Will Labour’s first Budget whip up a storm?

Tuesday 15 May 2018

The Labour Government has signalled some big changes in priorities - and Thursday's Budget will be the first step in a long and difficult journey, says Professor Christoph Schumacher

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Will Thursday's Budget be the first step in a long and difficult journey?

Last updated: Wednesday 17 August 2022

By Professor Christoph Schumacher

For many of us, the 17th of May is a normal day at the office – not so for Finance Minister Grant Robertson. On Thursday he will deliver his, and the new Labour government’s, first Budget. But despite a mild dose of anticipatory jitters all round – after all, our new Prime Minister has been good for the odd surprise ­­– there seems to be a strange calmness around the upcoming Budget. Why is that? Maybe because we all believe that the new Government will put its money where its mouth is.

You might recall Jacinda Ardern’s campaign promises of tackling inequality and child poverty, as well as creating a more productive economy. The ‘mini’ budget in December gave us a little taste of what’s to come. It promised more support for low and middle-income families and it delivered extended paid parental leave, an increase of the minimum wage, $2b for the Kiwibuild programme, free first year post-secondary education and the Child Poverty Reduction Bill. So, we know the Government has made a start delivering on its campaign promises.

The overarching goal espoused by the Labour Government is to increase the wellbeing of New Zealanders. To achieve this, the Government is looking for economic and social transformation. It wants to create a living environment in which New Zealanders become healthier, more secure and better-educated people, a more equal and inclusive society and a more productive and sustainable economy.

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Professor of economics and innovation Christoph Schumacher.

Moving beyond GDP measures

To achieve these goals, the Government is looking for different measures of success – a move away from the more common focus on wealth and economic activity (aka GDP) towards wellbeing. Currently, this new measure is referred to as the Living Standards Framework. This is timely and necessary.

In recent years, we have been told that we are the most prosperous country in the world (we currently rank number one on the Legatum Prosperity Index), but we don’t do so well when it comes to sharing our wealth within our economy (we are in the bottom quarter of OECD countries). Given the evidence that societies with large divides between the rich and the poor don’t do as well as more equalitarian societies, it might be time for a change.

So, what should we expect from the forthcoming Budget? Many would say more money to support the poorest and weakest in our society, more support for social and public services, additional funds for our healthcare system and hospitals, free education, increased focus on research and development, sustainable resources and emission reductions and, of course, more affordable housing.

To pay for all of this, we should also expect some sort of tax increase or introduction of new taxes – after all, taxes are an easy way to redistribute wealth. We should also not be surprised if savings and cuts have to be made elsewhere and if debt is not re-paid as quickly as under the National government.

The Finance Minister clearly doesn’t want us to speculate too much and has already given us a little glimpse of what he will present to us on Thursday. It’s a bit like the naming of the next season’s All Blacks squad or those photos of heavily disguised new car models – we have a pretty good idea without knowing everything, and there are always one or two surprises.

So, what do we know?

There is a $42b spending plan for public services and infrastructure, but we have to wait a few more days for the details. There will be more money for the health sector and hospitals as well as schools. There is the possibility to extend free post-secondary education past the first year, there is talk of a $100m fund to reduce homelessness, more money to fight child poverty, a $1b provincial growth fund and a $100m green investment fund to shift New Zealand towards a low carbon economy. We have also heard Winston Peters talk about a $1b Pacific Reset plan so that New Zealand can accept more responsibility for the welfare of our Pacific neighbours.

So far so good, but how is the government going to pay for what seems to be big-ticket items? The Finance Minister intends to pay down debt more slowly than the previous government, to scrap some of National’s programmes worth $700m, to collect additional revenue from tax changes and to crack down on multinationals that are not paying taxes in New Zealand. On top of this Grant Robinson hopes for an additional $900m from higher than expected tax revenues.

All this should not only balance the Budget but also leave a surplus, he says. There is some doubt – and not just in the minds of the Opposition’s – that income will not cover anticipated spending, but the Finance Minister has assured us of his commitment to the fiscal responsibility rules that require gradual debt reduction as well as Budget surpluses.

Getting New Zealand back on track towards a more sharing society is ethically important and economically sensible. The forthcoming Budget is a launch pad for this difficult journey, so maybe what we feel right now is the calm before the storm.