Budget 2022: David Cunliffe - Finally a Government has guts to take on core issues

Inflation, the rising cost of living and how to deal with it is a huge issue facing the current Government. Photo / 123RF

Opinion

OPINION:

It is often harder to navigate out of a crisis than manage the crisis itself. Labour has led Aotearoa New Zealand ably through Covid with low death rates, and a quick economic bounce back to 5.9 per cent growth and 3.2 per cent unemployment.

But to deliver on its aspirations for higher equity and wellbeing, based on a low-carbon, high-value economy, the Government must achieve three big things at once — and Budget 2022 is working on two of them.

First, Grant Robertson is working the fiscal balance sheet hard — harder than former finance ministers like Sir Michael Cullen and Sir Bill English — and the times demand it.

The health and climate plans that have been announced are potential breakthroughs and, along with the investment in the 30-year infrastructure strategy, this Government has had the guts not to again kick the can down the road on some of the big issues.

With a fair wind, it could even work without blowing the lid off the inflation pot. It is a gutsy call.

Second, the Government has recognised the pain caused by inflation on the cost of living and the $1b package is a short-term nod at that — that is necessary politics but temporary economics.

But third, what is missing is a clear plan for productivity gain and value creation — for working the supply side of the economy harder to achieve transformation without the taxpayer having to fund it all.

To do that, a broader range of tools and a clearer economic map are needed.

Balancing investment and inflation

Budget 2022 is fiscally large — with core Crown expenses hitting a high of 35.4 per cent of GDP. Compare that to Bill English or Michael Cullen, who averaged around 30 per cent in their Budgets.

While the argument goes that the fiscal bulge is short-lived (returning to below 30 per cent over four years), this approach puts a lot of pressure on the Government and the economy — relying heavily on future growth, fiscal discipline, and no more global shocks.

That's a big call given pandemics, wars, skills shortages, and ongoing financial market volatility.

Inflation is real, growing, and those on lower incomes feel the pain worst. It kills economies. It cuts the value of savings, investment and debt alike — sapping confidence and crippling innovation.

The International Monetary Fund shows the fiscal and monetary stimulus that underpinned our Covid resilience also contributed about 40 per cent to our inflation push.

And as we climb out of Covid, economists are clear that we need an end to "sugar-cane economics" — the short-term hits to keep us going.

Addressing inequality

The historic health investment is vitally important in delivering longer-term wellbeing to our population and our economy and delivering on the Government's promise of shifting the dial on systemic issues around health and child poverty.

We all welcome an end to postcode waiting lists and hospital-centric rather than community-led healthcare. For the reforms to succeed, systems and processes must be fixed as well as DHB structures.

Other gnarly problems cannot be ignored if this investment is going to work.
Housing for example — not just the supply but also the quality of existing stock — continues to be the elephant in the room to addressing the growing inequity in our society.

Delivering transformation

The future fiscal tightrope means that other, supply-side levers will be needed to achieve breakthrough economic and social outcomes.

It is good that supermarket land-hogging legislation was passed under urgency, but even more could be done to open up the access to a grocery duopoly gorging, in the same way that the telecommunications industry needed to be fundamentally changed about 20 years ago.

Building supplies are a shambles and it is surely time for a monopoly-busting inquiry into products from insulation to plasterboard, to open up low-cost prefabricated housing markets for the benefit of stressed renters and first-home buyers.

Finance Minister Grant Robertson. Photo / Marty Melville

It is unconscionable that banks are pocketing billions in profits while one in 10 Kiwi kids lack a bed of their own each night.

What is still missing from the picture is a clear plan for productivity gain and value creation — for working the supply side of the economy harder to achieve transformation, without the taxpayer having to fund it all. To do that, a clearer strategy is required with a broader range of tools. Transformation won't happen while the economic incentives favour real estate over innovation.

Fixing that and building a more productive economy requires a broader and better-aligned tax base.

Innovation must not be an "add on" but integral to "the way we do things around here".

Building innovation, knowledge and skills are keys to the more productive, higher-income, lower-carbon future that the Government won the election on.

Budget 2022 is courageous in its investment in climate and health. It offers necessary support to those who are hardest hit while walking a fine fiscal line so as not to fuel inflation.

But achieving a just, high-value, low-carbon future means using the full supply-side, knowledge-wave policy toolbox to drive change.

If the Government leans more into that space, Budget 2022 will lay down a positive legacy.

- David Cunliffe is a former Labour Finance spokesperson and Associate Minister of Finance. He is a co-founder and partner at Polis Consulting Group.