Budget 2020 poses unique challenges
The cover of the 2020 Budget announced by the Minister of Finance, the Hon Grant Robertson, features a range of snow-covered mountains. The image is appropriate, for the Coalition Government certainly has a number of mountains it must climb if it is to lead the country to a better economic future. Perhaps it is an omen that the world’s highest peak was scaled by a New Zealander.
The arrival of the COVID-19 virus has thrown all previous fiscal forecasts out the window. For the last two months the immediate goal has been ensuring public health is maintained. Now that the spread of the virus appears to be under control (on Budget day there were no new reported cases for the third day in succession), limited business activity has been permitted under Level 2 operations. The Government’s attention can now turn to long-term economic rebuilding.
Budget 2020 can be described as a “rainy day” affair. The Government has allocated $15.9 billion for key areas intended to restart the economy. There is a strong focus on infrastructure, together with the preservation and creation of jobs. Notable in this strategy is the extension of the Wage Subsidy Scheme, with an additional $3.2 billion for a further eight weeks. There is also funding for apprenticeships and training. The area of jobs also has a green aspect, with amounts devoted to environmental projects such as pest eradication, waterway improvement and construction of tracks and huts in the conservation estate. The latter approach can be expected to have long-term benefits for tourism, both domestic and international, and reflects the “Wellbeing” approach of an economy that is both productive and sustainable.
Infrastructure will benefit from funding of $3 billion, which will be directed at specific projects to be identified via the Infrastructure Reference Group. Because there will be a regional focus, provision is made for working in partnership with local bodies and the Provincial Growth Fund.
Housing is another key area addressed, with an ambitious target of 8,000 new houses over the next four to five years.
Tourism at the domestic level is intended to be an important part of the economic revival; indeed, it is the only way forward for that sector. The prospect of New Zealand becoming a safe haven in a COVID-19 world may act as a strong incentive for Kiwis to holiday nearer home.
The Budget speech contains no further messages about one potential lifeline for New Zealand — the trans-Tasman bubble. This strategy would see travel restrictions between Australia and New Zealand eased when it is safe to do so. The Prime Minister, the Hon Jacinda Ardern, raised the matter with her Australian counterpart in early May 2020 but further details are evidently yet to come.
Some Budget expenditure items are relatively small but could make a difference for many. Provision for adult education and assistance to those involved in surf lifesaving and Coastguard New Zealand are examples.
Finally, it may be observed that the Budget papers are silent on the topic of payment for the $62.1 billion COVID-19 response package. The papers set out, within broad parameters, how the $62.1 billion is to be spent whilst maintaining a discreet silence on the method of its funding.
From one perspective, this may be thought to be appropriate. Since the COVID-19 pandemic is still unfolding, it is impossible to reliably predict its cost. Perhaps it is more appropriate to decide how the piper is to be paid when the size of the tab is reasonably ascertainable.
For the moment, the approach seems to have been taken that the $62.1 billion will be funded by Government borrowings. However, it would be wishful thinking to believe that the matter will end there. The huge spike in sovereign debt inevitably leads to the question of whether the citizenry will be called upon to help ameliorate the position through increased taxation.
New Zealand will not be alone in confronting this question. Indications from the fourth estate are that most countries in the world will need to grapple with the question of how the sharp increase in Government debt is to be dealt with. Will the taxation lever be pulled, or will there be a reliance on future economic expansion to generate enhanced taxation flows? Once COVID-19 is defeated, this question will no doubt be one of the issues that will dominate political debate around the world.