Comment: Huge spending decisions are being made in Covid-19's murky "fog of war", writes Federated Farmers Vice-President and trade and commerce spokesman Andrew Hoggard.
As the dust settles on last week's Budget, there are still many unanswered questions about the way ahead.
What we know are that there have beenand will be huge shocks to this year's economic indicators, with GDP slumping and unemployment surging. It's a sudden and huge downturn.
We also know the Budget provides a huge fiscal stimulus to fight the downturn and make it short-lived, with the Government's operating spending up $27 billion this year to $114 billion and that it will be maintained next year.
The Government's operating revenue, mainly tax, will fall this year and will also fall next year.
There will be a gargantuan borrowing programme, with net core Crown debt up a whopping $140 billion over four years to exceed $200 billion, which would be over 53 per cent of GDP.
A big question is whether the economic and fiscal forecasts can be relied upon.
While the Treasury boffins can be excused for imprecise forecasts at a time of such uncertainty, I think the economic forecasts are very optimistic in how strongly GDP and employment are forecast to bounce back from next year.
The forecasts suggest GDP will be back above last year's amount within two years and that unemployment will be back down to 5 percent within four years.
I hope they're right, but international tourism will take many years to recover, immigration will likely dry up, and the global economy will likely be in recession for a long time.
The very strong forecast bounce-back in the economy is carried over to the fiscal forecasts which suggest strong growth in revenue after next year.
They also suggest that Government spending will stabilise at its new higher level, implying greater fiscal discipline in the medium-term than has been evident of late.
Turning to tax, the Budget was silent on tax changes but the spectre of higher taxes looms large. It would have been a bad move during a recession to increase taxes or impose new taxes, so it is good the Government refrained from this.
Looking ahead it's much murkier and much will depend on the Government's choices.
If it decided to not use all of its remaining $50 billion war chest or if it decided to reduce its spending back to where it might have tracked prior to Covid-19 struck, then all going well it might not need to increase taxes or impose new taxes.
Andrew Hoggard, Federated Farmers Vice-President and trade & commerce spokesman. Photo / Supplied
However, the Budget forecasts do not take that approach. Instead they assume that all the money set aside will be spent and then show spending levelling off at a permanently higher level.
Unless the economy roars into life and drags in lots of additional tax revenue then the Government will eventually be forced to increase taxes down the track to close the deficit, let alone to start paying back the huge debt being run-up.
The Government is also keen to address other big issues like inequality and sustainability.
This includes $433 million for regional environmental projects, $315 million for biosecurity, including weed and pest control, $200 million for Department of Conservation Jobs for Nature Fund, and $154 million for jobs enhancing biosecurity on public and private land.
There is detail still needed on how the money will be spent and in what areas but we specifically asked the Government to take such an investment approach as an alternative to heavy-handed regulation.
It is good that they listened at least on the investment approach and we will wait and see on the regulation.
There was precious little mention of rural infrastructure in the Budget, but we still think there is a strong case for enhanced rural broadband and cell-phone coverage, more on-farm and community water storage, and rural and regional road improvement and maintenance.
These should be prime candidates for investment as they will help drive primary sector productivity and competitiveness as well as better economic and social outcomes for rural communities.
Over the coming weeks and months Federated Farmers will continue pushing for better rural telecommunications, better rural roads, and better rural water storage.
But overall, New Zealand is, like the rest of the world, entering difficult and uncertain times with only a sketchy road map in murky conditions to guide us on the way ahead.
Huge spending decisions are being made in Covid-19's murky "fog of war".
These will have profound implications for years to come but at some point when the fog clears the taps will have to be turned down and tough decisions will have to be made.
I don't envy the Minister of Finance, whoever he or she is, when that day comes.
