The Government has defied expectations that it would be conservative in this Budget, keeping Government spending in line with Covid levels.
Speaking to The Front Page podcast, NZ Herald business editor-at-large Liam Dann says that Finance Minister Grant Robertson has made a deliberate decision not to stop spending despite the ongoing threat of inflation.
“The Government is spending $11.5 billion over four years in this Budget,” Dann says.
“It’s not austere, it’s not that fiscally conservative ... They’ve decided to be a Labour Government and spend some money and not slash and burn in tandem with the Reserve Bank to beat inflation in a hurry.”
This Budget comes off the back of the Covid period, during which we saw Government spending balloon in response to the crisis.
“Covid has almost set a new benchmark, or it’s certainly a different Government to the Bill English Government. But spending has gone up and debt went up too, so the Government books are in a weaker position.”
This was dubbed the “no frills” Budget in the lead-up to the Thursday announcement, but that moniker doesn’t seem as fitting any longer given that this Budget did, indeed, have some frills.
“I guess [a better name] would be ‘The Labour Party does The Labour Party’ Budget,” says Dann.
“They’ve made a choice ... clearly everybody wants to get inflation under control, but it’s a case of how fast you do that. Do you rip the Band-Aid off or do you pull it off slowly? Adrian Orr and the Reserve Bank really ramped up interest rates to get on top of it quickly, but it was always going to take a while to play out.”
Dann says that rather than crash the economy, the Government has decided to move a little bit more slowly.
“This will help out some people at the bottom end, with policies for looking after children and putting a little bit of money back in people’s pockets. And, also, the headline on Bloomberg [on Thursday] was that New Zealand is expected to dodge a recession, so that’s quite a big deal in terms of how the world will view us.”
This commitment to continue spending does, however, mean that interest rates are likely to stay higher for longer.
“Economists are already talking about the Reserve Bank pushing the official cash rate [OCR] up to 5.75 per cent or 6 per cent, whereas it had previously been expected to peak at 5.5 per cent. Those numbers will mean higher mortgage payments if they come through. On the flip side, fewer people should lose their jobs.”
This paints a picture of the careful balancing act the Government always needs to do when deciding on how much to spend. And while there will be many critics that question the level of spending in this Budget, there are also many concerned that Aotearoa still isn’t spending enough on infrastructure – especially given that the population is set to grow in coming years.
“Even though the Opposition will say that this is fiscally loose and a lot of spending, this is still not transformational. In fact, it’s quite bland.”
Dann says there is a discussion to be had across partisan lines about what New Zealand should look like in the future and what the country should be investing in heavily to ensure our infrastructure is still fit for purpose.
“If we borrowed a lot bigger and really invested – and you could debate whether it’s a four-lane highway the length of the country or just incredible technology infrastructure – we could really supercharge the economy that way,” says Dann.
“Can we choose one that both National and Labour are in agreement with? If they could agree, then in three or six years’ time, we wouldn’t get a new Government that just throws the idea out meaning we don’t get anywhere.”
The question, however, is whether National or Labour will be able to reach common ground on any issues big enough to make a long-term difference.
Listen to the full episode of The Front Page podcast to hear more from Dann on the Budget.
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am.
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