Is this the transformational government we were looking for?

by The Listener / 24 May, 2018
RelatedArticlesModule - Budget 2018

Finance Minister Grant Robertson and Prime Minister Jacinda Ardern. Photo/Getty Images

Finance Minister Grant Robertson described Budget 2018 as “bread and butter”. It was. But bread-and-butter pudding was what the public were after.

Boring is a poor epithet for a feature film but most governments can live with it as a description of their Budget. Innovative would be nicer, but boring will do. Boring does not incite people to change their vote, much less protest in the streets.

In designing Budget 2018, Finance Minister Grant Robertson had the good fortune to be working with a bigger-than-forecast surplus: $3.1 billion for the current year and expected to be $3.7 billion next year. In most respects, Budgets are far easier to prepare in times of surplus than in times of deficit. The concerns of persuasive ministers can be assuaged, favoured policies and priorities can be funded and the exhortations of the party faithful can be met, at least to some extent. Thus, there was money for Africa in this Budget – in the form of more foreign aid – as well as more spending on health, welfare and education. Under National-led and Labour-led governments, the bulk of new spending always goes to those three big-spending portfolios. That consistency is a Kiwi virtue.

The one aspect that’s easier in preparing a Budget in times of deficit is that public expectations are diminished. Priorities become clearer. In times of deficit, for example, the public may grudgingly accept the imposition of higher fuel taxes. But when a government is sitting on a $3.1 billion surplus and fuel costs are at a record high, it is much more difficult to argue that this is the time to increase taxes. Many households have no choice about their fuel consumption. The Government does have a choice about how and when it applies new taxes. The pain at the pump may now hurt it.

Robertson and Prime Minister Jacinda Ardern are well aware that the Government’s biggest vulnerability is the perception they are a poor manager of the economy. Robertson is in the happy position, for now, of being able to indulge in significant new spending while economic growth continues to boost forecasts. But there must always be caution about forecasts. The relatively rosy picture continues to rely on increased immigration. Perhaps that is why New Zealand First leader Winston Peters, who railed against immigration when in Opposition, has gone quiet on the topic now he is Deputy Prime Minister. If immigration declines, growth is likely to decline, too. Net core Crown debt is $10.8 billion higher than was expected under National, and the rate of job growth is falling compared with the rate of job creation in the period before the election. Neither measure is a portent, but caution is wise. The Government has so far struck an acceptable balance, though its lack of support for business growth is notable.

New Zealand First has once again had significant wins. When anyone considered the most pressing problems that might be addressed by Budget 2018, those facing racehorse owners would not have been on the list, yet they scored tax breaks, thanks to Peters wearing his Racing Minister’s hat. Along with Regional Economic Development Minister Shane Jones’ $1 billion-a-year pork-barrel fund, New Zealand First supporters – all 7% of voters who turned out for the last election – must be laughing. The joke, as usual, is on taxpayers. This was the price that New Zealand First extracted for picking Labour to form a coalition government.

New Zealand’s exorbitant housing costs proved intractable for the previous Government and all indications are that it will be the same for the current one. For as long as New Zealanders are willing to pay ridiculous prices, they will remain high. The flagship house-building programme KiwiBuild has already seen prices rise and targets fall. Blaming Treasury analysts for downgrading the impact of the policy is a distraction. The public cares more about houses in Auckland than they do about analysis in Wellington.

The problem for Robertson and Ardern as they measure Budget reaction is that they promised to create “a transformational government”. Helpfully for them, no one ever understood what that meant, nor is anyone closer to understanding it now. Robertson described Budget 2018 as “bread and butter”. It was. But having promised to be transformational, it was bread-and-butter pudding that the public expected.

This article was first published in the June 2, 2018 issue of the New Zealand Listener.

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