We’re in the midst of a historic week, with the Reserve Bank expected to double its quantitative easing programme on Wednesday and the Government due to release Budget 2020 on Thursday.
We’re talking tens of billions of dollars - enormous amounts of money in New Zealand’s context.
However, I wouldn’t expect to see anything anymore earth-shattering than we’ve already seen.
Finance Minister Grant Robertson has been tempering expectations around the Budget, stressing it’s another phase in the Government’s rollout of support.
Robertson hasn’t needed a formal budget process to allocate more than $20 billion towards the COVID-19 response in the past two months alone. So yes, the Budget will include some frightening numbers compared to previous budgets, but in the context of the “new norm”, it will be yet another significant announcement in a string of significant announcements.
We've already adjusted to the new norm
To address those frightening numbers first, in December the plan was for the Crown’s operating allowance to be increased by $3 billion in the 2020/21 year, and its capital allowance increased by $12 billion over four years.
Treasury at the time expected to issue $10 billion of bonds in both the 2019/2020 and 2020/21 financial years.
It forecast the Government’s operating balance before gains and losses (OBEGAL) would dip $900 million into deficit, before returning to surplus in 2021.
Fast-forward three months, and as at the end of March, Treasury reported the OBEGAL was already $2.7 billion in deficit.
As for debt, on April 1, the forecast New Zealand Government Bond programme for the year to June 2020 increased to $25 billion.
Clearly, Budget 2020 is going to absolutely blow previous budgets and expectations out of the park.
But, given the uncertainty around what the virus will do, and how governments around the world will respond, Robertson won’t want to go out, all guns blazing on Thursday.
He’ll want to give himself the flexibility to respond as the situation evolves.
What’s next after the wage subsidy?
Importantly, he will have to announce further temporary relief for businesses, with the 12-week wage subsidy due to run out.
The question is whether this scheme will be extended, perhaps in a more targeted way.
Robertson doesn't believe banks are doing enough new lending to businesses. Banks haven’t issued many 80% taxpayer-underwritten loans under the recently broadened Business Finance Guarantee Scheme. They’ve said demand for these loans is yet to come, but anecdotal evidence suggests small businesses without property to secure loans against are struggling.
The creation of the new Small Business Cashflow Loan Scheme, through which small businesses can get loans of up to $100,000 from the Inland Revenue, depending on their size, is an acknowledgement the government believes banks aren’t doing enough.
However there will still be a large number of businesses that don’t qualify under either scheme. What’s more, taking on more debt isn't the solution for every business.
On Thursday, all eyes will also be on targeted support - particularly for the tourism and media sectors.
Welfare and broader household support
Secondary to temporary relief for businesses, is the issue of support for households.
Robertson has in recent weeks told interest.co.nz he isn’t considering getting the IRD to write personal loans, nor is he considering targeted support at mortgage holders, who may come under particular pressure if they lose their jobs. This is turn puts strain on the banking sector, which has a lot of mortgage debt.
Depending on what support is provided to business, we could see a wave of people end up on Jobseeker Support.
So far, the wage subsidy has really cushioned the increase. More than 39,000 people went on Jobseeker Support between mid-March and the end of April. As at May 1, there were 184,404 people on Jobseeker Support; 6.1% of the working age population.
Benefit levels were increased in April, but most of the Welfare Expert Advisory Group’s recommendations, worth $5.2 billion a year, haven't been implemented.
Robertson could push through some of these changes now, but will be criticised if he makes permanent changes under the guise of these being a response to COVID-19.
The government has not ruled out giving households cash payments, although these would presumably need to be targeted. It could also make temporary tweaks to the tax system to put more money in people’s pockets.
The challenge will be ensuring any money distributed is spent and not squirreled away.
Infrastructure in focus
While the Budget will address immediate needs, it will also need to look ahead at the recovery longer-term.
The government remains committed to investing heavily in infrastructure.
Crown Infrastructure Partners is preparing a list of infrastructure projects/programmes that are ready for construction and could, if the government deemed it appropriate, be deployed as part of a stimulatory package.
Work is also underway to enable infrastructure projects to go through a streamlined consenting process.
Education is likely to be a focus in the Budget, as people may need to retrain for new jobs. Preparing the workforce for the changes that lie ahead has always been a priority for Robertson. COVID-19 will accelerate this.
And then of course, there's health, which will be front and centre.
Green Party supporters might be disappointed by the 'reset’
While Robertson has spoken of using COVID-19 as an opportunity to push reset on the economy, and address long-standing issues like inequality and climate change, I don’t believe he’ll make material changes in Budget 2020.
The vital question of how to distribute the cost of repaying the enormous amount of debt being issued is one for another day.
A real commitment to addressing inequality might involve significant and unpopular changes to the tax system and possibly even New Zealand Superannuation eligibility.
But Robertson won’t want to dent consumer and investor confidence even more now, alluding to the prospect of higher taxes for some in the future.
It’s early days, but we’re also yet to see the Reserve Bank drop hints that it will enter taboo territory, and risk damaging the credibility of our system, by writing off the government debt it’s putting on its balance sheet.
Robertson has been a “steady as she goes” finance minister up to this point. Budget 2020 will simply be the next iteration of this - admittedly involving a few extra zeros.
96 Comments
"While Robertson has spoken of using COVID-19 as an opportunity to push reset on the economy, and address long-standing issues like inequality and climate change, I don’t believe he’ll make material changes to this effect in Budget 2020".
Ask him the Limits to Growth question. Climate-alteration is merely the exhaust-pipe emanations of our energy use. Ask him how long that energy supply stays? Compare it to the debt, and time remaining.
This isn't about 'adapting to Climate Change' and going 'Green Growth' or even 'MMT', this is about hitting global limits with a totally fossil-dependent, never-bigger, never older collection of infrastructures. And a dwindlying supply of everything else.
What we need is a physical-stocks Budget - what we are getting (if you're correct) is a hell-and-gone from that.
"While Robertson has spoken of using COVID-19 as an opportunity to push reset on the economy, and address long-standing issues like inequality and climate change . . . "
We are in urgent need of this.
Failure of Muldoon's interventionists policies led to a reset of Rogernomics free-market.
The free-market policy has progressively resulted in the problems that we now see around us; inequality, obscenely high and obscenely low wages, homelessness, unaffordable house prices, high rents, urban congestion, lack of serious action to address climate change . . . (and I am actually a happy fellow).
We are in a situation which provides an opportunity for a reset and I really hope we see that. The direction and emphasis of this budget will greatly influence my vote.
Ok P8, where is an example of the economic model you want? You criticise the free-market, but where do you want to live? The Chatham Islands, Stewart Island - affordable house prices, low rents, no congestion, carbon neutral (apart from the generator!). I'm not being facetious, leave the cities to those that want free market and go and follow your dream.
The funny thing is when you press someone who supports 'free markets' to define just what that actually means, more often than not they have no idea what a truely free market is. I suspect that if they were to experience one first hand that they may not actually like what happens to them IN one.
I think "free market" is a tricky term in that I bet almost no one here is arguing for anarco-capitalism (well maybe Ralph?), or on the other extreme a centrally planned economy. So the question is how much to intervene in our markets/where to draw the line (+ how do we set up markets in the first place, e.g. if I have a stream on my property can I hoard water/pollute downstream users willy nilly? i.e. if I can own land, can I own water? Air?). Hard questions!
Don't want to put words in his mouth but I read the criticism of free-markets as criticism of a system which encourages (or fails to discourage) short term and concentrated wealth gains at the expense of long term economic stability and environmental losses.
Not something you could do overnight, but here's one example of an alternative economic model:
https://steadystate.org/top-10-policies-for-a-steady-state-economy/
https://www.youtube.com/watch?v=8dOfMYtiD9U
Not perfect, but is the current system? What are our current goals? 10 billion people with US or above standards of living? I think that's unrealistic.
Personally I'll be quite happy with a little shack on an island, but we're interconnected in a way that makes it more complicated than that. If the island is sinking under rising sea levels, or fish stocks are collapsing and I can't even catch a kahawai, then am I really left to follow my dream?
All good points.... I think NZ had the balance about as good as it could get for a while, you could choose the path the best suited you. Now I'm not so sure.
As Michael Jordan said when asked if he was an unpleasant guy to be around - there is a price for winning. There is a price to pay for roads, good education and good hospitals.
I clearly stated that a market is a construct, so anarchy could not logically be included.
The key feature of a free market is freedom and logically therefore the extent that you argue against a free market is the level as which you argue against freedom.
And that's not an argument for total freedom, as there is no such thing.
The above comments are from a group, likely unaware of earlier discussions on this topic, who don't understand that there is no such thing as a 'free market'. Take away Government regulation and people will endeavour to manipulate the market in their favour. Homelessness is not a product of a 'free market', it is a product of a market that has been manipulated without regulation. Employment is seldom a 'free market' exercise as the employer for 99.9% of us has all the power. That 0.1% are individuals with uniquely marketable brands or skills that are not easily found, the rest of us are in and excessively competitive market which hands all the negotiating power to the employer. Upskilling and retraining doesn't work, it just shifts the market you're in, and can actually work against you. Ask me, I know because I've been there. P8 totally nailed it correctly.
The term "free market" can be defined in a myriad of ways, I already gave you mine. What you, P8 or anyone fail to do is give a working example of your vision of Utopia - it's all ideological fantasy stuff. If you think things will better under state control, you are sorely mistaken. Regulation comes precisely because there is a free market - the free market quickly worked out it needs regulation and indirectly funds it through corporation tax. There is not a single example of a command and control economy, maybe Russia with it's endemic corruption and faux democracy where our comments here would be "followed up" by the state. As labour we need to keep evolving our skills so we are marketable, it's not easy I agree.
I think the 'no such thing' argument is largely a straw man because everybody who understands the nature of freedom itself knows freedoms are a trade off requiring balance.
Markets that are more free are better than markets that are less free.
Better because freedom is better than slavery, better because they produce more material wealth (like food).
In Sri Lanka you can't own a business without paying a bribe. In China they can tell you where you will live and sack you from your work without recourse. In Zimbabwe and Venezuela centrally controlled state ownership bankrupted both countries. History is full of socialist economies packed with central control that resulted in the starvation or murder of their own citizens. And that's not a good result in may book.
I put it to you that the least free market can be found in the city, the most free market can be found in remote areas (I've lived in both, so I know where I felt most in control).
Aside from that, when we come to truly understand we cannot carry on using non-replaceable resources of the planet as if we had another one to draw out in the backyard, that even the most free marketeer will have to fall into line.
"The free-market policy has progressively resulted in the problems that we now see around us"
I don't see any evidence of that.
Failure is a built in part of a free market's success. People fail to live up to their potential, or to carry out all their good intentions, in all kinds of economic and political systems. Capitalism makes them pay a price for their failures, while socialism, feudalism, fascism and other systems enable personal failures, especially by those at the top, to be ignored.
The more interference with freedom the more weird distortions take place and the less wealth is produced.
I love freedom.
I love freedom too, but it's just as nebulous a word as equality.
If your wealth production is impacting on my or my children's health, then who's freedom takes priority? Who enforces that freedom? A government? Private armies?
Also, assuming you're talking about material wealth, why is that the goal? Don't get me wrong, 200+ years of industrialisation & capitalism can be linked to a higher standard of living/life expectancy, but there are diminishing returns. Double GDP and you're not going to see people living to 200, twice as happy, or half as depressed. Could very well be net negative consequences - we might be seeing this already to different degrees, e.g. environment quality, rising mental illness, life expectancy in the US is lower (!).
P8, housing affordability, as calculated by Infometrics, is right on the long-term correlation to earnings. As cities expand, FHB need to look further out - it's a reality in every city (This is the first graph I looked at)
https://www.infometrics.co.nz/calculate-housing-affordability/
NZ is well positioned to borrow heavily to keep this small economy afloat.
There are massive rooms for population growth as well as selling natural resources or the rights to use them.
The only concern is to not let some stupid politicians to mass around key foreign relationships with major trading partners only for the sake of their political motivations.
AUS is now being punished with the tariff on barley.
杀鸡儆猴 (kill the chicken to warn the monkey).
Hope NZ understand.
Funny, my translation was 'Spank the monkey, not the chicken' how odd! I learned my Cantoneese when I stayed at Kowloong Bay as a teenager so perhaps thats where the translation fell over? Notwithstanding, perhaps once Beijing completes its One China ambitions we here in NZ will be fortunate enough to join the glorious empire too?
https://www.purpleculture.net/dictionary-details?word=%E6%9D%80%E9%B8%A…
The link above is for the translation.
Sovereignty is one of the strict bottom lines of China.
Peters' move to comment on Taiwan's WHO membership manifested that he always places his political career over NZ's interests as a whole.
The question is whether NZ should follow global multilateral organisations or the US. I think the answer is very obvious.
China is the last country anyone should listen to on issues of sovereignty. Taiwan is a sovereign nation. The Senkaku islands are Japanese. There is no historical or legal basis for the 9 dash line. The PRC forced the signing of the Seventeen Point Agreement under duress, effectively stealing Tibet.
Winston is completely in the right, and China's response lays bare it's true nature.
Sovereignty eh? Then China should back the eff off and leave Taiwan to theirs.
I was very saddened to hear our govt say they back the "One China" policy, still am sad about it, but I hope what was meant by it is, maybe mainland China join with Taiwan, not the other way around.
I don't see why we should have to follow anyone to be frank, sick to death of the bully boys.
Taiwan, having long experience with CCP, rightfully did not trust a word from the CCP report.
Thus, able to do all the precaution to the Wuhan-born virus, including border restrictions from China. Well-done!!
Countries who believed what CCP said now suffering with high numbers of cases.
Also, Winston has a valid point this time. NZ should think about the compulsory wear of masks like Taiwan does.
Just me or does this read like a threat?
I'd rather go poor than do deals with China or sell the country out to the CCP just to keep the economy going (whatever that means!).
At which point the only way China could influence NZ would be via military action - to which I would say to China, go for it!
Hope China understand.
Who have China backed?
- North Korea, well I would say the US won that one looking at the current state of affairs.
- Vietnam? That was mostly the USSR, and to be fair, no one came out of that looking good.
What about direct warfare with China? Historically they have come off worse in nearly every single conflict since Ghengis.
I would finish by asking who got the Japanese out of China in WWII?
“There are massive rooms for population growth as well as selling natural resources or the rights to use them” You must have been listening to Sir John Key. Where did the last decade of pursuing that strategy get us? Poor productivity growth, poor GDP per capita growth, increased environmental degradation, increased urban sprawl and unaffordable housing. Let’s do that again? Can I politely say no thanks.
Robinson is caught with a dilema to solve....NZInc is notoriously change averse and as we have seen countless times over the different decades when things get rough, simply hides in its mousehole till things improve rather than go on the front foot and improve the way NZInc actually operates in the changed environment. I support a complete reboot of the economy as it has become drastically lopsided and as we have seen is hugely vulnerable as a consequence. The risk of too much change is it will compound the shock of the lockdown and could make NZInc go missing in action for another decade. Much as we saw post currency crisis 1984, post Asian economic Crisis 98, post .com bust 99 and post gfc 2008.
If you think an all Labour/Green coalition won't kneecap the vast majority to pander to minority views then I don't know what to tell you.
Remember, this is a Government that has so far delivered precisely zero key flagship policies, supposedly urgently needed policies (after campaigning on the meme that the National Party was guilty of neglect) and the economy was retreating before Covid19 came along.
They won't suddenly become more competent because fate handed them a Get-out-of-jail-free card.
At Jacindas Level 2 announcement she did mention the budget and three words stood out, economy, equality and environment.
So I'll be surprised if the budget doesn't include some form of income tax increase to the top rate (ie 40% top rate for over $150k) and perhaps rail or tram infrastructure projects.
Exaggeration maybe, but I don't think it's a secret that the more wealth you have, the better able you are to exploit loopholes, and to a bigger degree. I can't imagine there were many dole bludgers or under-the-table traders mentioned in the Panama Papers. And look at the tech giants.
I took it to refer to New Zealanders and not multinationals.
Outside of multiple nationals I suggest that there are zero legal ways to avoid taxation in NZ. There are some methods of deferring some taxation for some periods of time. But in running a business the flip side of that coin are taxes that become payable in advance, so it's not unbalanced.
Eh, many of us have grown up with friends whose families lived in the very flashest houses, drove very flash cars and had businesses or farms ("hey, I use the car on the farm a few times a year hahaha"), yet the kids still got the full student allowance because the adults didn't technically make much money.
Then you have the Krukziener / property developer model of making money and avoiding taxes: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10…
Show me the technicalities because anecdotal talk does not qualify as legal tax avoidance. If you have more than rumours and media hype, post it.
So far you've posted nothing that disproves my assertion that "There are some methods of deferring some taxation for some periods of time" but no ways to legally avoid tax.
If we were to believe the implications of your post, "many" of us grew with friends with a billion dollars of real estate deals on their books. Excuse me if I don't believe that for a moment.
You obviously missed the banner change from "Equal pay for equal work" to "Equal pay".
The new socialists don't use any qualification very often. Now they just say "equality".
Just like they said in the Killing Fields. "We just wanted everybody to be equal" he said.
The government wants to promote domestic tourism but I see AirNZ has already increased prices by massive amounts to some of our tourist hotspots, which will probably put many people off unless it’s essential travel. If government were to subsidise the increase would this not help in local tourism? Helicopter money perhaps as a voucher with an expiry date (12 months?) and only valid for NZ expenditure. A reduction in GST ???? for x period of time? All above would generate positive economic stimulus and benefit both business and householders?
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Prices will always be set at the margin; the most that the market will pay. Look at Accommodation Supplement as an example. Subsidise rent, and rents will go up to factor that in.
The same would happen to airfare. Subsidise them, in any way you like, and airfares would rise again. Wouldn't you do that if you were a struggling airline?
"Robertson doesn't beileve [sic] banks are doing enough new lending to businesses."
Banks aren't Believers - they apply centuries-old tests (Three C's etc) and want boring doco like audited Financial Position statements before they go committing themselves to lending which may go belly-up. And even an 80% Gubmint backstop leaves them exposed to the remaining 20% for which provisioning would be needed.
So, GR, it's a no-sh*t-Sherlock moment: banks are not in the Redistribution business.
Here's the big ticket items I'm hoping for:
- Agricultural re-set package along these lines;
https://pureadvantage.org/ourregenerativefuturecampaign/
- Conservation re-set package along these lines;
http://www.stuff.co.nz/national/10344948/Labour-wants-Conservation-Corp…
- Tourism relief package that 'helicopters' NZ tourism/hospitality vouchers to every household in NZ;
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12331247
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On my wishlist would be:
- Cheques to consumers: Support consumer demand
- Temporary GST and fuel levy reduction: Support retail spending and allow commute further to find jobs.
- Infrastructure: Big spending increase.
However I think we're both more likely to be 0/3. The fact is tax revenue will fall substantially and just to maintain the current level of spending will require talking very nicely to Mr. Market as RBNZ keeps the bayonet to his back. If they do a big spend this year they (or whoever is in Government) will have to prune for several following years.
Just to be clear little old NZ doesn't have the reset button the USA has the reset button and the reset is coming if we like it or not. This collapse has not even started yet just wait for the next quarterly figures to kick in and the stock markets to crash again.
Carlos67 - The stock market has done it's correction already and is not about to crash. It is driven by money printing.
The market doesn't care about the up coming temp poor company results or , it is focused on the trillions being pumped into the US economy. That extra 4 trillion to date will find a home in equities and property. The Fed have made it abundantly clear they will do whatever it takes - endless money printing.
I'm looking forwards to the big infrastructure spending announcement required to get us to 100,000 KiwiBuild houses promised last election. Obviously we have to be reasonable, they won't all be delivered now but if they just get as far as foundation size holes in a field they can have my vote.
They got really lucky in having the workforce made available to actually do it. However I suppose sometimes success hinges on having a bit of luck.
"anecdotal evidence suggests small businesses without property to secure loans against are struggling."
Welcome to small business NZ. The whole economy is based on houses.
I wouldn't be surprised to see something for mortgage holders, protect the banks who bleed us dry at any cost.
The business loans of up to $500k was blurted out by Robertson without the banks knowing anything about it!
The Reserve Bank have told the banks to keep lending with their normal requirements and that is fair enough.
Business is going to struggle as they have been killed off by an overly cautious controlling government with Comrade Ardern pulling the strings?
For the Ardern sheep, let’s see how good she is at getting the country up and going as she has not once shown she is any good with financial decisions.
I went through the process, and have got a loan of 250k which I havent drawn down yet.
The issue I have is the banks still want your firstborn, even though, in my case, they only have 50k at risk and the government is underwriting the rest. I have a credit card with a higher limit than that on it. The whole system is skewed towards property, this is why we will come unstuck - its a bit of land with a dwelling on it, produces nothing, and apparently has no ceiling to its worth... untill it does
And that i think is likely where the young butcher came unstuck. A combination of landlord, council rates and banks all making it near impossible for small business's to stay afloat in tough times. i hope they are all proud of the results they achieved! I pray for him and his family, for the others I pray that they are aware of the consequences of their combined actions!
Unfortunately due to the over reaction of Ardern to leave business locked up for too long, there is going to be far more cost to both the economy and the suicide rates.
Hopefully we do totally eradicate the virus from our shores because if we don’t then the sacrifices that Ardern has made the NZ public make, has not been worth it.
I do believe that some of her sheep are slowly realising that she is a prime minister solely intent on total control of the NZ public and it is good to see that people are now starting to fight back.
Interesting to see what happens on Sunday with. Rain Tamaki and Destiny y Church.
Ardern, and your fellow cohorts are totally out of your depth.
Not sure what government plan is but it will need to be rolled out fairly quickly. Spoke to a guy last night was made redundant (2 kids), did'nt get a lot, tax took a fair chunk. Went to Work and Income, as his wife is a teacher he is able to get $11.50 a week (used to pull in 860). He has 350k mortgage, not a lot of savings and job prospects are not good. He is worried, really worried, can last a few months then he is not sure. Rates, insurance, grocery,mortgage etc etc..I am sure this is being repeated all over country. Usually there is light at end of tunnel..but with this being replicated all over NZ..it's really starting to get scary.
headline says it all for once ---- here is a golden opportunity to hit the reset button -- hit it hard - and fundamentally change many of the antiquated and outdated systems, approaches, industries and thinking -
instead -- borrow large - spend it all on inefficient public services, create more welfare dependency to build a future poor voter base
if we are going to borrow 50 billion -- at least spend it on R and D / new infrastructure like ultra fast broadband / rural wifi - re/upcycling and green energy projects - higher outputs lean thinking - not just another thousand lollipop turners!
Anyone who chose to go into debt, was betting on the future continuing to replicate the (short, in human-existence terms and even shorter in global terms) recent past.
While we can feel sympathy for their plight, and maybe do something about it, attempting to resurrect the recent past isn't the way to go about it.
Because it was unsustainable. Grossly so.
Debt-forgiveness and an end to interest, are the topics requiring discussion.
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