By Jenée Tibshraeny
Finance Minister Grant Robertson is going into Budget 2021 with options.
Looking at a highly uncertain future this time last year, the Government and Reserve Bank (RBNZ) prepared for the worst.
The Government allocated a whopping $62 billion towards the COVID-19 response and the RBNZ completely loosened monetary conditions.
They took extraordinary measures to hit COVID-19 with a big stick on both the health and economic fronts. And it worked - on an aggregate level.
The Government’s tax take is higher, and expenses lower than expected.
Robertson has already committed to increasing both the operational and capital allowances he pencilled in, in his Budget Policy Statement released in February.
He has done so, all the while indicating the Government will issue less debt than planned in December, when The Treasury released its Half Year Economic and Fiscal Update.
Indeed, The Treasury is widely expected to further revise down its forecast bond issuance programme.
Balance
We prepared for the worst. Things aren’t great, but are better than expected.
As Westpac economists said, Robertson can have his cake and eat it.
But exactly how he will strike the balance between more spending and less-than-planned debt issuance, is unclear.
Robertson has been walking a tight-rope between being “kind” and “transformational” and “fiscally prudent”.
On Budget-eve he told interest.co.nz he believed the economy still needed fiscal stimulus. But a couple of weeks ago he announced a pay freeze for the bulk of public servants who earn more than $60,000 a year.
Increasing people’s pay as per usual is surely a fair, clean and easy way of stimulating the economy.
Robertson talks a lot about “keeping a lid on debt”, but strongly rejects any suggestion he’ll take an austere approach or leave people behind in the economic recovery.
Will benefits go up?
Robertson has dropped few hints around new initiatives that will be included in the Budget. But all eyes are on whether he will increase benefits.
Economically, this would make sense. Rents have been rising (albeit not nearly as fast as house prices).
The most vulnerable in society have been hit disproportionately hard by COVID-19 through job losses - particularly in the services sector.
They arguably haven’t benefited as much as the wealthy have from the RBNZ’s efforts to boost asset prices and lower debt servicing costs through lower interest rates.
What’s more, Robertson knows giving the lowest income-earners more cash is stimulatory, as they’ll spend it.
The challenge of course will be tweaking welfare in a way that doesn’t simply line the pockets of landlords.
Politically, now is also a good time for benefit increases.
National voters, who turned to Labour at last year’s election, are happy enough. Life is normal for most people, who feel cocooned while the pandemic wreaks havoc abroad.
The Government could pass off benefit increases as a response to COVID-19, and a way to balance out some of the support that’s been provided to asset owners.
But should Robertson increase benefits, he’s unlikely to go as far as the Welfare Expert Advisory Group advised in 2019.
Politically, he doesn’t need to.
He will also want to keep some powder dry for Budgets he'll deliver closer to the next election.
He will need to use these Budgets to try to lock in the support of those swing voters.
Capacity constraints remain an issue
While increasing benefits now seems logical, it’s difficult to know where the Government will go on other new initiatives at the Budget.
It has been a bit unpredictable of late. No one expected the effective public sector wage freeze and the removal of interest deductibility from investment property.
The Government also arguably went further (in a pro-union direction) than expected on Fair Pay Agreements by agreeing to fund up to four of these a year.
What one can have a bit more certainty around is the fact the Government’s ability to increase its capital allowance to build more houses, infrastructure, classrooms, etc is limited by capacity and capability constraints.
As ANZ economists said, “The Government is facing many of the same materials and labour supply disruptions that the private sector is, and in some cases (such as building residential social houses) the Government is in direct competition for resources with the private sector.
“We expect delays will continue to push spending out, possibly more so than is typical for Government investment.”
It’s one thing borrowing and allocating money. It’s another actually getting it out the door.
Robertson said that when putting together the Budget, he factored in the reality that a number of sectors have already received boosts in funding, which is still being spent.
The Government knows delivery is its weak point. So it best focus on this before making more big promises.
Wealth creation
Finally, while the distribution of wealth is a pertinent issue, so is the creation of wealth.
This is the tricky part that involves the Government creating the environment for innovation and productivity growth via the right regulatory, tax and immigration settings.
The Government has already committed to paying for trades training and investing in various initiatives aimed at reducing New Zealand’s carbon emissions, for example.
It’ll be important for Budget 2021 to play a part in setting a pathway for the New Zealand economy to grow sustainably post-pandemic.
52 Comments
“ National voters, who turned to Labour at last year’s election, are happy enough”. Great! what about the labour voters who voted for labour?
Speaking of motels, I read a very disturbing and sad news earlier today about the death of a child in a motel. What’s extremely sad about this is the motelier was paid $1300 per week to house this family. While the $1300 a week is an exorbitant sum, equating to $5200 per month, I can only imagine all the support that money could have provided the family in improving the quality of their life, support and education. Instead a child has lost his life and the motelier has lined his pockets.
Labour government, forever increasing poverty, homelessness and household debt of New Zealanders.
Sad, very very sad. I hate paying taxes here in NZ.
https://i.stuff.co.nz/national/crime/125098964/the-state-paid-1300-a-we…
The story claims the child was murdered. The land lord didn't do it! :O Hard to imagine that anyone would want to charge 180 a day for a room to house people like this, where is the enthusiasm to have your room destroyed, your nights interrupted with drinking, loud music, drugs violence and murder?
I don't think it matters much when a beneficiary is paid (and taxed) $270 per week and if you're renting you'll be eligible for only 25% of the rent. Somehow you've got to find the rest from somewhere else? Remember unemployment isn't at 4.8% as they claim. It's 12.2%. Simply explained by; 1 hours work means you're employed.
Or house prices could be allowed to come back to reinstate the ratio of 3x median income like it used to be.
Maybe if we insisted that MP's pay was also reinstated back to the same ratio as other Govt. jobs like it used to be, ie if was cut in half, then we would get more action.
Whatever happens, I think keeping to the status quo is long past.
Certainly Simon must see the welfare as being directed into landlords hands...
In other news China's average gross salary (pre tax) is on a tear now breaking $12,500 NZD per annum. Just over a $1000 per month, $250 per week before tax for working a minimum of 40 hours.
Any chance of us enhancing our productivity to be globally competitive? I am not sure raising the pay of people not working is going to get us there.
Love the oxymoron.
Wealth creation incentivise innovation and productivity. Innovation requires science and those who can execute that science.
Attacking wealth creation destroys productivity. Increasing minimum wages, compulsory unionisation and stringent employment laws decreases productivity. The order of wage increases should follow actual output and not the other way round. Increases in output also depend on innovation and that very innovation depends on the incentives of those who hold the capital.
Looks like every time Grunty got some ammo from the shop, he uses his foot as the target.
A good example, increasing minimum wages before an increase in productivity.
Currently the housing bubble is creating enormous "wealth" for a select population. Given this, are you claiming it actually incentivizes innovation and productivity?
If the housing bubble is not adding to productivity and innovation, this would suggest your premise is actually false.
"so is the creation of wealth."
"This is the tricky part that involves the Government creating the environment for innovation and productivity growth via the right regulatory, tax and immigration settings."
Wrong on both counts, Jenee. What is 'created' is actually a collection of processed 'stuff', and a combined pile of proxy for? Even more stuff, is what for.
We are at the point where the proxy-bets - keystroke-issued - so grossly outrank the remaining 'stuff' (and the stuff needed to deliver the stuff) that measuring 'wealth' in proxy is no longer valid.
Wealth is the remaining 'stuff' (and the stuff needed to deliver the stuff) and if you want it per-head, just divide population into 'stuff remaining'.
Productivity is input vs output - merely energy efficiency. Yes, I know al the economists (and all those who worship in their temple) think it's something different - just remember that what they call work........ isn't.
Labour is between a rock and a hard place. They have the reins, at the inflection-point. They can see things are wrong, indeed can see that things cannot continue as they temporarily did. Thus 'Wellbeing' - but it gets messed up with growth, poverty and Rights', none of which matter in a physics sense. They know there is a Climate issue, that there is an infrastructure issue, and that the RMA has presided over a reduction in all counts, sustainability-wise. They probably even know that those issues have to be meshed.
But the societal discourse keeps the populace on the growth/productivity/wealth bandwagon, and they need to be voted in. Who is responsible for this lack of societal understanding? Interesting thought, no?
The budget may send more non-Labour voters to Australia while catering for NZ Labour voters. Success.
The public service wage freeze is a puzzle - surely most of those are Labour voters - maybe the spin doctor /data analytics wonks found that the public service will moan but still vote favourably?
Why do I find that comment insincere?
Actually, the whole planet is running this growth experiment, and the word 'planet' tells you it is running it within a Bounded System. Before you go, do some research (always better than continuing in ignorance, I find):
https://dothemath.ucsd.edu/2021/03/textbook-debut/
One wonders whether Robertson knows.....
Why are you a Labour voter Passerby? Is it tribalism? Or herd mentality? Why are you so keen to escape the socialist / central bank utopia that you and over 50% of Kiwi's have helped usher in with your votes for Labour and your silence and acquiesence on Mr Orr and his ilk? What was it about the first Labour term of government that enthralled you to the point where you and so many others gave them such a carte blanche mandate?
I now appreciate that New Zealand has a low level of government debt compared with international competitors, unfortunately how we've achieved that is systematically under-invested in infrastructure for many years and moving debt into the private sector. It's a false economy though because it skewers productivity and crimps disposable income. I think it's fair to say that model of low tax/spend on infrastructure has proven to be a failure for a long time now.
Approaching the Limits to Growth, if your infrastructure is unmaintainable, then more of it is just more wasted resources, more wasted endeavour, and more triage required. Makes no sense at all.
Now future-appropriate infrastructure, that's a different thing. That's not urban sprawl, it's not compacted vertical cities, it's not freeways and turnpikes to forever. It's not ever-further-away landfills, it's not houses on prime food-producing land, its not phosphate depletion, it's not linear extract/consume/excrete, it's not....... much at all, really.
It's fully-circular nutrient and fully-circular materials flows, it's no biodiversity reduction, it's no soil/water-count reduction. That is what we have to 'build', and it's a long, long way on beyond 'wellbeing'.
I always thought that 'Labour" meant working. Now it means entirely the opposite. Strange New World, this New Zealand, now it has no zeal.
zeal
[ziːl]
NOUN
great energy or enthusiasm in pursuit of a cause or an objective.
"his zeal for privatization" · [more]
synonyms:
passion · zealousness · committedness · ardour · love · fervour · fire · avidity · fondness · devotion · devotedness · enthusiasm · eagerness · keenness · appetite · taste · relish · gusto · vigour · energy · verve · zest · fervency · ardency
Words Fail Me....to tell the truth.
Nice book grant...I hope you posted it to the implementation unit so you can actually deliver something. Very easy to write spreadsheets and word documents, different story getting it done in the real world. But I'm guessing in 8 months time you will point the finger at the implementation unit who are probably not even implemented.
What I expect:
More support for house owners (even doing nothing would be more support)
Ramping up support for emergency housing (caused by their idiocy)
Ramping up benefits
Paying down debt
Pay cuts for everyone doing productive work to pay for all the above (tax increase already announced for instance, plus some more)
No new major infrastructure (they can't deliver it anyway)
So to sum up, squeeze all productive work to pay for unproductive asset speculation and the inability for them to create productivity gains or new employment oppourtunities. In other words, more of the same idiocy.
Results I expect: Immigration reversing, particularly to Australia, who has just announced mass stimulus which will juice their economy, encourage productive work and infrastructure. Their LMITO makes it rather compelling for young people to move over there by itself. Add in the huge breaks they are giving tech companies and it's a pretty compelling budget. Am almost sure we won't deliver anything like it here, it will all be about supporting beneficiaries and the asset rich.
What a total whinge fest, do you have any research to back up your hypothesis. How do Australia's benefits stack up to ours for example. Large swathes of rural Australia are meth riddled hell-holes but you are so completely blinded by negativity you'd have no idea. Honestly, just go.
https://www.abc.net.au/news/2019-10-24/adelaide-had-highest-meth-use-in…
https://junctionjournalism.com/2020/11/23/adelaide-the-worlds-meth-capi…
Expect this government to continue its unsustainable level of borrowing, currently $770 million per week, with debt now sitting at a whopping $70,000 per person. 1.2 million receiving state help with an ever increasing labour voting base. Those of us left working will have to supply more to feed the frenzy of benefits and disgraceful government waste and new wellness agencies filled with drongos.
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