The vital investments Budget 2020 was missing

Dr Eric Crampton
15 May, 2020

A good 2020 Budget would achieve three things.

First, it would strengthen the public health response to the pandemic, ensuring that any future outbreaks could be handled through rapid contact tracing, testing and quarantine rather than renewed lockdowns.

The economic consequences of not doing so would be ghastly. It is vitally important that the public health system can, like Taiwan, keep the country safe without lockdowns.

Second, it would also provide appropriate support for the households and businesses hurt by the current disruption.

And finally, it would set a foundation for recovery.

Prudence in spending lines unrelated to the crisis would allow a larger response to the pandemic while reducing the extent of future austerity in paying off the debt.

But more than that, relatively small amounts of expenditure could enable entrepreneurial Kiwis to take up opportunities provided by hard-won successes against Covid-19.

The Coalition Government’s 2020 Budget has taken the country some of the way there. Closing the gap further would not cost much at all, but it will take work.

Earlier in the week, the Government announced increased funding for the health system and district health boards to deal with the pandemic — the emphasis was on clearing the backlog of surgeries.

And while Finance Minister Grant Robertson noted in the Budget lockup that everyone now understands the importance of contact tracing, we are left to trust that this is well in-hand.

Regular and transparent statistics on the speed with which all contacts of new cases are tracked, isolated and tested would help build confidence. Hopefully that part of the response really is in hand. Having a few hundred contact tracers on standby might not move the unemployment dial but failing to hire them certainly could.

The Budget headlines will focus on the extent of the Government’s additional support for households and businesses through extensions of the wage subsidy programme, worker retraining initiatives and job creation schemes in areas like environmental improvement and house-building.

The Government avoided locking in too many increases to entitlement spending. But it will still take until 2034 for its net debt levels to fall to levels twice what they were prior to this crisis.

What seemed more absent was a vision for economic recovery grounded in some of the advantages New Zealand now enjoys. The Budget presents a vision of a Government-led recovery with a comforting message: the Government is there to provide support, jobs or retraining — a sealed lifeboat bobbing on rough seas until the storm clears.

But small investments in setting rigorous quarantine facilities so others can safely join our lifeboat would pay off rapidly — and many times over — while enabling different visions. 

The Government has maintained its $140 million international film production subsidy while providing no way for crews to arrive. Rigorous quarantine and the chance to then work in a place unlikely to be disrupted by new Covid-19 outbreaks could be far more attractive than film subsidies ever were. But this requires enabling quarantined entry.

If the country’s front door was safely reopened, universities could expand to attract top international students who otherwise would have gone to the United States to study. Rather than losing the 1.1 per cent of value-add GDP that international students bring, the country could instead gain it back and more. 

Sporting leagues could shift here to maintain their television audiences. And entrepreneurs could find countless other prospects. 

But the 2020 Budget forecasts trivially low levels of migration for the foreseeable future. It’s rather a shame. Our lifeboat has plenty of room for others to join for a while to help with the substantial rowing job ahead, if they could safely be brought on board. 

Stay in the loop: Subscribe to updates