Budget 2020 – the big spend up

04 June 2020

On the 14th of May, the Government announced the 2020 budget, which with $50billion of spending to help New Zealand recover from Covid-19, would be New Zealand’s largest-ever budget.

As a company dead set on helping Kiwis thrive in their retirement (not simply survive), we have assessed how likely the government’s budget will help New Zealanders build a sustainable financial future.  In our view, a sustainable future needs to consider the direct impact on people, the environment and of course the balance sheets. 

 

What we liked

The size of the Covid-19 recovery package

Dwarfing the $10bn stimulus announced to help New Zealand through the Global Financial Crisis, the $50bn package will be needed in full to kick start the economy and get us moving again. The most comparable stimulus for the gargantuan financial injection we’re seeing today would be the $40billion doled out by the government and insurance industry following the Christchurch Earthquakes in 2010.  

Targeted Government spending will be needed to get people back into work as, without this spending, New Zealand would be heading towards a longer and uglier recession.

The extension to the wage subsidy

Overall, the wage subsidy has been a great tool to keep New Zealanders employed.  The scheme forced employers to retain employees until confirming the economic impacts of Covid-19 rather than making people redundant early.  We think that an extension to the scheme will allow people to retain staff even longer.

We were particularly pleased with the tightening of the criteria for the wage subsidy.  The initial loose framework meant that it was taken advantage of by a number of companies who should not have qualified.  This extra spending will eventually need to be paid back which means lower future public spending and/or higher taxes on all of us.  

Environmental jobs package

The maintenance and rehabilitation of New Zealand’s environment will be an essential cornerstone of the nation’s economic future, so the $1billion allocated to environmental jobs is undoubtedly money extremely well spent. It’s hoped that the new jobs, particularly in regions struck by tourism losses, will help mitigate some of this lost work.

At its core, we need to protect the country we are growing old in and safeguard its natural riches for generations to come — this argument is grounded in both environmental and moral value.

Rail and infrastructure spend

We would like to see more spending on rail and less spending on roads.  Mass transit solutions will be critical to getting cars off the road which will save lives from traffic deaths and help reduce our greenhouse emissions.  

The current debate on whether rail has a place or not reminds us of the Britomart debates in the 1990s.  It took almost 10 years before Aucklanders could agree that it would be worth investing in bringing trains back into the central city – since trains arrived in 2003, they have been a critical part of Auckland’s infrastructure and something that everyone considers a success.  We hope improved rail connectivity around the country will follow a similar path.

If successful, a functional national passenger and freight rail network will improve the environment, reduce congestion on the roads and give people greater choices in where they live and work.

Training packages

New Zealand is likely to see unemployment jump to double-digit levels faster than ever before.  We will see jobs and potentially even industries disappear.  We need to help people prepare for this and improved access to training and apprenticeships will do this for us.

Health and Education spend

The $3.3bn of additional spending in health and education is money desperately needed by the public systems that have been creaking at the seams for years.  As a modern developed country, we need to have properly funded healthcare and education systems to drive better outcomes.

 

What we didn’t like

The lack of specificity

We were disappointed that the budget did not have more tangible projects and initiatives to get New Zealand going again. Government officials outside of the bubble dealing with the imminent health crisis should have been taking this period to urgently focus on the targeted investments and support that our industries need. Like the decisiveness and bold decision making we saw in the handling of the lockdown, the same efforts should have been lent to New Zealand’s economic recovery.   The lag we have seen and continue to see will only lengthen our recession. 

The $400m tourism fund

We are very worried about the $400m tourism spend.  The Government already spends $120m per year marketing New Zealand overseas, so we hope that most of that funding is being diverted to market New Zealand to New Zealanders.   

We would be happy to see money spent on infrastructure, assets such as core transport links (e.g. regional airports and airlines) that cannot easily be replaced.  We do not want to see large scale taxpayer money being used to prop up individual businesses. These businesses have had a great run over the past few years and we feel they need to put some of those profits back into their businesses – otherwise, we run the risk of socialising losses and privatising profits.  

If support packages are provided to industries, they should be offered on commercial terms with the funds to be repaid in the future (similar to the AirNZ bailout).  

Lack of oversight on current spending

We would like to see a broader review around some of the Government spending, we are in a very different world to where we were a few months ago.  We can no longer afford, or need some of the things that we had previously allocated spending to.  Every part of the private sector is currently going through rationalisation and spending reviews, we would expect the Government to do the same.  

We still expect money to be spent, though we want to ensure that it is targeted and well spent to drive a recovery rather than being a simple BAU approach.

What about long term improvements

As a country, we have had some of the lowest productivity growth and GDP per Capita in the OECD.  We would like to see some spending earmarked towards addressing this to make sure we build a better future.  While it is hard to implement quickly, we need to keep in the back of our mind that as a country we can and need to keep improving.  If we are going to spend $50bn, that is a huge cheque that will allow us to build a more modern and productive society.  

We all want to retire in a wealthy country with good healthcare, education and healthy KiwiSaver balances.  Improvements in productivity will be critical to ensuring this happens.

 

Our conclusions

We need to remember that every dollar the Government spends needs to be paid back.  We are in full agreement that fiscal stimulus will help us recover faster, though we need to be laser-focused around where and how we spend money and we need to move quickly to avert the worst of the upcoming recession.  

 


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