Budget 2020: The Politics - Neil Miller
The Minister of Finance Grant Robertson describes Budget 2020 as a “once in a generation” budget to combat “a 1-in-100-year threat” of the global COVID-19 pandemic. It certainly contains high level of additional spending, headlined by the $50 billion COVID-19 Response and Recovery Fund (of which only about $20 billion is still actually available today).
To put $50 billion in context – the amount of new spending in a normal year’s budget is usually about one to three billion.
This spending will be funded by significant increases in debt as tax revenue will remain steady. There are no new taxes or tax increases announced which will be something of a relief to taxpayers.
However, it is also a “blank cheque” budget. Under the large headline figures, there is often a lack of detail about the spending which makes the quality of many proposals hard to assess. During questions, the Minister indicated that some of the $20 billion will go to Health (including laboratories and contact tracing) but the decisions were yet to be made. We have the bill, but do not know what we are going to be served.
In Defence, over half the new spending – the purchase of Super Hercules planes – is contingent because Cabinet has not considered a business case, far less approved it. That is a $900 million ($491/household) “maybe” even though Defence Minister Ron Mark says it remains his number one priority in Defence. Yes, the Budget was put together quickly under tremendous pressure but COVID-19 can not be blamed for over two years of delays on the planes. Treasury is publishing a summary of initiatives not in the Estimates on the week ending 22 May 2020. Most of this is information that would usually be in the Budget itself.
In any case, how buying more planes resolves a pandemic is unclear.
The Government has locked in high spending, but many of the hard decisions have been deferred until after the election. It is only after the election that New Zealanders will have to face the realities of paying back debt, and new policies from a new Government. Budget 2020 has one eye firmly on the election, hoping the economy can continue a slow recovery, hoping there is no second wave of infections, and hoping the current Government can be returned with a mandate.
If it is, expect a change in policy direction. Questioned about the lack of significant tax reform in the Budget, the Finance Minister confirmed there was none, and none would happen this term. That carefully leaves open the possibility of significant tax reform (including new taxes and tax increases) in the next term if Labour retains the Treasury benches.
In short, buy now, pay later.
There are other worrying trends.
There is evidence of interest group capture resulting in high levels of spending which are hard to justify. This includes funding boosts for certain industries (racing, fishing, arts, sports and more coming soon for media), certain voting blocks (including the $911m Maori COVID-19 package and the Pasifika funding parcel), and certain failing industries (KiwiRail gets a projected boost and NZ Post gets Government support despite being “no longer financially viable”).
The Government is also centralising decision making into new bureaucracies. "Workforce Development Councils" will "strategically plan" for the recovery of industries and jobs, and "Regional Skills Leadership Groups" will "improve information gathering". This is not a small investment – $276 million ($150/household) for a lot of officials, boards, reference groups, and consultation meetings. The Government is also planning to run a bulk food distribution operation called the "New Zealand Food Network" despite a number of companies and organisation already working in this space.
A "Infrastructure Industry Reference Group" is considering 1924 applications for $136 billion of projects. Clearly not all of these will be of high quality or quick to start. A new road in starting in 2023 is little use to the unemployed in 2020 and 2021.
The increased Government control of the economy mirrors increased Government control of freedoms. Budget 2020 confirms that this is a hands-on Government, even if the details of what it might have its hands on remain sketchy.
The Taxpayers’ Union will continue to provide expert additional analysis as our team has time to consider the details further. One early concern is that the Government’s projections on unemployment remaining under 10% and economic growth returning next year seem very optimistic.
It appropriate to finish by acknowledging the hard work of Treasury officials and Ministerial staff preparing this document. This Budget was not what they planned six months ago or even six weeks ago. The key decisions were signed off on 6 April, very late in the normal Budget cycle. Minister Robertson even mentioned that some of the decisions in today’s papers were made on Monday. However, it is an important Budget and needs to be scrutinised closely to ensure taxpayers are receiving value for their money.
Neil Miller is a former Treasury Analyst, a former Director of Research in Office of the Leader of the Opposition, and is an Analyst at the Taxpayers' Union.