Labor budget must balance new spending without fueling inflation

0

Peter Dunne was the leader of United Future and served as a minister in the former National and Labor governments.

OPINION: Grant Robertson faces an almost impossible balancing act with this week’s budget.

On the one hand, he has already pledged new government spending of up to $6 billion, with the reorganization of the health sector to be the main beneficiary, and the first allocations from the Climate Emergency Response Fund of 3, 7 billion dollars have been announced. But, on the other hand, with inflation and mortgage interest rates soaring, it cannot afford expansionary government spending that adds to these pressures.

Robertson says it will be a status quo budget, reflecting the “new normal” rather than a “crisis” budget like those for 2020 and 2021, delivered in the context of Covid-19. The underlying budget numbers look reasonably good. A larger-than-expected tax take and recent changes to the government’s debt metrics give Robertson some leeway, though he still forecasts a substantial budget deficit.

But when waning public support for the Labor government and recent public opinion polls showing that more than three-quarters of people (and just under two-thirds of Labor voters) think the government is not doing enough to curb rising costs of living are factored in, Robertson’s challenge becomes much more acute and his room for maneuver tighter. After ruling out spending cuts as a way to curb current inflationary pressures, he must convince voters that his new spending will make things better, not raise inflation and make things worse.

READ MORE:
* Finance Minister Grant Robertson said the government would spend more on health and climate change as it set a new debt ceiling in the first pre-budget speech
* Grant Robertson on the economy, the cost of living and what keeps him up at night
* Inflation: National blames ‘dumb’ government spending for rising prices, government blames world
* Budget 2021: Grant Robertson’s dark red budget seeks to ‘right a wrong’ from 30 years ago

On the cost of living front, it could extend the recently introduced 50% subsidy on public transport fares. This would cost up to $160 million per year, although this assumes no significant increase in usage levels. It could also make the 25-cent-per-litre fuel excise tax reduction permanent, at an annual cost of about $1.4 billion. With gasoline prices continuing to soar and the fuel tax suspension set to end soon, he may have no choice but to extend it for a full year, even to make it permanent, to prevent prices from rising completely outside the range that average households can afford.

ELLA BATES-HERMANS/STUFF

How does the government budget work and what does it mean for you?

The government has already announced increases to Working for Families Tax Credit payments of just over $200 million starting in early April, so further increases seem unlikely there. Robertson ruled out tax cuts and other tax changes, meaning other direct forms of family support are unlikely to be introduced to deal with the rising cost of living.

The Working for Families changes, expanding the public transportation subsidy and cutting the fuel excise tax would amount to more than $1.8 billion of the promised $6 billion. When pre-budget announcements (such as the recently announced $652 million police and law and order package, the new $230 million apprenticeship training program and approximately $50 million in various educational initiatives ) are added, about a third of the $6 billion would already be talked about. .

And Health Minister Andrew Little's

ROBERT KITCHIN/Stuff

And Health Minister Andrew Little’s “wait time reduction task force doesn’t even have to come out with its recommendation until September,” said Peter Dunne.

Most of what is left is likely to go to health, but it is unclear what the split will be between meeting the costs of setting up Health New Zealand, capital expenditure and improving health service delivery. services. What is clear is that the government cannot afford to repeat the additional $1.9 billion allocated to mental health in 2019, which it admitted earlier this year has yet to showed tangible results.

Given Robertson’s assertion that ‘we’re not going to lower fuel prices by cutting health spending’, the pressure is on for health reforms – which will come into effect on July 1, to deliver results demonstrable and tangible over the next 12 months. That seems unlikely, with teething problems inevitable with the new changes, and the Minister of Health’s task force on reducing wait times is not even due to deliver its recommendation until September. Meanwhile, voters faced with rising mortgage rates and the cost of living will grow even grumpier if they perceive they have only gained more bureaucracy from health care reforms.

Peter Dunne: “Having ruled out spending cuts as a way to curb current inflationary pressures, it [Grant Robertson] must convince voters that his new spending will make things better...

Ross Giblin

Peter Dunne: “Having ruled out spending cuts as a way to curb current inflationary pressures, it [Grant Robertson] must convince voters that his new spending will make things better…”

This opens another door for Robertson. Following Pharmac’s review of drug access and affordability, it could take the opportunity to both increase funding for Pharmac to fund more drugs and reduce prescription costs for households. He could argue that it was a practical way to both reduce household spending and improve New Zealanders’ access to medicines.

This budget is fundamentally about restoring Labour’s fortunes and setting up National and ACT to say which services they would cut to bring spending back into balance. Its success will be determined by the extent to which voters, who are already telling pollsters they think National is better at managing the economy and their future, are willing to buy Robertson’s line. If they think he is already spending too much, they are unlikely to thank him for spending more. Judging where to draw the line between his self-proclaimed fiscal prudence and his government’s reputation for profligacy remains Robertson’s biggest fiscal challenge.

Share.

Comments are closed.