Finance Minister Grant Robertson has delivered exactly what he signalled in Budget 2021 … and nothing more.
He’s spent big on social welfare to provide some immediate relief for society’s poorest.
He’s reduced borrowing plans to cap core Crown debt below 50 per cent of GDP and get back into surplus by 2027.
In between are a lot of spending announcements — from infrastructure to climate change and small business support — that don’t stand out from the run-of-the-mill.
With the economy already bumping up against capacity constraints, this wasn’t the year for that kind of stimulus.
If anything, after talking about debt and deficits for the past two weeks, Robertson underwhelmed slightly on that front.
“Markets will be disappointed by the lack of a reduction to next year’s bond programme,” said ANZ senior economist Miles Workman.
In recent speeches, Robertson has made a mantra of his “balanced approach”.
While he has stayed broadly true to that, he has, in the final wash-up, leaned back towards the left.
There will of course be critics saying he hasn’t spent enough and arguing that debt repayment can wait.
But New Zealand hasn’t had a Finance Minister who thinks that way in almost 40 years.
“While low interest rates mean the ongoing interest expense will be contained over the forecast horizon, high debt levels represent a very significant interest rate risk for the taxpayer, and one that will be there for many years to come,” warns ANZ’s Workman.
Business will be disappointed that there wasn’t a bit more — either in support or incentives — to help them join the productivity party that the Government expects them to fund through higher wages.
Perhaps they’ll just have to wait a little longer.
The Finance Minister’s cautious approach suggests there is more to come in social spending, debt reduction and support for innovation.
The better-than-expected economic narrative has been a powerful one for this Government.
Everything looks good compared to both the economic and public health nightmare we were facing a little over a year ago.
Clearly it isn’t election year and this was not an election-year Budget.
But it would be cynical to dismiss the pacing of Robertson’s spending roll-out as merely a political tactic. It makes sense to keep our powder dry until we’re sure we are clear of the pandemic and potential lockdowns.
It also makes little sense to spend big now, with many parts of the economy already growing as fast as they can, given border constraints.
But for all that, Robertson’s timing is politically astute.
The Budget forecasts leave plenty of headroom for the economy to continue surprising on the upside.
Or in other words, we should probably expect the economy to keep doing better than expected.
Westpac chief economist Michael Gordon said he was surprised to see the lack of “significant upgrade to the Treasury’s revenue projections” despite the fact they were running with similar GDP growth forecasts to his own.
“Tax revenue has consistently surprised to the upside in recent months, but the Treasury’s projections assume that this won’t continue,” he said.
“We believe that the Government’s books will improve at a considerably faster pace than the Treasury expects. As that becomes apparent, there will be scope for both more substantial spending plans and faster debt reduction.”
In these weird Covid days it’s hard to know exactly where new spending will be most needed a year from now.
It’s sufficient to assume there will be need.
But this Budget looks set to leave Robertson flexibility for the years ahead.
I’d expect to see the debt track tighten further and New Zealand’s path back to surplus accelerating.
I’d expect to see more social spending and investment to address inequality.
And I’d hope to see — when the capacity is there — more vision for infrastructure and more incentives to help business in transforming the New Zealand into the kind of high-skilled, high-tech economy we all want it to be.
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