Editorial: Budget 2021 - A very Labour Budget in the time of Covid 19 coronavirus

EDITORIAL:

New Zealanders can count themselves blessed the economy has been performing a lot better than expected and have avoided the worst ravages of Covid-19.

Finance Minister Grant Robertson was fortunate in that respect when he delivered his fourth Budget yesterday, forecasting a return to surplus by 2027.

Certainly the economic picture is much rosier than it was this time last year when the predictions were for debt and deficits "as far as the eye can see", given the $62 billion ploughed into the response to Covid.

The stronger economic outlook – estimated at 2.9 per cent growth this fiscal year, compared to earlier estimates of 1.5 per cent – has allowed the Government to tip the scales further on the spending front than perhaps many had anticipated.

That's good news for beneficiaries now looking forward to a significant boost to their incomes.

Meanwhile, Robertson has still been able to tighten the timeline for debt repayment: New Zealand's Budget deficit is forecast to fall back sharply from $18.4b next year to $2.3b in the 2024/25 period.

There's plenty to be encouraged about that outlook and some market commentators are even suggesting it could be on pessimistic side. If so, that would put Labour in a strong position as it moves through its second term.

But charting a path out of the coronavirus pandemic still requires a realistic economic growth strategy, and that was difficult to point to in the wave of announcements released yesterday.

Robertson made the point that this year's Budget was still in the "shadow of Covid-19" and yet it appears many of the big choices were politically driven rather than recovery-led ones.

The business community was looking for a conservative Budget and that they got. But there was little in the way of policies or spending to stimulate economic growth, or incentives for innovation and entrepreneurship.

Job creation, training and retraining schemes was not a focus of Budget 2021.
Capacity constraint is a big problem both in terms of the Government's infrastructure programme and for the private sector with businesses across all sectors finding quality staff incredibly hard to come by.

Finance Minister Grant Robertson during his Budget 2021 lockup presentation at Parliament. Photo / Mark Mitchell

This is having a detrimental effect on the ability of companies – big and small – to maintain and implement growth plans.

Immigration and employment is still the main battleground for business.

Meanwhile, concerns are increasing about the level of inflation and interest rate risk starting to build around the globe.

Yesterday's Budget can be viewed as an inflationary one that will exacerbate those concerns, not just for over-mortgaged property owners but also small business owners fearful of rising interest rates.

For all that, New Zealand is in an enviable position relative to many other countries.

As ratings agency Moody's commented, our successful containment of Covid-19 has enabled a swift economic recovery.

"Overall, the outlook for narrower fiscal deficits will help to underpin New Zealand's fiscal position as one of the strongest among Aaa-rated sovereigns."

So far, we have avoided a nasty economic shock through a mix of good leadership, good fortune and a resilient, adaptable economy underpinned by the agriculture sector.

Budget 2021 may not please everyone, but there are still plenty of reasons for Kiwis to feel optimistic about the future.