Nasty, brutish — but possibly short.
Or maybe shortish. That is what yesterday’s Budget is picking the depression to be.
It was an unashamedly Labour document. Robertson drew on the first labour Government and Peter Fraser and directed a few flicks at Rogeromics and National along the way.
But it was ultimately a nightmarish reality check showing just how devastating this Covid-19 depression is going to be.
However, though Treasury forecasts which form the basis of the Budget show economic growth and unemployment falling to perilous levels this year and next; they bounce back by 2023.
That bounce though is coming at an enormous cost with crown debt expected to still be just below 50 per cent of GDP in ten years. (Last year it was 19.2 per cent).
You have to go back to 1992, the Bolger Government and Finance Minister Ruth Richardson to find a level of debt greater than what we will reach in 2023.The debt (ultimately, in 2034, $231.4 billion of it) is to pay for deficits that will stretch out to the 28/29 financial year.
Those deficits have their origins not only in increased expenditure to stimulate the economy, save jobs and provide social assistance but also in a reduction in tax revenue as the economy shrinks.
Robertson rejected the idea of trimming Government expenditure criticising National’s economic management from the 1990s and after the Global Financial crisis.
It was an unashamed piece of partisan politicking not often seen in Budget speeches as he outlined how the Government would approach the challenges before it.
“We can draw on the lessons of the past as to how to deal with them,” he said.
“The answers lie in the great traditions of the first Labour Government, who rebuilt New Zealand after the Great Depression.
“It was a time when they understood a genuine partnership between Government and the people; that each and every person in this country deserves the right to take up the chances afforded by being lucky enough to live in, as my predecessor Peter Fraser called it, this green and pleasant land.”
Robertson said the Government was taking hose principles into the modern era.
“We can also draw on lessons of the past as to what not to do in response to a major economic shock. In this case, I can draw on the experiences of my own life.,” he said.
“As the economic carnage of the 1980s and 1990s wreaked havoc in our communities, I saw that up close.
“It was based on a tired set of ideas that the market would save us, that if the Government sat on the sidelines, all would be well.
“Well, it didn’t work out that way and lives and livelihoods were lost.
“That will not happen, not on the watch of this Government.”
But concern about the size of the debt transcends tribal political boundaries.
Treasury has accepted that net debt could go to 50 per cent of GDP to cope with a crisis.
However in a speech last year signed off by Robertson, the then Secretary of the Treasury, Gabriel Makhlouf, warned of the dangers of debt at that level.
He argued that it t might crowd-out productive private sector investment; it might increase the perceived riskiness of investing in an economy and that the interest payments on higher debt would impose an economic cost on future generations through higher taxation than otherwise.
It was a theme taken up by Opposition Leader, Simon Bridges, in his Budget debate speech.
“We forget that a decade of deficits and debt means fewer choices for our kids down the road,” he said.
“The obligation we as parliamentarians have is to make sure the next generation is better off than we are, that they have more choices, more opportunities, more ability to succeed in the world because we back them, not burden them with debt.”
But Robertson says times have changed. Because interest rates are now so much lower and because the economy is so much larger than it was in 1997, the relative cost of servicing the debt has more than halved, declining from 2.9 per cent to between one and one point two per cent.
“The cost of servicing this debt will be very low by historical standards the cost of borrowing to the Crown remains about one to 1.2 per cent of GDP over the whole forecast period,” he said.
“We are able to borrow at such low rates because of the strong economic fundamentals and because of the government’s reputation as a responsible manager of the economy.”
He made it clear that he believed he had no choice; either he borrowed or he implemented austerity programmes.
“l am not a fan of austerity,” he said.
“I believe the way that we can get through this is by investing in people and businesses and supporting our communities.
“The way that we are going to deal with a significant global downturn is one that throws back more to the first Labour government than some more recent Labour and National Governments.”
And so the heart of the Budget is a $50 billion Covid-19 Response and Recovery Fund. The core of the fund is the Wage Subsidy Scheme which has already spent more than $10 billion on the wage subsidy scheme.
That is now going to be extended.
From June 10, businesses that have suffered, or expect to suffer, revenue loss of at least 50 per cent for the 30-day period prior to the application date versus the nearest comparable period last year will be eligible for the extension of the scheme.
“The subsidy will be open for applications for 12 weeks and will be paid as an 8-week lump sum to employers at the same weekly rates as the current scheme,” Finance Minister Grant Robertson said.
The other big-ticket item is a $3.9 billion increase in DHB funding over four years; $980 million a year.
But there is less to this than meets the eye. The DHB’s were forecasting an aggregate deficit of $559 million for the June year so that will leave only an additional $421 million out of the new funding for operational expenditure which will be an effective increase of really only three per cent.
Robertson sees training as the key to the recovery of the economy and its rebirth as possibly something slightly different to what it was before Covid-19 arrived.
Specific initiatives include:
- $1.6 billion Trades and Apprenticeships Training Package
- $400 million in MSD Employment Support
- $121 million for He Poutama Rangatahi
- $19.3 million to place 10,000 people into primary sector jobs
Included in these packages is $19.3 million over four years in a range of initiatives to help thousands of recently unemployed New Zealanders access training and work opportunities in the primary sector.
“In the immediate term, this initiative aims to place at least 10,000 New Zealanders in primary sector jobs by rapidly retraining and absorbing workers displaced from other sectors like hospitality and aviation,” said Agriculture Minister, Damien O’Connor.
Agriculture itself will be a beneficiary of a big environmental package which, again, has its focus on jobs.
- $433 million for new jobs in regional environmental projects
- $315 million biosecurity, including weed and pest control
- $200 million for DOCs Jobs for Nature Fund
- $154 million for new jobs enhancing biodiversity on public and private land
Conservation Minister Eugenie Sage says the package will create almost 11,000 new jobs in regional New Zealand to restore our environment.
It includes $27 million for the Ministry for Primary Industries to get populations of wallabies in the Bay of Plenty, Waikato, Canterbury and Otago under control.
More jobs will come from the Infrastructure build which is being presided over by Shane Jones; that has been allocated $3 billion though it has billions of dollars more than that in proposals before it.
And Jones, as associate State-Owned Enterprises is also presiding over $130 million from Budget 2020 to allow New Zealand Post to maintain service levels as it positions itself for the future of mail, while an equity injection of $150 million will also be provided from the Government’s COVID Response and Recovery Fund.
“Postal services across the world are facing considerable financial pressure as mail volumes continue to decline,” he said.
“COVID-19 has demonstrated how important our postal service is. During the lockdown, many New Zealanders and businesses relied on the services New Zealand Post provides.
“We have now reached the point where it is no longer commercially viable for New Zealand Post to maintain current service levels and it needs Government support.”
And Jones has also secured $1.2 billion of funding for KiwiRail.
- $246 million to support investment in the track and supporting infrastructure.
- $400 million to help replace the Interislander ferries and associated portside infrastructure.
- $421 million for new wagons and locomotives.
There are also proposals for Kainga Ora (formerly Housing NZ) and other social housing providers to deliver another 8000 houses over the next four to five years.
Robertson signalled that the Budget might not be the last word this financial year on the operating allowances.
He said the Government might need to revisit them as the impact of Covid-19 becomes more clear.
However, there was some scepticism from the Bank economists that Robertson’s growth fore and employment figures were too rosy.
ASB economist Nick Tuffley said there was considerable uncertainty over the economic path ahead, “but by our reckoning the economic forecasts provided by the Treasury look to be overly optimistic.”
Kiwibank’s economics team said the rate of decline in the unemployment rate “feels overly optimistic given the scale of the impact on the global economy.”
And Westpac’s economics team said “Treasury’s longer-term forecasts appear too optimistic to us.
“The Treasury has assumed that overall economic activity will rise back towards its previous trend as we approach the middle part of the decade.
“In contrast, we expect that the economy will be left with some long-lasting scars from the current downturn.”
The banks raised other issues, notably questions about the level of debt and the lack of flexibility it could impose on future governments.
But this was a political Budget delivered 127 days out from an election. The debt, however, will be there for another decade and a half — at least.