Finance Minister Grant Robertson will deliver his election year Budget on May 14 in unprecedented circumstances. Mark Mitchell
Finance Minister Grant Robertson will deliver his election year Budget on May 14 in unprecedented circumstances. Mark Mitchell
EDITORIAL
Before the 2017 election, former National Finance Minister Steven Joyce notoriously claimed there was an $11.7 billion hole in Labour's proposed spending plans. One could be forgiven for wistfully desiring such a hole today.
This week, Parliament passed the biggest single tax support package in modern New Zealand history.The reforms – passed under urgency in the House on Thursday – provide businesses with more than $3 billion in tax relief. The package takes the total amount Government has, and is planning to spend, to more than $23b.
And, with the Government's "recovery Budget" just over two weeks away, Minister of Revenue Stuart Nash says more support is to come. Finance Minister Grant Robertson has previously stated that the Budget will contain "significant" new measures for businesses to help them recover from Covid-19.
The even money among analysts is another $20 billion of fiscal support will be outlined on May 14.
Better days
What a different state of affairs from our path into the 2017 election when Treasury forecast the economy would continue its steady growth over the next four years. Growth in real GDP was then forecast to pick up to 3.7 per cent in mid-2019 before easing to 2.3 per cent in 2020/21.
"The stronger period of economic growth over the next two years or so is expected to lead to a gradual decline in the unemployment rate and a pick-up in wages and prices that lifts inflation to 2.1 per cent in 2019/20."
Instead, a coronavirus cut loose from Wuhan, China, and paralysed world economies, including New Zealand's. Treasury's best-case scenario has the unemployment rate peaking at 8.3 per cent in the current quarter (up from 4 per cent at the start of the year) but the curve bending down to 5.6 per cent a year from now.
For 400,000 New Zealanders, raising the alert restrictions to level 3 meant a return to work this week. But many businesses will remain closed until at least the end of level 3.
Ardern said the tax changes passed this week will help businesses that are struggling. The measures include a $3b tax loss carry-back scheme that will allow a large number of businesses to access their previous tax payments as cash refunds. Essentially, according to Nash, this means a forecast loss in the current financial year can be offset against the tax paid on a profit from the year before.
The omnibus bill also has measures to support commercial tenants and landlords and $25 million for further businesses support over the next year.
Nash said the tax plan, and its speedy passage through Parliament, means cash could start flowing to businesses via the tax system as early as this coming week.
The tax package changes are in addition to the Government's more than $10b wage subsidy scheme. So far, more than $1.25b has been paid to about 188,000 sole traders through the scheme. A further $4.27b has gone to 160,000 small businesses that employ between one and 19 staff and almost 8900 medium-sized firms, with 20-99 staff, have been paid $1.3b.
Our economic survival and rejuvenation is predicated on the assumption that New Zealand will thwart the coronavirus to the point where we can "keep stamping out Covid until there is a vaccine". Fail to contain it, and our financial fortunes will plummet along with the human tragedy of lives lost.
Robertson is also believed to still want to use his May 14 "Recovery Budget" to "reset" the economy.
Beyond rebounding from the coronavirus crisis, Robertson hopes to "address some of the long-standing challenges New Zealand faces such as climate change, inequality, New Zealand's low productivity, and trade diversification". In recent weeks he has been speaking about a strong personal belief in the "power of the State to do good".
In a virtual address to Business New Zealand two weeks ago, he said: "We must also not allow inequality to take hold in our recovery. In fact we need to take this opportunity to improve the prospects of all New Zealanders and tackle those long-standing divisions."
This would square with the "economic plan for a productive, sustainable and inclusive economy" announced by Robertson and Economic Development Minister Phil Twyford in September last year.
Ultimate location
Why, Robertson appears to be positing, simply bounce back to where we were pre-Covid-19 when we could rebound to a better position? Financial Times writer and former Kennedy Scholar at Harvard University Simon Kuper this week proposed New Zealand's stocks could ascend dramatically if it could eliminate the virus. "If New Zealand succeeds, then for the first time it will be a better place to do business than New York or London: the ultimate remote location for the age of remote working."
It's true that the UK and the US are being hammered by the coronavirus and their financial fortunes are being bent horse-shoe shaped over the anvil as a result. But for Kuper's scenario to get beyond pipe dream status, New Zealand's fiscal footing would have to be rock solid.
Treasury has the responsibility of delivering a Pre-Election Economic and Fiscal Update between 20 and 30 working days before the coming election. This situation report and forecast will be largely influenced by Robertson's May 14 Budget.
Speaking in the House on Thursday, Nash called the Government's response so far to Covid-19 the "most significant peace-time economic plan in modern New Zealand history".
In less than two weeks, the Budget will need to deliver the mother of all recoveries if this nation is to claim the economic footing to even dream of higher ground.
