What the Wellbeing Budget should have been
Grant Robertson’s first Wellbeing Budget targets the right things and makes a stuttering start in achieving them, but it could have been so much more, Bernard Hickey writes.
Finance Minister Grant Robertson laid out his first Wellbeing Budget with some pride this afternoon, after the obligatory questions about why his soon-to-depart Treasury Secretary Gabriel Makhlouf was not sitting beside him in the lockup for media and analysts. Earlier Robertson rebuked his Treasury boss for calling in the Police too early to investigate National’s ‘hack’ of Budget information.
Robertson’s focus was rightly on the broad change in the way the Government’s core planning document is built, and how he wants to embed it in the machinery of Wellington’s bureaucracies for decades to come.
The Wellbeing Budget targets more than just GDP growth. It uses a wider range of indicators of other ‘softer’ things such as child poverty, water quality, housing costs, domestic violence rates, suicide rates and voter turnout. These indicators are grouped into four types of capital: financial, human, natural and social.
This Budget focused on improving mental health, child wellbeing, Maori and Pasifika aspirations, along with “building a productive nation, transforming the economy and investing in New Zealand.”
These are all fine indicators and aspirations, and the Government is rightly proud that the IMF and the OECD are watching New Zealand’s latest economic and social experiment as a pointer for the world. We pioneered inflation targeting and fiscal responsibility laws and now Robertson wants to reform the Public Finance Act to target Wellbeing as much as pure fiscal prudence.
There are some genuinely useful and important changes in Budget 2019 that will go some way to improving some of the appalling Wellbeing indicators. New Zealand has 250,000 children living in poverty, one of the highest youth suicide rates and per capita greenhouse gas emission rates in the developed world. Our productivity, as measured by output per hour worked, has been stagnant for most of the last decade, which means real wage growth per hour has stalled.
The move to indexing benefits to average wages rather than inflation is an immediate and fair way to improve incomes of the poorest. It also removes a running sore from our welfare system that has widened the gap between incomes of the elderly and the young. New Zealand Superannuation is indexed to average weekly wages, while beneficiaries have seen their incomes indexed to Consumer Price Index inflation. Wage growth has been regularly faster than inflation over the last 40 years. Removing that anomaly will add over $500 million into the pockets of the poor over the next four years.
The $1 billion spending boost for Kiwirail will start the massive process of re-engineering the freight network in the countryside and the public transport network in the big cities in a way that improves incomes and reduces greenhouse gases.
Financial targets prioritised over soft targets
But these are just scraping the surface, and the Government has plenty of balance sheet strength to actually start making a real difference over the next decade. While the Government is more focused on meeting its pure financial target of keeping net debt around 20 percent of GDP, it is essentially deciding that keeping interest rates low is more important than getting kids out of poverty and reducing the stress of painfully high housing costs.
New Zealand could easily increse its net debt to 50 percent of GDP over the next 10 years without either hurting our credit rating much or sparking a spike in interest rates. The Government should be using that flexibility to address New Zealand’s massive infrastructure and social deficits.
Central banks have printed more than US$15 trillion over the last decade to buy their countries’ Government bonds. Those pension funds who sold those bonds in Europe, Japan and America want to buy other Government bonds. They’re so keen to lend us money they are prepared to lend to us for 1.7 percent at the moment.
New Zealand could use freshly printed money to re-engineer our cities, our economy and our society, but the Government is choosing not to.
The Government could easily signal to bond markets, our construction sector, our neighbours and today’s teenagers that it planned to borrow $150 billion over 10 years to rebuild the housing and transport infrastructure in our major cities in a way that drives down housing and transport costs and sets us up for a carbon neutral economy by 2050.
That extra investment would drive up productivity and then flow through to increases in both GST and income tax revenues to pay the slightly higher interest bill.
That $150 billion could be invested in rail lines, bus networks, brownfield housing infrastructure, EV vehicle subsidies, and better education and health spending to improve the health and skills of young workers, who’ll be needed for that re-engineering of New Zealand..
The Government’s commitment before the 2017 election to fiscal responsibility over all else threatens to strangle its Wellbeing Budget at birth.
It may try to revive it before the next election with a much less restrictive set of Budget Responsibility Rules. The Government’s new 15-25 percent net debt target range from 2022 doesn’t go anywhere near achieving that.
Budget 2019: Read more