Oliver Hartwich: An election year budget

Watching Budget 2020 delivered yesterday was a surreal experience. It was two things at once.

On one hand, the forecasts for economic activity, unemployment and public debt were gruesome. On the other, they appeared way too optimistic.

Take unemployment. It is predicted to peak at 9.6% before neatly falling back to just 4.2% within the space of only two years.

But how realistic is that? Even on the budget’s own assumptions, economic growth will remain negative until June 2022.

Despite the damage the border closure is doing to New Zealand’s key export industries, the budget assumes the economy to shrink by less than 5% over the coming year. That is the kind of recession resulting from something like the GFC, but not a pandemic depression scenario.

At the end of this exercise, each Kiwi household will shoulder public debt of about $80,000. But if both unemployment and growth forecasts err on the side of hope, we can only wonder how realistic this forecast is.

The budget was heavy in numbers. A few hundred million here, a few billion here – there were big spending initiatives for everything.

But it was light on demonstrating how these programmes will help repair the country. As KiwiBuild showed, good intentions plus government money do not automatically equate to success. But that lesson appears to have been forgotten and Budget 2020 is just KiwiBuild on steroids.

Curiously, the centrepiece of this spending binge is an unallocated $20 billion to be deployed where the Government may eventually see fit. As if the Provincial Growth Fund model, which operates along similar lines, is worth copying.

Most worryingly, while the Government frames this budget as a strategy to get the economy moving. But this strategy appears to be no more complex than: spend more money.

It should have been a budget to steer New Zealand out of this economic depression. But it reads like a budget in an election year.

The key takeaways? Bad forecasts that are still too optimistic. Heavy spending programmes that are light on ideas. Strategy talk with no strategic action. That was Budget 2020.

What we need now are practical, creative ideas to revive the New Zealand economy. There shall be many more opportunities to discuss better policies until the election.

Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank HERE.