Dunne Speaks: Robertson's Budget Gamble On Treasury

Published: Fri 20 May 2022 11:02 AM
The popular test of the success or failure of Grant Robertson’s fifth Budget will be its impact on the soaring cost of living.
In today’s climate little else matters. Because governments come and governments go – about every six to seven years on average since 1945 – getting too focused on their long-term fiscal aspirations is often pointless, especially so at a time when middle-income households and below are far more worried about just continuing to make ends meet. The main mission of this Budget, therefore, had to be addressing that concern.
In that regard, Robertson has taken a huge gamble in the Budget – predicating his moves on Treasury forecasts about inflation and wage growth. According to Treasury, wages will outpace inflation from the start of next year, although they do add the caveat to their forecasts that inflation could be around for a little longer. On that basis, the usually cautious Robertson has gambled that his household assistance packages can come to an end by then. Yet over the years Treasury’s forecasts have invariably been overly optimistic, which creates a massive political risk for Robertson.
As predicted in my Stuff column before the Budget, both the 25c a litre suspension in the fuel excise tax, and the 50% subsidy on public transport fare have been extended, but only for two months. Once they expire, a special $350 cost-of-living payment will be made in three equal tranches (equivalent to about $27 a week) to around 2.1 million people earning under $70,000 a year, but not those receiving the Winter Energy Payment.
However, when the fuel and public transport subsidies and the cost-of-living payment end in November. rising costs will then be set to quickly gobble up any of the gains made by households in that time, since inflation is unlikely to have fallen significantly by then. If Treasury’s predictions are correct, Robertson might just have done enough to bridge the gap until wages get ahead of inflation again, but even that is highly dubious. However, if Treasury has got it wrong, then not only will Robertson’s gamble have failed, and households face a bleak Christmas, but the government will pay the price politically at the election next year.
As foreshadowed, the Budget’s commitments on health are bold – a record $13.2 billion new expenditure over the next 4 years. Much of this is structural and will not be immediately visible to the public – $550 million to clear District Health Board deficits; $168 million over four years to establish the Māori Health Authority, for example. But there are two areas where the additional spending will be visible and welcome – the extension of the low-income earner subsidy for Dental care from $300 to $1,000 per person, and the $191 million boost to PHARMAC over two years to fund more new medicines.
However, the trade-offs beyond the immediate support measures in the health funding announcements (the increased Dental subsidy and more funding for PHARMAC) and the longer-term, structural, and operational changes the Budget outlined are unlikely to impact upon enough people to offset rising costs of living through into next year. Having previously ruled out tax cuts and increases to family support payments like Working for Families, Robertson has effectively backed the government into an unwelcome corner. It is not clear what cards he has left to play.
At the same time, he has, however, set out the challenge to National and ACT to indicate what areas of spending they would cut if in office, but unfortunately for him he has set some easy targets for them. For example, for about the same amount as he is allocating over two years for the merger of Radio New Zealand and Television New Zealand, he could have extended the public transport subsidy and the fuel excise suspension for almost four months, rather than two, which would have provided more immediate relief for stressed households.
In his Budget speech Robertson acknowledged that “the here and now matters but so too does tomorrow.” The burning question now arising will be whether Robertson has got the balance right and done enough to reset Labour’s political compass for the next election. The immediate answer is no – his gamble on inflation starting to go away by November and currently struggling households apparently to get by without more government help after then seems overly optimistic and doomed to fail.
Nevertheless, the government deserves credit for its commitments to improving and upgrading the public health system and its announcements earlier this week about meeting its climate change obligations. But the comparatively modest (though fiscally expensive) moves to help New Zealand households through the cost-of-living crisis seem likely to push those achievements into the background. Politically the Budget will not have kick-started the government’s flagging fortunes, but nor will it have sealed its fate either.
That will come in November when Robertson’s lolly-jar finally runs dry.

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