Welcome to the breadline. Treasury’s best case scenario sees unemployment reaching 9.8% by September and yet… the coalition government seems to have decided it can afford the blowout in welfare numbers only by paying out those benefits at their current meagre levels, and nothing beyond them. Therefore, Budget 2020 offers nothing for vulnerable beneficiaries and their families beyond the $25 a week pittance it conceded earlier on. (Ironically, while the virus has just reminded us of the value of our public health system, the people who lost their jobs from Covid-19 will almost certainly not be able to afford to visit their GPs in future.)
This is indefensible – given the previous rhetoric around wellbeing, and the elimination of child poverty. For whatever reason (and one shouldn’t rule out New Zealand First’s hostility to benefit increases for anyone except pensioners) the Budget hasn’t delivered anything like adequate relief, or indeedanything at all on welfare reform. As a consequence, many people are about to face the daily grind of survival on a benefit for the first time, on rates the Welfare Expert Advisory Group said last year were significantly deficient.
In fact, behind the chirpy talk of “recovery” and “rebuilding” there’s a strong Darwinian “survival of the fittest” theme running right through much of Budget 2020. No doubt, some of this reflects the severity of the economic crisis. Even so, it has been ingenuous for PM Jacinda Ardern to claim that the investments funded in this Budget have been achieved without cutting existing services, or by simply shifting money around. Unfortunately, what’s been jettisoned by Budget 2020 has been the hope that this government would repair the welfare safety net, and enable the most vulnerable members of society to make ends meet with their dignity intact. In future, thousands of people are going to be forced to beg for “targeted” special relief grants and to line up at foodbanks. How every 1930s.
Besides refusing to use the Budget to raise benefit levels, Finance Minister Grant Robertson has chosen not to individualise the benefit entitlements. So…. if you’re out of work and your partner still has a job then tough luck, you’re entitled to nothing from MSD. This (genderised) discrimination will put avoidable pressure on personal relationships – especially since over the past 30 years, New Zealand has created a low wage economy where two incomes are essential for survival. At best, the kids might be able to queue up for a free lunch from the $220 million funding injection into the schools lunch programme. In another example of ambulance-at-the-bottom-of 0he-cliff thinking, an extra $121 million has been provided in Budget 2020 for “ community healthcare.”
Robertson has also chosen (at this point) not to raise the tax free threshold for low income earners – even though the extra money this would have delivered would not only have reduced poverty but done double duty as an economic stimulus, given that it would have been spent in local shops on the essentials of life. As indicated below, Robertson has probably postponed a wider tax reform package to some later date. The shrinkage of GST revenues (as consumer spending falls through the floorboards) will make tax reform inevitable.
Finally on this point, one can’t blame these sins of omission entirely on New Zealand First. The Labour Party isn’t called “Labour” for nothing. Labour has routinely prioritised the wellbeing of people in paid work. Historically, it has tended to regard the pool of beneficiaries as a potential threat likely to push down workplace wages and conditions. Hopefully and depending on the terms of entry, the welcome funds allocated in the Budget for free skills training (mainly in construction, manufacturing and that community healthcare work ) will not turn into another Darwinian struggle between the “deserving” and “undeserving” poor.
In a welcome nod to Green New Deal work programmes for the relatively unskilled, $1billion has been allocated for some 11,000 regional jobs aimed at protecting the environment, via wetlands cp0nservation and pest control.
Saving Tourism From Itself
Despite Ardern’s recent suggestion that tourism operators urgently need to start planning for a future without international tourists, that plea has largely fallen on deaf ears. Earlier this week at least one feather-brained tour operator interviewed at length by RNZ was demanding that to justify his job, Tourism Minister Kelvin Davis needed to deliver certainty and prosperity (1) for the tourism sector and announce a firm commencement date for the trans-Tasman bubble, to boot. As if Davis had all this (and the Australians) at his command.
Similarly, it doesn’t seem to have yet fully dawned on the tourism industry that international air travel and tourism have collapsed all over the world, and no one can predict when (if ever ) even domestic tourism will return to the former levels of activity and prosperity. There wasn’t a lot of tourism done during the Great Depression, so tourism operators shouldn’t be holding their breath. ( In my own family, my father could never afford to travel anywhere beyond the North Island, except to go to war.)
Pre-Budget, there were calls by some in the tourism sector for the wage subsidy scheme to be extended from 12 weeks to 26 weeks – even if (on week 27) those same firms would be likely to collapse, due to the absence of international tourists. In reality, the wage subsidy scheme was never supposed to guarantee tourism operators their prior levels of income, indefinitely. It was meant to buy time for firms affected by Covid-19 to plan for survival within quite different conditions.
Although it must have been through gritted teeth, the government has thrown tourism a lifeline in Budget 2020, mainly via a $400 million transition scheme to (a) help tourism firms plan for a different future (b) to keep our “key tourism assets” intact until better times return and (c) to promote domestic tourism. Within and beyond tourism, Budget 2020 has also briefly extended the wage subsidy scheme, while raising the hurdle required to access it. Qualifying firms will need to have lost 50% of revenue compared to the same period last year (not just the current 30%) and the scheme has been extended for eight more weeks.
Again, the underlying Darwinian message : some firms associated with those ‘ key” tourism assets ( the Great Walks, the cycle trails, the whale watching?) will be able to re-organise and survive. Some operators will not. Ultimately, Covid-19 has had one beneficial outcome beyond reminding us of the need to fund public health properly in future. Pre-Covid, it was obvious that the scale (and types) of tourism we were seeing in New Zealand were not sustainable, either environmentally or socially. Now, we can rebuild tourism in more sustainable ways.
The risk is that we will now swing over into a reliance on virtually unregulated farming and irrigation. If we can resist that temptation, the virus may will have done us the favour of making us conserve the things that made foreigners think we were worth travelling so far to see, and experience. (One wonders how tourism choke points like Barcelona and Venice are currently coping with mass tourism vanishing overnight. This is something that -previously – many residents of those cities had fervently desired. It may be a case of being careful what you wish for.)
The Big Picture
In the short to medium term, the New Zealand economy will look more like Guernica than Hampstead Heath With a Rainbow. The economy is due to contract sharply in the year to March 2021, and is forecast to require the best part of a decade to recover. To kickstart that process, Budget 2020 has assembled a $50 billion rescue package, $14 billion of which has already been spent. Nearly $16 billion has been allocated mainly to (a) extend the wage subsidy scheme (b) fund the skills training programme and (c) build 8.000 more state houses.
The other $20 billion has been kept in reserve by the government to cover any other rainy weather that may arrive during the next five years. Weirdly, this $1 billion a year contingency fund for an uncertain future is being depicted by National as an election year slush fund. (Long term thinking was never National’s strong point.).
Thankfully though, other parties can see the need to look beyond the next round of tax cuts. Obviously, the cost of the rebuilding process will require New Zealand to borrow more than it did before. Dealing with the impact of Covid-19 will require about $190 billion of borrowing, which is about $120-130 billion north of the borrowing being envisaged at close of play in December, 2019. This will raise the ratio of government debt from around 22% of GDP to a peak of 54% in 2022/23. This is entirely sustainable. At 54%, it would still be well below the 70% debt to GDP ratio facing the United Kingdom as it entered the Covid-19 crisis, and is even further below the 90% of GDP debt level faced by the United States.
Largely thanks to the efforts of Michael Cullen and Bill English this country began the crisis better placed than almost any other country in the OECD to ride out the Covid -19 challenge, and pay back the cost of borrowing from this country’s future earnings. The rating agencies have acknowledged New Zealand’s ability to manage its levels of debt, especially in the light of its history of conservative economic management. They’re not worried.
Even so, it is a sea change. Debt will remain at 42% of GDP levels for a decade or more. In the light of Covid-19’s impact, this has been an inevitable course of action. It is not entirely without future risk, but most of the main pressures on the global economy will continue to be deflationary, not inflationary, thereby keeping interest rates in the basement. Still, the future outlook is not without risk. The new patterns of international trade remain unclear. We have lost (for the foreseeable) the foreign exchange earnings from international tourism and from international education.
In addition – and as previously mentioned – the fall in consumer demand caused by (a) fear of the virus and (b) by job losses and income insecurity will mean that the government’s revenue haul from GST will be a mere shadow of its former self for quite some time. Other countries are facing the same prospect, and seem to be reaching much the same conclusions : that taxes on wealth and those on middle to higher incomes will need to rise in future. Chances are, the sky will not fall in if that happens. Previous generations used to call it sharing the burden.
Circling Around the 1930s
In a just world, the gratitude that voters currently feel to the government for its well executed suppression of the virus would last well beyond the September election. Coincidentally though, the economic bad news, pain and job losses are also likely be reaching their peak in September. In the charged environment likely around Election Day, it is conceivable that the electorate could end up blaming the government for the damage done the virus has done to its sense of security.
Even so…it would be surprising if voters would really turn back en masse to the quack medicines of the centre-right that ( among other things) systematically starved the public health system of the resources it needed to fight Covid-19 – mainly in order to make fiscal room for tax cuts for the wealthier minority. Leadership becomes a key issue in times of trouble. If we’re still likening the impact of the current crisis to the Great Depression of the 1930s, it is striking that two of the world’s major economies – the US and the United Kingdom – – are currently headed by the leaders of political parties that have an ideological aversion to strong government and to social spending. Arguably, you could hardly find politicians less like Franklin Delano Roosevelt and Michael Joseph Savage than the trio of Donald Trump, Boris Johnson and Simon Bridges. Ss history tells us, the ‘business first’ policies of austerity only made matters far worse in the 1930s, and they won’t get us out of this current fix.
As the country heads to the September election, this should be a concern for the National Party, which hasn’t had a significant new economic idea for the best part of three decades. As yet, National has shown no inclination to embrace the neo-Keynesian reality that (a) borrowing and debt financing (b) large government employment projects and (c) a strong welfare safety net are the only ways out of a Great Depression.
That lesson was something the world learned in the latter half of the 1930s. It had forgotten it by the 1980s heyday of the Thatcher/Reagan market-driven economics that have since failed so utterly all over the world – and can now be quietly re-buried. Don’t worry. There will be far fewer than 50 people at the graveside.
Footnote : Earlier this week, Werewolf looked at the need to legally protect the right of people to work from home during Covid-19., where that is possible – given the threat to public health posed by public transport, and by the unavoidably close proximity of workers, for long periods in what are often poorly ventilated offices and boardrooms. Currently though, only serious illness as defined pre-=Covid will support an automatic right to work from home – despite the fact that the virus has turned several previously-manageable health conditions into serious threats. Where possible, working from home should therefore be the default position. Being summoned to work at the office should not be viewed as an necessary exercise in managerial control.
Good faith and reasonableness gestures aside, subsequent research suggests that section 37 (1) of the Health and Safety Act offers the only legal fallback of any substance. It says
“ A PCBU (“person conducting a business or undertaking”)who manages or controls a workplace must ensure, so far as is reasonably practicable, that the workplace, the means of entering and exiting the workplace, and anything arising from the workplace are without risks to the health and safety of any person.”