Budget gets worse with age

Roger Partridge
Insights Newsletter
26 May, 2023

The eight days since last Thursday have not been kind to Minister of Finance Grant Robertson’s budget. Initial assessments flattered to deceive. Sure, it was a big-spending budget – but it could have been worse.

But eventually, Stockholm syndrome wears off. Then dismay sets in. The size of the transgressions becomes more transparent. The ‘kindness’ proves to have been cynical.

Robertson’s first objective should have been controlling inflation. Rising prices hurt businesses, workers, and consumers.

Even in non-inflationary times, the Public Finance Act requires the Minister of Finance to exercise prudent fiscal management. A budgeted increase in non-Covid spending of 12.6% – nearly double the rate of inflation – with the economy at over full employment was hardly prudent.

On Wednesday, the Reserve Bank duly raised interest rates by 25 basis points. Governor Adrian Orr claimed the Bank has raised the OCR high enough to contain inflation. This is a heroic assumption. It required Orr to ignore the budget’s surge in spending and take projected future declines in expenditure as a percentage of GDP at face value. Yet Robertson has persistently failed to keep spending within past forecasts. 

But, even if those projections prove accurate, Treasury concluded that the budget will keep interest rates “higher for longer.” A cap on future rate rises is cold comfort for mortgage holders already hurting from high interest rates.

Then we come to the dollops of poorly directed spending. Universal free prescriptions and free public transport for children have superficial appeal. But for a Minister of Finance who has talked so much about wellbeing, they are little more than a cynical election bribe.

Had Robertson been motivated by wellbeing, his spending would have been more directly targeted. Free prescriptions for the residents of Remuera and Karori hardly address need.

The middle-class welfare was bad enough. But the budget’s huge helping of corporate welfare subsidising the video-gaming industry was unfathomable. Kiwi consumers don’t care whether their video games are made here or in Australia.

But perhaps the budget’s biggest fault is what it didn’t do. It failed to address the root cause of the housing affordability crisis. It offered nothing to ease the acute shortages of healthcare professionals. Nor the crime wave sweeping the country.

And while it included generous new allowances for schools, the spending was misdirected. Despite their appeal to politicians, the evidence suggests smaller classroom sizes are not what is needed to fix the education system’s woes.

All-in-all, the whiff from Robertson’s sixth budget just gets stronger. He’ll be hoping, come October, that voters don’t sniff him out.

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