But rising debts and unemployment are real challenges
Venkat Raman
Auckland, May 14, 2020
Finance Minister Grant Robertson has delivered a Budget which sets an ambitious path to economic recovery on the face of the devastation that the country has suffered under Covid-19.
Introducing Budget 2020, officially called, ‘Appropriation 2020/2021 Bill’ to Parliament this afternoon, he said that the proposal was the ‘most significant financial commitment’ by a government in New Zealand in modern history.
He committed $50 billion as ‘Covid-19 Response and Recovery Fund,’ which is in addition to $24.1 billion already committed as Wage Subsidy Scheme, Business Guarantee Scheme and Small Business Cashflow Scheme.
Although not a target for spending, the new Fund will provide the government with the financial backup required for future contingencies.
While Budget 2020 sets the government as the engine for economic activities while large, medium and small businesses recover from the adverse effects of Coronavirus, it will come at a huge price, although inevitable. Mr Robertson could be given the credit for being a cautious Finance Minister, taking the cue from his earlier master Sir Michael Cullen.
Lower GDP growth
The economic debacle will hit real GDP growth, which will enter the negative territory- to -4.6% in the year ending June 2020, revised from 2.8% during the same period in 2019.
New Zealand has resorted to heavy borrowing, taking its net debt to about 53.6% of GDP.
Mr Robertson said that others have higher stakes. United Kingdom started with net debt above 75%, the USA 90%, and Ireland 40%.
“Many countries are already well over 100% as they respond to the virus. New Zealand’s annual average GDP growth is forecast to return to positive from the year ending September 2021 onwards,” he said.
Unemployment is forecast to increase significantly, rising to 8.3% in the year ending June 2020, before peaking at 9.8% in September 2020 and then recovering thereafter.
Significant commitment
Arguably, the $50 billion Covid-19 Response and Recovery Fund will be critical in tackling the economic struggle that is at hand.
“Our recovery and rebuild will be based on getting New Zealanders back to work. This Budget is about jobs. Keeping people in their jobs wherever we can, supporting businesses and sectors to create new jobs through infrastructure, housing and more, directly creating jobs that help restore our environment and conservation estate, and training and re-training people for new jobs at a scale we have never seen before,” Mr Robertson said.
Budget 2020 also sets the pace for rebuilding social infrastructure, acknowledging that the Covid-19 toll has taken on our communities, and on the people and places that hold them together.
“Prior to the COVID-19 pandemic real GDP growth in the year to December 2019 was higher than many of our international peers. Unemployment at 4% was historically low and wage growth of above 3% was at decade long highs,” he said.
Strong fiscal position
Mr Robertson asserts that New Zealand’s fiscal position is strong and that the plan to reduce net core Crown debt below 20% of GDP has been achieved $12.8 billion of OBEGAL (Operating Balance Before Gains and Losses) surpluses during the first two years of the current government.
“These were conscious choices that did not go unchallenged. But this strong fiscal position, built on the work of (former Finance Ministers) Bill English and Michael Cullen, now means that we are much better placed than many other countries to use our balance sheet to cushion the blow of COVID-19 on the economy and to protect the wellbeing of New Zealanders. The rainy day has arrived, but we are well prepared,” he said.
