at $5.9bn – a smidge under the $6bn annual operating spend he had at his disposal – and among the announcements were:

  • A temporary $350 payment for about 2.1 million New Zealanders aged 18 and over who earned less than $70,001 last year and don’t already receive the winter energy payment;
  • A two-month extension of the government’s temporary fuel excise cuts and half-price public transport, through to August 2022. The latter has been made permanent for the 1 million community services cardholders;
  • The single largest boost to health spending ever, at $13.2bn, covering cost pressures and new services;
  • $2.9bn from the climate emergency response fund to focus on immediate decarbonisation efforts and energy security; and
  • An amendment to child support rules, which the government expects will lift 6,000 to 14,000 children out of poverty by treating sole-parent beneficiaries’ child support payments as income for benefit purposes.

The budget wouldn’t change the outlook for the economy, house prices or interest rates, said economist Tony Alexander. “It’s not going to address the shortages of staff, which people are facing; it’s not going to alter the ‘brain drain’.” On the other hand, he liked the government’s focus on the future. “That would be the big outtake – the long-term infrastructure, health, climate change focus. These are very positive things.”

As much as the government has increased the net debt ceiling to 30% of GDP, Treasury has forecast the ratio would peak at a shade under 20% in 2024 before gradually declining. Alexander, a former chief economist at BNZ, said the government wasn’t undertaking a “spending splurge, which will either blow out debt or necessitate tax increases. You couldn’t say that they’ve been profligate with the money.”

While the government could always address short-term issues – the economist pointed to the billions of dollars of fiscal stimulus the government spent to shore up jobs and livelihoods as the pandemic hit New Zealand’s shores – if it had tried to insulate people “aggressively” from rising living costs, it would have made the Reserve Bank’s job of controlling inflation more difficult, he said. “Extra fiscal loosening now would have necessitated more monetary policy tightening.”

Accompanying the budget were the Treasury’s forecasts, and Alexander said they told the story of a deteriorating economy. Treasury had previously forecast the economy would expand 2.2% by mid-2024; it’s now 0.7% – an estimate that was consistent with what private-sector economists were expecting. Treasury also expected inflation to ease to normal levels of 1-3% by the middle of the decade, wages should rise 6.3% by the end of 2023 and a budget surplus should arrive in 2024/25.

Economist Tony Alexander (Photo: Supplied)

Alexander said a “big game-changer” housing policy was lacking, although that was “realistic” to expect. It didn’t matter what policies the government crafted to incentivise more construction as there was a shortage of readily developable land, infrastructure, materials and staff. “The resources simply aren’t there. You’d be simply banging your head against a brick wall,” he said. The finance minister announced that price caps on eligibility for first home grants would be increased in many parts of the country, for both existing and new builds. A new programme was also announced to support the development of new affordable homes for low-to-moderate-income whānau.

Property Council head of advocacy Katherine Wilson said while the budget would benefit the average voter, little of significance related to the property sector. The property industry lobby group was “once again” disappointed to see the government hadn’t unlocked the build-to-rent sector for the private market. “It is almost inconceivable that the government has overlooked ‘quick wins’ in terms of legislative changes that could open up” the market, said Wilson. Earlier this week, the council calculated that just over 1,000 homes could have been completed or in the pipeline for the month of May had the government acted earlier in “unleashing” build-to-rents. As a result, some 2,706 New Zealanders have missed out.

Other reactions posed the question of how far and fast could the government execute its reform agenda. Deloitte chief executive Mike Horne said the budget provided insights on what levers the government was willing to pull to achieve a prosperous Aotearoa. But questions remained over the breadth and speed of its agenda. “The government will be under particular scrutiny about whether value for money is being delivered from their reform agenda and climate objectives,” he said. “Direction and intent is one thing but execution is ultimately what will drive the scorecard.”

An investment fund worth $100m over the next year providing small and medium-sized enterprises with access to finance was a nice-to-see. Horne explained the scheme effectively meant the government would take minority stakes in qualifying businesses and seats at their board tables. “The challenge will be ensuring that the investment can be delivered in a robust, responsible and timely manner and that process and regulation do not become overbearing barriers to access,” he cautioned.

While acknowledging the need for spending to account for wider inflationary consequences, the government had shown a desire to keep pushing on with healthcare and other reforms. Horne said: “How inflationary these are likely to be will depend on how quickly the investment gets rolled out, especially with much of the funding directed into areas of the economy that are already facing capacity constraints.”

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