Under the circumstances, Grant Robertson's third Budget was remarkably conservative.
That is true both of its forecasts of the effects of Covid-19 and its response to them. It suggests Robertson is betting a second wave of Covid-19 or some other economic shock is more likely than not.
Robertson likes to invoke Peter Fraser and talk a big game about the "carnage of the 1980s and 1990s" being based "on a tired set of ideas". But more important are his regular tributes to Bill English and Michael Cullen for their fiscal prudence.
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As Minister of Finance, Robertson has done nothing to substantially reverse the basic economic framework put in place by Roger Douglas, Ruth Richardson and Bill Birch of an open and competitive economy; a low-rate, broad-based tax system; price stability through an independent monetary policy; fiscal responsibility and paying off debt; and a relatively flexible labour market.
Robertson's $50 billion Covid-19 slush fund may sound radical. So too does forecasting net core Crown debt to rise by around $140b by 2024, from 19 per cent of GDP last year to 54 per cent by the middle of decade.
But both need to be seen in the context of the Treasury forecasting that New Zealand will experience not just a major recession but an economic depression, with annual average growth reaching a low of nearly -12 per cent in the year to March 2021.
Given that reality, the big round number of $50b was at the lower end of political expectations. What's more, leaving 40 per cent of it unallocated is a sign of prudence, as is the lack of any hastily prepared "strategy".
Robertson and his team should be commended for recognising that any long-term economic plan written at the height of an emergency will not just turn out to be wrong, as all government plans always are, but more absurdly mistaken than usual.
Similarly, we should be deeply grateful the Wellington bureaucracy wasn't instructed to hurriedly allocate Robertson's full $50b fund via Zoom, but that he has kept $20b of it in his back pocket for the time being. It will also not go amiss in Labour's election campaign.
Also respectable, given the forecasts on which it is based, is debt rising to 54 per cent of GDP, leaving room for it to go higher.
It may need to. While Treasury is forecasting a depression in New Zealand, that is based on forecasts for the global economy that seem wildly optimistic. How lucky would we be if the Treasury is right and the world as a whole escapes a global depression and contracts by only 3 per cent in 2020 before booming back with 5.8 per cent growth in 2021?
Domestically, the Budget assumptions also seem heroic, supposing no second New Zealand wave of Covid-19 requiring a further lockdown. All Covid-19 restrictions, including border restrictions, would be entirely lifted by April 1. The Treasury at least admits that "risks are skewed to the downside".
In reality, New Zealand and Robertson will be very lucky if, as Treasury forecasts, economic activity in 2020/21 turns out to be as high as 88 per cent of that achieved in 2019/20. Even luckier will be unskilled workers if unemployment, as forecast, remains below 10 per cent despite the domestic depression — and even more so if it is down to around 8 per cent next year, and back to the fours and fives from 2022.
GenX, Millennials and GenCovid, who will have to pay it back, will also be delighted if all this ends up costing only the $140b in extra debt Robertson is forecasting over the next five years.
The Budget numbers, then, need to be taken with more than the usual grain of salt, as Robertson himself acknowledges.
Yesterday's set piece was just the second chapter in a longer economic story that began with the $12.1b epidemic response on March 17, four days after the Government finally decided to take Covid-19 fully seriously.
As more global health and economic data becomes available, there may well be a further economic package from the Coalition before the election on September 19. Some type of post-election mini-Budget is also a near certainty.
The contours of the election battle are nevertheless a lot clearer after yesterday.
Robertson is showing no signs of using Covid-19 as an excuse to radically depart from the post-1984 consensus, as many on his left want him to.
The election will be between two main parties again trying to impress the median voter. The median voter has a mortgage and — at this stage anyway — is not expected to become unemployed during the depression, although her 20-something son and many of her friends may do. She is not interested in paying new taxes. She does not want her parents to lose their free trips to the Waiheke vineyards using Winston Peters' SuperGold card. She likes Jacinda Ardern but worries about Labour's competence. She voted for John Key and thinks National are probably better economic managers than Labour, but finds herself repulsed by Simon Bridges.
The election is about the two main parties explaining why they are the more competent to spend the $140b or more that Robertson or National's Paul Goldsmith will borrow, and which potential Prime Minister has the right personal qualities to make hasty decisions if the virus comes back.
With Ardern up against Bridges, Labour will always win the latter question by default. But by sticking to his knitting and delivering a basic, conservative Budget, Robertson has given his party a good chance of prevailing on the former question as well.
National will need to point out that Labour failed to deliver on its spending promises in last year's Budget, including by failing to allocate all its $1.9b for mental health. It is promising 8000 new houses, having failed to build the 100,000 it promised earlier.
Will Labour in fact be competent to allocate, let alone wisely invest the extra $140b that Robertson plans to borrow? The National Party needs to shift the focus from Ardern and Robertson, who have put the Budget together, and on to Economic Development Minister Phil Twyford and Health Minister David Clark, who will be responsible for its delivery on the ground.
If National fails to do that, Labour can look forward to the landslide that its private polls are promising.
- Matthew Hooton is an Auckland-based PR consultant and lobbyist.