Budget 2023 betrays the Hipkins’ promise of bread and butter

Peter Dunne

Budgets today are as much a political statement of a government’s intent as they are an economic management plan.

They are a balance between what a government aspires to do, and what it can achieve in practice. As such, they are always compromises.

Grant Robertson’s six Budgets show this – the first three were severely constrained by the shackle of Quixotic coalition partner New Zealand First, and the last three by the spectres of Covid-19 and now, the disastrous January cyclones.

Should this be his last Budget, he will leave office never having been able to present a true ‘Labour Budget,’ for reasons completely beyond his control.

All these factors influenced the formation of this year’s Budget. It had two primary objectives. First, it needed to show a clear response to the ongoing social and economic ravages brought about by the pandemic, and more recently the summer’s devastating cyclones.

At the same time, it had to do something to alleviate the impact of the rising cost-of-living crisis on average households. Its second objective was to set a political platform for Labour’s re-election campaign over the next five months.

Robertson faced the classic dilemma of balancing the country’s longer-term economic and developmental requirements against the government’s shorter-term imperative of securing its re-election.

Unhelpful concessions

Prime Minister Hipkins had promised a ‘bread and butter’ Budget and Robertson has not disappointed in that regard. Rather than deliver assistance to families struggling with the rising cost of living by boosting Working for Families tax credits, he has opted for a more targeted approach.

Extending the 20 free hours of the early childhood education scheme to two-year-olds will help only those households currently with two-to-three-year-olds, not all families facing rising childcare costs. Abolishing prescription co-payments may also help, but it is questionable whether these two measures will do much to help families already struggling to put food on the table.

Similarly, free public transport for primary school-aged children and half fares for those up to the age of 25 is a pragmatic replacement for the blanket half-price transport scheme that has been in place for the last eighteen months as a cost-of-living relief measure. But it only applies to those living in cities or major towns where public transport is available. And the complete removal from the start of July of the fuel subsidy will hit hard those families relying on car transport to get to work or the kids to school, potentially negating the impact of the cost-of-living measures.

The National Resilience Plan was a necessary response to the cyclones, but the initial impact will be limited as the focus is properly on long-term infrastructural development, with many details yet to be worked out.

The Resilience Plan

The $71 billion package, funded largely by borrowing, is substantial but there must be questions about the national capacity to deliver, given current labour market conditions, and immigration settings.

The big picture looks a little less grim than that painted last year but is still far from rosy. A recession may now be avoided, ironically not because of any government policy initiatives, but rather because of post-cyclone recovery investment.

Inflation is predicted to drop to 3% by next September, but GDP is predicted to fall sharply over the next year. The return to a Budget surplus is pushed out a further year to 2025/26.

Overall, the Budget is neither an election winner nor a loser for the government.

While young families look for the immediate winners from the Budget, the impact on most other households – aside from the prescription charge abolition – is at best neutral.

Reduced public transport costs for those under 25 will be offset by rising fuel costs after the subsidy goes in July. Meanwhile, those on fixed incomes, along with the economy’s productive sectors such as industry, small businesses, agriculture, and horticulture have been largely ignored. There is still no sense that Robertson and his colleagues have any idea how to grow the economy to generate the long-term income needed to sustainably fund their social programmes.

The big gamble 

Labour is gambling that its extension of 20 hours of free early childhood education to two-year-olds (estimated to save the small number of eligible households around $133 a week, but not until March next year) and the abolition of prescription charges will pay a significant political dividend. However, that looks to be overly optimistic.

In March, ASB economists estimated that households were already likely to have to spend an extra $150 a week over 2023 to keep up with rising costs. With the fuel subsidy coming off at the end of June, rents and mortgages still rising, and the limited early childhood education relief still around 10 months away, the government has not yet done enough for those families to feel better off.

Nevertheless, Robertson’s “no frills” Budget was probably the best he could do in the circumstances, given the constrained fiscal position.

This is more a ‘bits and pieces’ Budget than the ‘bread and butter’ Budget that Hipkins promised. Of itself, it is not a viable election springboard for the government.

So, while the Budget has not set Labour off on a roll into the election campaign, as some undoubtedly hoped it would, it has put the focus more sharply on National. Christopher Luxon and his colleagues now need to show whether, and how, in the same circumstances they could have done any better.

Peter Dunne was a Minister of the Crown from December 1999 to September 2017 under the Labour and National-led governments. He lives in Wellington and writes a weekly column on current affairs.

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