Peter Dunne
Wellington, May 21, 2021
As he brought this year’s Budget together Finance Minister Grant Robertson would have been mindful of three factors.
First, the Budget should set out significant steps towards reducing inequality, child poverty especially. This had been a pillar of Labour’s campaign prior to coming to office in 2017.
So far, partly because of previous Coalition constraints and more latterly the onset of Covid-19, alongside its own innate caution, Labour’s record on this front had been rather dismal, with most indicators showing little to no positive movement, and some even going backwards.
Now, as a majority government unconstrained by Coalition Partners, there would be little excuse for the government not being able to make the progress it promised on this front.
Focus on Vaccination
Second, the management of the ongoing response to Covid-19, both in terms of the economic readjustment in certain key sectors, and the delivery of the vaccination programme during this year, would continue to be a major focus of the Budget. At the same time, given the extraordinarily high levels of borrowing set out in last year’s Budget to meet the costs of the pandemic, some focus on the future debt repayment programme would be expected, alongside some assurance that the borrowings that had already occurred were being used prudently.
Thirdly, Robertson’s earlier Budgets (with the exception of last year’s Covid-19 Budget) had been criticised for a lack of strategic direction. This was undoubtedly largely due to uncomfortable Coalition arrangements which no longer apply.
Opportunity for pathway
Consequently, this year’s Budget provided an opportunity for the government to at last set out a clear strategic pathway, not just for the year ahead, but for the next three to five years.
And, underlying each of these factors, was the Finance Minister’s ongoing stated commitment to maintaining a prudent approach to fiscal management.
Against that background today’s Budget was very much a Curate’s Egg Budget – good, even very good, in parts, but quite lacking elsewhere.
Quest to reduce inequality
As far as inequality is concerned, the Budget borders on the dramatic. Only the most mean-spirited of people will begrudge the $3.3 billion increase in benefit spending over the next two years. Lifting all benefits by $20 a week from July 1 this year, and $55 a week from April 1 next year, as recommended by the Welfare Expert Advisory Group, could see up to 33,000 children lifted out of poverty.
Sitting alongside the $380 million allocation to build up to 1000 new homes for Maori and repair 750 others, it is a significant step towards what the Finance Minister described as the government’s “quest to reduce inequality.”
However, it is discounted to some extent by the lack of additional funding for Whanau Ora and general accommodation assistance for families struggling now with high housing costs.
Score for Covid-19 response
The Budget also scores highly on the management of the Covid-19 response. Its economic projections are substantially more encouraging than those produced at the time of last year’s Budget. Unemployment projections of just 4.3%, the creation of 221,000 new jobs over the next four years and wage growth of 3% are far more positive than those set out a year ago, even though they have still to be achieved.
Projected debt as a result of last year’s substantial borrowing programme remains high by our recent historical standards, but with a new estimated peak of 48% of GDP in 2023, is lower than forecast twelve months ago. And it is still way below the debt levels of countries like Australia and Britain.
So, the Budget scores well in terms of reducing inequality and sound economic management but is more disappointing when it comes to overall direction.
Labour seems to have passed up the opportunity of being the first government in a generation to be able to present a Budget untrammelled by having to meet Coalition or support partner concerns.
Not confident, not strong
This year’s effort is just as directionless as the two far more constrained pre-Covid-19 Budgets this Minister has been responsible for. It is certainly not the “strong and confident plan” he proclaimed it to be in his Budget speech.
Instead, it is very much a maintenance Budget – addressing those areas that could no longer be overlooked, like rising inequality, and making sure the housekeeping is kept under good control. Beyond that, there was very little to cause excitement or flurry.
Increasing PHARMAC’s budget by $200 million looks positive, but as the agency itself acknowledges, will not be enough to enable to fund all the new medicines queuing up. $700 million for new hospitals again looks good but will not go far. Likewise, with the additional $761 million for school buildings. A new allocation of $1.3 billion for rail upgrades also looks promising but in need of more detail, while the $300 million allocated to the transition to a low carbon economy is probably on the low side of what is required to achieve full carbon neutrality.
Growth or redistribution
While businesses and New Zealanders generally will feel a little relieved that the country’s medium-term prospects look far less bleak than they did at Budget time last year, and that the plight of the most vulnerable households is being addressed, they still have no clear picture of how the government views the journey ahead or where our future opportunities might lie. The Budget’s failure to step into this territory is not only puzzling but also extremely concerning, raising questions about whether the government is far more focused on redistributing the economy, rather than growing it.
Reducing inequality and getting “the balance right” in economic management are worthy goals in themselves, consistent with the government’s “Wellness” approach. But focusing on “Wellness” alone without a similar emphasis on “Prosperity” will not be enough to secure New Zealanders’ future wellbeing. Early in his Budget speech the Minister said the three Budgets he will present during this Parliamentary should be viewed as integrated package. On the evidence of this year’s Budget that means the next two will need to project a much stronger focus on achieving growth and prosperity than has been the case to date. Other countries are already moving ahead in this space and New Zealand cannot afford to be left standing still as the world moves on from Covid-19.
Peter Dunne is a former Minister of the Crown under the Labour and National governments from November 2008 to September 2017. He lives in Wellington.
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