If we are going to borrow, let’s buy the best
The Government’s latest Budget fails to live up to its name. “Rebuilding Together” suggests we’ll collectively create something new and better. Why lavish billions on the 'same old, same old'? asks Rod Oram
“Spending Together” is what the Budget actually describes. Oodles of money for almost every good cause from e-commerce and the environment to disabilities and Defence. $50 billion of it. More pledged if we need it. Which we will.
The spending is vital. The utterly unprecedented destruction Covid-19 is wreaking on societies and their economies has barely begun. So, yes, to more wage support, sector restructuring funds, social support, health services and all the other help we have to have.
The Government can afford it, thanks to the wonder of quantitative easing, minimal interest rates and the Crown’s low debt. Which will remain enviably low compared with most other developed countries as it spends high.
National Party Leader Simon Bridges complained about the extra $140b of debt. “That's $80,000 per household and it's our children and grandchildren who will be paying for it, that's equivalent to a second mortgage on every house."
He can’t see it’s cheap protection against a far deeper plunge in economic activity and house prices. A bargain insurance premium, equal to only 8.4 percent of the $950,000 median house price in Auckland. Some home owners might be so relieved, they’ll switch their votes accordingly.
We have already spent some $40b on Christchurch’s rebuild from its earthquakes ... But all we’ve done is create a pleasant replica of a mid-20th century city.
No doubt companies, households and government will spend the $50b, not to mention the further $60b the Reserve Bank is QEing for us. But it won’t be easy. Who will build all the extra houses and kilometres of roads, teach new skills to tens of thousands of newly unemployed, flock to the wilderness to pluck weeds, kill pests and root up wilding pines?
And in our rush, will we simply buy more of the same old stuff? Or will we demand, design, build and buy the best, sustainable, long-lasting new things? Will KiwiRail, for example, spend the $400m it’s getting to replace its Interislander infrastructure on diesel or electric ferries, and utilitarian or welcoming terminals?
Our form on this is deeply discouraging. We have already spent some $40b on Christchurch’s rebuild from its earthquakes – and the job’s far from complete. But all we’ve done is create a pleasant replica of a mid-20th century city. Not an exhilarating example of a 21st century city, with all the amenities, technology and liveability that would offer.
And will we spend far too little on what the economy really needs? For example, businesses must fully digitise their systems and, to the extent they can, the delivery of their products and services. Globally, that’s the number one business learning from the pandemic so far.
Yet of the $50b of new spending in its Budget, the Government has allocated a mere $10 million (0.02 percent) to New Zealand Trade & Enterprise “to provide incentives and grants to encourage e-commerce, train more digital advisors and provide information and support for SMEs wanting to incorporate e-commerce into their business models.”
Meanwhile, it has allocated “$80m to encourage entrepreneurs and businesses to develop new products by enabling them to claim tax deductions for unsuccessful or abandoned assets.”
New Zealand First’s only shiny new idea is a special edition Covid Commemorative Medal which its leader Winston Peters unveiled in his Budget support speech yesterday.
The Government deserves huge credit for the way it has handled the pandemic to date. So complicated, fast-moving and unprecedented are those challenges, though, the Government, business and the public have had little time to think much about the future.
But enough people and organisations have given broad expressions of the better future they want and need. The Government should have said something in the Budget about how it would begin to use some of the vast sums it’s spending to those ends.
The worry is the coalition parties actually don’t know how to do that.
Labour’s best idea so far is to have Environment Minister David Parker get a bit of green into the billions of dollars of fast-tracked infrastructure spending.
New Zealand First’s only shiny new idea is a special edition Covid Commemorative Medal which its leader Winston Peters unveiled in his Budget support speech yesterday. With a limited edition of, say, 5,000, he said, “we see it being passed on to heirs and successors long into the future, a permanent reminder of a time in our nation’s life when we drew upon the best of our national character to protect life.”
Greens co-leader James Shaw put a brave spin in his speech on the $1.1b of new environmental spending. “This funding for nature will kick off a strong and sustainable response to Covid, getting Kiwis to work on projects which will stimulate the economy while protecting our environment for generations to come.”
In reality, though, it is only 2 percent of the total new spending. Worse, none of it will stimulate investment in clean technologies. Rather the money is going on aforementioned weeds, pests and wilding pines. Moreover, it is only 0.7 percent of the $136b the infrastructure sector is lobbying the Government to spend on the 1,924 projects it has pitched to it.
The opposition is even more lost. National says it would cut taxes, tighten up on spending, and cut regulation. ACT’s one and only MP David Seymour says the Government should let business lead the recovery by creating jobs. Given the pandemics’ devastation of their finances, that begs the question of where funds for survival and investment would come from if not from the Government.
But take heart. We’re in good company. Most governments around the world are still frantically bailing out their economies rather than ensuring some of that money goes to future-proofing them.
Vivid Economics in London is keeping track of how the stimulus money’s being spent. Some 90 percent is “going directly to individuals, households and those on the frontline.” Only 11 percent “is going to support environmentally-intensive businesses directly,” it says.
As a result, “most governments are failing to use this support to secure medium-term benefits to their citizens’ welfare and the natural world around them. As a result, the vast majority of the money going to business in the short term could be risking future environmental sustainability.”
Its report is sober reading but full of helpful advice about how to use stimulus money far more effectively. It is worth noting Vivid was a key consultant and economic modeller on our Productivity Commission’s 2018 report on our transition to a low-emissions economy.
If our businesses and government wonder how New Zealand could follow some of Vivid’s recommendations, they need look no further than The Green Covid Response written by Greenpeace New Zealand.
Now that’s a future worth building together.
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