What does the Labour’s first budget tell us?

Was it National-lite or is it a new direction?

According to the Treasury forecasts – which do not differ greatly from those of any other reputable forecasters – the economy is in a sweet spot. Output is expected to grow at about 2.9 percent a year over the next four years and employment about 1.7% p.a. That means a productivity growth of 1.2% p.a.. The expectation is that real wages will rise slightly faster than productivity; inflation is expected to remain low (an average 1.8% p.a.). The country will still be borrowing overseas and the net international investment position (roughly net overseas debt) will rise from 54.7 percent in June 2018 to 57.0 percent. That may be disappointing but not dangerously so; the level in June 2017 was 57.3 percent.

You may grumble that the economic growth should be faster. There are many pseudo-economic quacks offering pink pills which do not work. It is damned hard to get the growth rate up. After eight years of the Productivity Commission, productivity growth is still performing a little below the long-run average of the New Zealand economy.

Alternatively you may be wary that an external shock, such an international trade war or an international financial meltdown, could blow the economy off course. However it is difficult for a forecaster to allow for the unexpected; the Treasury talks about risks.

Do not attribute this sweet state to the Labour-led government. You might say it was the outgoing National government who got us here but, if so, it is because they did not do anything stupid. The Treasury assumes the Labour-led Government wont either.

So what is the purpose of the government’s budget in the sweet economic spot? It is about how to share the benefits from the growth. What would the previous minster, Stephen Joyce, have done, had National been reelected? My guess is that the news headline would have been about major personal income tax cuts and the criticism that the public sector was being squeezed further.

Instead, the new minister put more of the proceeds into rebuilding the capacity of the public sector, providing public services and increasing investment. You pays your money and you makes your choice. In last year’s election enough of the public switched from Joyce’s approach to Grant Robertson’s approach to change the government. We’ll see how pleased they are with their choice in 2020.

A complication is that the National Opposition may be changing its choice under Simon Bridges, although I get confused by the contradiction of one opposition spokesperson saying that the government has got it wrong and another saying what the government is continuing National’s policies. I suppose the only parliamentary party from which we can expect consistency is David Seymour’s Act.)

The news headlines for the Robertson budget tended to emphasis some elements of the increased spend. (The hunt for those who were worse-off proved too much of a challenge.) There was a confusion arising from the earlier ‘100-Day Plan’ policy announcements. Were they to be treated as new (in effect comparing the May 2018 budget with the May 2017 one) or as already in place (comparing the 2018 budget with the situation set out in December 2017)? Even the Budget documents are little confusing on this one.

So did some I spoke to, who overlooked the December package when they grumbled that there was no major additional support for families. It will be interesting to see whether there is more support in 2019; all your Christmases can’t come at once. (In fairness, left, right or centre, the convention is to moan about the contents of the budget.)

One characterisation was that the budget was ‘National-lite’. What was meant was that it was a responsible cautious budget. No doubt the journalists would have loved a headline ‘Reckless Robertson ’ but when was a Labour government fiscally reckless? There is a myth, presumably cultivated by the right, that National provides prudential fiscal management but that Labour is adventurous (to use an old Leftie phrase).

I was trying to think of the last Labour budget for which I would use the term. Probably under Rogernomics although there was so much smoke and mirrors one was never sure; in any case things were very difficult then. But the term could also apply to Ruth Richardson’s following mother-of-all-budgets (or, as it is sometimes described, mother-of-all-ballsups). Fortunately she also introduced a Fiscal Responsibility Act which makes it easier to track what is going on and harder to be secretly adventurous.

If the 2018 budget looked ‘National-lite’, it is because the fiscal position is, like an oil tanker, hard to turn around; certainly not in the six months that the Labour-led Government has been in power. I imagine you ask the captain of an oil-tanker in similar circumstances about where he or she is planning to go. And you also look at whether the ship is turning onto a track to that destination (and whether there are rocks in front).

Robertson defines his ultimate track, although it is a bit platitudinous. (Amy Adams, the opposition spokesperson on finance, seems to agree but says she will navigate more responsibly.) Labour campaigned on that National’s tanker was pointing the wrong way, severely under-funding the public sector, ignoring inequality and poverty and avoiding tackling the ongoing environmental deterioration. I think that is why we voted for a Labour-led government.