May 14, 2020
Dr Ganesh Nana (Former Research Director)

Does the Rainy Day Budget signal transformation?

Budget 2020 headlines and immediate thoughts

The rainy day has arrived as a monsoon. Unemployment at 9.6 percent requires more than a textbook response. Budget 2020 delivers with a $50 billion response and recovery fund. Is it enough?

Previous budgets have returned surpluses that were referred to the current Minister of Finance as a rainy day fund. The economic outlook prepared by Treasury confirms that that rainy day has arrived. Indeed, it is more akin to a monsoon, with unemployment expected to hit 9.6 percent (170,000 people) in June 2020. In line with the Reserve Bank of New Zealand scenarios (and also those from the International Monetary Fund), Treasury expect a relatively quick rebound. However, the nature and rapidity of the rebound will remain a source of uncertainty for some time.

In response to a one-in-100-year crisis, measured along the scale of textbook-to-tentative-to-transformative, Budget 2020 is definitely beyond a standard textbook response. A flagship announcement of a $50 billion COVID-19 Response and Recovery Fund is significant and welcome. This Fund is in addition to the $12.1 billion announced on 17 March and the $12 billion Upgrade Programme announced in January.

A flagship announcement of a $50 billion COVID-19 Response and Recovery Fund is significant and welcome.

Included is a $15.9 billion jobs package with:

  • A wage subsidy extension
  • A $1.6 billion trades and apprenticeship training package
  • A $1.1 billion environmental jobs programme.

Also capturing the headlines is a large-scale house-building programme to add 6,000 public houses and 2,000 transitional houses. In addition, the Warmer Homes initiative is boosted to see another 9,000 houses retrofitted, including a lift in subsidy from 66 percent to 90 percent for low-income households.

The $1.1 billion environment jobs package, which aims to add 11,000 jobs in regions to improve waterways, wetlands, and biodiversity, including pest eradication, and managing wilding pines and wallabies. Engagement with iwi/Māori and local councils has been signalled. The success of this engagement will determine the success of the package.

In total, this fiscal stimulus is expected to save up to 140,000 jobs over the next two years. It is sobering that this will still see the current 166,000 on the Jobseeker Support benefit rise to 297,000 in a year’s time.

An additional 130,000 people on the dole will unfortunately experience the total inadequacy of benefit levels. Do not be surprised if there are further measures announced soon on this matter.

There is also a huge expansion in school lunch programme. From the current 8,000 it will see over 200,000 children by 2021 get a free lunch each school day. A large boost to Whānau Ora (+$136 million) is welcome. Additional funding for community services seem, in comparison, small; with increases in funding for social service providers (+$79 million), community groups (+$36 million), and family violence services (+$22 million).

As expected and as we were warned, the fiscal accounts are a sea of red. A $28.3 billion deficit is projected for this year, followed by further deficits of $29.6 billion, $27.2 billion, and $16.5 billion. Consequently, net core Crown debt rises from 19 percent of GDP currently, to peak at 53.6 percent in 2023.  However, these levels of debt remain well below those of other countries, and do indicate that the Government has additional ability to respond in the near future should the need arise. The first call on these funds will need to be those people whose jobs have not been saved and are being left to survive on inadequate welfare benefit payments.

So, was the rainy day budget truly transformational? Unfortunately, no. But, full marks for moving well beyond the confines of the textbook.

Check back soon as we will publish more in-depth analysis, with special focus on ‘shovel ready’ infrastructure, the social safety net, and look at the budget through an equity lens.