Budget 2020 Live Special: The Government will borrow an extra $50 billion in the June 2021 fiscal year to mitigate the hit from the Covid-19 pandemic.
COMMENT:
Although the cover is dominated by the strange blue-green of Lake Pukaki, Finance Minister Grant Robertson's "Rebuilding Together" Budget is a sea of red.
Three years of massive deficits ($85.1 billion over three years) leading debt to climb higher than it has been in a generation.
In dollar terms,net debt climbs from just under $60b in 2019, to more than $200b in 2024.
In relative terms, it peaks at 53.6 per cent of gross domestic product.
This is below the peak New Zealand saw in the early 1990s and is well below the levels seen by some of the countries we like to compare ourselves to before they saw the impact of Covid-19.
But it is still well above what New Zealanders have grown accustomed to.
The huge deficit comes from a programme of spending which, including both measures announced to far and still to come, will exceed $50b.
The aim of all of the spending is to cushion the impact of the blow. As Prime Minister Jacinda Ardern highlighted yesterday, although Budget 2020 would be unusual, it was all about jobs.
The Government will spend a mammoth $50 billion on its Covid-19 recovery plan in a bid to save almost 140,000 jobs nationwide, according to this year's Budget.
It's the single biggest spending package in New Zealand's history.
But to pay for the recovery, Government debt will more than double to $200 billion and there are deficits in the tens of billions of dollars for years to come.
At the centre of today's Budget is an up to $3.2 billion eight-week extension of the wage subsidy scheme.
From June 10, businesses which have suffered, or are expecting to suffer, a 50 per cent loss of revenue, will be eligible for the scheme's extension.
"Think about the damage done to young people because we didn't invest the kind of money that we're investing now," Robertson said.
The cover may be mainly blue, but Grant Robertson's third Budget shows the books running deeply in the red. Photo / Mark Mitchell
"It's all very well talking about the burden of repayment on young people in the future, but if those people are growing up in houses where there isn't enough money, in a family where their parents don't have jobs, that is a massive scarring that I am not prepared to weather."
Of welcome news is that international interest rates are now so low, the relative cost of repaying all the debt is expected to be about the same when it peaks as it was before the crisis.
But all this spending does not make the problem go away.
According to Treasury's forecasts, unemployment peaks at 9.6 per cent later this year under Treasury's forecasts, implying about 150,000 jobs will be lost in the coming months.
Incredibly, Treasury then has unemployment falling to 4.2 per cent in just two years.
Robertson's political document is even more rosy-eyed, describing the situation as "up to 140,000 jobs saved".
But there will be much debate about whether even this magnitude of job losses, or the wider hit to the economy, properly captures the impact of Covid-19.
Treasury assumes that, in nominal terms, the economy in the third quarter of 2021 will be larger than it was before Covid-19 reached New Zealand.
Even Robertson conceded the "V-shaped" recovery this implied - code for a sharp fall followed by a sharp recovery - would be the subject of much debate.
Other economists who have made more recent forecasts predict it could take longer for the economy to return to pre-crisis capacity.
But there is little debate about the need to spend big.
The question is, even after saddling New Zealand with a significant debt, will that be enough to save New Zealand from a sharp economic contraction, rising unemployment and all the associated scarring which Robertson fears.
