Yesterday, even with all the lights on in the debating chamber, the Minister of Finance sounded like he was whistling in the dark.
Grant Robertson’s Budget was what we have come to expect from this government. It was a mixture of self-congratulation, grandiose announcements as well as attacks on past governments and the opposition.
However, the fact that it was a business-as-usual budget for Robertson also showed what was wrong with it. Because times are far from business-as-usual.
For the past two years, Robertson could at least claim that his big-spending approach helped to stimulate the economy during the Covid crisis. He could do so also as the Reserve Bank pursued similarly expansionary policies.
Today, he could not say either any longer. Meanwhile, the labour market shows signs of overheating, there is wage and price inflation, and yet at the same time, the economy is slowing down.
In economics, there is a technical term for all this: It’s called stagflation.
What a prudent Minister of Finance would have done in the circumstances is go back to the drawing board and reassess his approach. What Robertson has done was the opposite. The litany of spending announcements was testament to that.
So what would a good fiscal response to our challenging economic circumstances have looked like?
The Government should have realised that it must work with the Reserve Bank to fight inflation.
It does not make sense to drive a car with one foot on the accelerator and the other on the brake. Likewise, it does not make sense that the Reserve Bank is withdrawing stimulus while the government is still increasing spending.
As inflation is the biggest threat to the economy right now, the Budget should have been careful with expenditure. However, Robertson’s Budget was not.
So the -flation part of stagflation was not dealt with by Robertson. And the stag- part was ignored as well.
The Budget should have paved the way for economic growth. Instead, it has created additional burdens for businesses.
Through its plans for a social unemployment insurance scheme, the Government is introducing a new income tax of almost 3 percent for most employees. It is even starting to put money aside for such a scheme commencing in two years’ time.
In summary, what the Government delivered was the ‘whistling-in-the-dark budget’. It was a Budget pretending that everything is more-or-less okay and the Minister of Finance can continue where he left off last year.
Reality obviously has not caught up with this Government yet. New Zealand is facing an economic crisis, but the Government is having none of it.
Call it whistling in the dark. Or just call it tone-deaf.