Gordon Campbell on the Budget

4b7dbffeb8b1501f19b2Heaven help us, but this year’s Budget is what a “targeted” and “no frills” response to the financial hardship facing hundreds of thousands of New Zealanders looks like. Good to know that the government has deliberately avoided grappling with the bigger picture.

So to be grateful for small mercies… No doubt the scrapping of the $5 prescription charges will be of some help to people on low incomes and pensioners with multiple ailments. Otherwise, the big investment in health – the $11.1 billion package over four years – was announced last year.

Similarly, the extension to two year olds of 20 hours of free early childcare will be welcomed by families that fit the narrow criteria, and by those who will do so in future. Potentially there could be savings of up to $130 a week for some households – or at least for those households in paid work, and able to contemplate early childcare education as an option for their kids. Reportedly, an estimated 66% of 2 to 3 year olds currently access early childhood education. That being the case, the sector may (just) have the staff and resources to cope with the extra demand, although this won’t be the case in all parts of the country.

The sprinklings of Budget assistance also extended to public transport. From July 1st, people under 25 and those with disabilities will be able to travel at half price on public transport, which will be free to everyone under 13 years of age. That will soften the blow to households budgets somewhat, given that everyone else below 65 will be facing full fares on public transport and the return of the fuel tax, come July 1st.

The crumbs from the table didn’t stop there. By the grace of Grant, those dwelling in old houses will have an extra $402 million worth of the costs of insulation and heating retrofits met by the state. For those travelling on the nation’s highways in EVs or hybrids, some $120 million has been set aside to create highway charging stations at junctures no greater than 150-200 kilometres.

No doubt this will lessen the highway anxiety felt by people driving a Tesla, a Toyota Prius or other vehicles of that ilk. Good for them. And yes, that’s a very small win for the environment. But as Greenpeace says, the Budget doesn’t address – let alone penalise – the emissions being generated by the farming sector. Belatedly, the gaming industry gets the same kind of subsidy support (for their production costs) that have been enjoyed for yonks by the film industry, although the rate will be 10% below that on offer in Australia.

For these and other reasons it has been pretty hard to escape the prevailing sense of tokenism, given how narrow the targeting has been. Obviously, the Budget was off to the printers before the Loafers Lodge inferno took place. Yet when socially marginalised people were dying in a fire in the place they called home – and for which they were reportedly having to pay circa $240 a week – the tokenism of the Budget 2023 measures seemed even more glaringly apparent.

The massive $71 billion Budget allocation over several years to upgrade our public infrastructure included a $6 billion “resilience” fund to pay for the Cyclone Gabrielle repairs. Overall though, the investment made in infrastructure remains well short of the various Treasury, Infrastructure New Zealand and other estimates which suggest this country is facing anything between a $100 billion to $210 billion bill for essential infrastructure over the next 30 years.

The Context

Like the dire situation facing the people facing high rents at the likes of the Loafers Lodge, the infrastructure deficit is a reflection of decisions made (and not made) in the past. As Bernard Hickey eloquently pointed out a few days ago in a Spinoff article, successive governments have ignored the widening gaps in our social safety net. As Hickey says, New Zealand has:

  • Built the fewest new homes for every 1,000 new residents in the world in the last 30 years
  • The fastest rise in real residential land values in the world, along with the most expensive rents and homes relative to incomes in the world

As he also points out, over a quarter of renters are paying more than 40% of their disposable income on rent. It gets worse:

A total of 24,030 households on the housing register for social housing, more than quadruple the numbers registered as needing housing in 2017, and including 2,165 on the register in Wellington…

Government revenue is barely plugging those gaps. Among other things, $2 billion is being spent annually on the accommodation supplement, and $800 million on emergency special needs grants to pay for people to stay in motels and boarding houses such as the Loafers Lodge. All of this reflects a situation where as Hickey says, 430,000 households rely on government subsidies to bridge the gap between their low incomes and the high rents they’re being required to pay. Not surprisingly it culminates in this:

480,104 households [needed] to use food banks in March, up 165% from pre-Covid levels.

That’s the grim backdrop against which the petty political point scoring over Budget 2023 needs to be judged.

The Constraints

Finance Minister Grant Robertson went into the Budget 2023 process under constraints that were largely self-imposed. Somehow, he had to boost the spending power of people doing it hard, but without enabling them to consume more than they were already. That’s because more household spending would boost inflation, and contradict the Reserve Bank attempts to dampen inflation by raising interest rates. Little wonder then that the Budget ended up offering very little, and tried to disguise it as pragmatic good sense.

Once again, Robertson declined to raise taxes even though that (ultimately) will be the only way to fund the current standard of public services, let alone improve their range, quality and accessibility. That’s why the Budget ended up offering a puny increase in the tax on trust – up to 39 cents in the dollar!- while running away in fright from the following:

+ No wealth tax, even though that would help make the wealthy pay the fair share of tax that IRD research proves they’ve been avoiding for years

+ No one-off Cyclone Gabrielle levy, even though this repair bill for roads, re-housing and re-location wouldn’t have been very inflationary in the medium term, since it is re-building productive capacity. In the absence of a levy the cyclone repair bill will inevitably eat into the funds available for social services.

+ No windfall tax that siphons off and deters the profiteering and price gouging by banks, supermarkets and other neo-monopolists. Their soaring prices, charges and profits have been drivers of the cost of living crisis as other countries – and the European Central Bank – now recognise.

Finally, a majority Labour government has chosen to step aside, and not get in the way of the Reserve Bank’s hawkish agenda to target inflation by repeatedly raising interest rates even if that means smothering household spending and productive investment. Eventually this inexorable pressure is being forecast to kick unemployment up to close on 6% by the end of next year. No doubt, such an outcome will be seen as a success in terms or the neo-liberal orthodoxy that governs how both of our major political parties manage the economy.

Looking ahead

Budget 2023 wasn’t entirely a bad news story. The Treasury is predicting New Zealand may – by the skin of its teeth – avoid a recession and achieve 1% growth this year, and 2% to 2.5% growth in succeeding years.

As mentioned though, these happy outcomes will be achieved by (a) the spending boost by tourists keeping the economy afloat (b) an influx of migrants to do the essential work and suppress demand for wage increases and (c) by tossing New Zealanders out of work, thereby making the lucky ones feel more inclined to work longer for less. Happy days indeed.

While all this is happening, the Treasury is predicting that the inflation rate will have halved, to only 3.3 % annual growth by mid 2024. No doubt, the next government will try to claim this triumph for themselves. Logically, you’d think this downwards path for inflation might finally convince the Reserve Bank to back off on raising interest rates. We shall see next week. Unless of course, the RB’s real goal is less to reduce the inflation rate, and more to boost the ranks of the unemployed as a “natural” buffer to inflation in the years ahead.

As always, Robertson seems OK about a centre-left government sitting on the sidelines while unelected Reserve Bank officials make monetary policy decisions that have significant effects on peoples’ livelihoods.

Mind you, the need to juggle politically expedient tokenism against the demands of neo-liberal orthodoxy means that Robertson will have to kick out the return to a budget surplus by one year. This means the return to surplus after Covid will now take the exact same time – six years – as it took National to deliver a budget surplus again in the wake of the Global Financial Crisis. Plus ça change…

On most counts, the orthodoxy has been obeyed and placated. Even with an increase in borrowing, core crown expenditure as a proportion of the nation’s wealth (aka GDP) is on track to reduce from a Covid-induced high to only 31.5% of GDP. This is well below Australia’s 36% and not on the same planet as the UK and the USA, both of which are running ratios of nearly 100%. The current account deficit is also trending downwards.

Meaning: There is plenty of room for more borrowing, and for this to be repaid naturally out of economic growth and population increases. Despite the alarmist rhetoric we shouldn’t be being stampeded by worries that the debt burden faced by future generations will become intolerable. It won’t. We should be far more worried by the legacy of decaying infrastructure, social injustice and environmental harm that we are handing on, barely untouched. That’s because our political leaders (at best!) appear to lack the political will to do much that goes beyond making token gestures in the right direction.

In effect, the neo-liberal obsessions with deficits and debt have paralysed successive governments from (a) raising taxes to tackle social inequality (b) making polluters pay and (c) taking on debt to finance the scale of investment in infrastructure required to drive productivity to meet future needs. As Morgan Godfery recently pointed out, that paralysis afflicts both major political parties, although in different ways:

The iron law of New Zealand politics is this: the National Party will make an impossible promise to cut taxes while maintaining services as is; and the Labour Party will make an equally impossible promise to maintain taxes as is while increasing services. This is the fatal bargain the two major parties enter with voters.

For now, Robertson has climbed into a fiscal straitjacket that’s largely of his own making, and then shrugged about how his hands are tied. True, this brand of pragmatism is still preferable to the Thatcherite lunacy of Act and National. Yet it won’t be enough to halt New Zealand’s slide into Third World status.