Budget 2021: Matthew Hooton – lessons from the Budget and the one issue that may derail Jacinda Ardern

OPINION:

There was once a strong correlation between what a Finance Minister announced in a Budget and what would then happen on the ground.

For a programme to be funded, the relevant portfolio minister needed to show the project to which the money was attached was either supported by a realistic implementation plan or that an existing agency or provider had spare capacity to deliver it. At the very least, new policies were fully developed behind the scenes, a cost estimate prepared and then the press statements written to sell them.

No more. Successive governments have found the old rules annoying. The practice now is for the press statement to be written, funding allocated and then the actual policy and implementation plan worked out later. Thus, Jacinda Ardern’s first term saw Grant Robertson announce $2 billion for Phil Twyford’s 100,000 Kiwibuild houses, $240 million for Shane Jones to plant trees, $1.9b for unspecified mental health programmes and $400mto paint schools.

The good news is that, after four years of on-the-job training, Ardern and her ministers finally understand there is more to getting a house built, a forest planted or a population vaccinated than simply wishing it.

No one in the Beehive paid any real attention to how such promises would be delivered, and none of those above happened. Naive new ministers weren’t to know issuing a press statement wasn’t the same as execution. Some genuinely thought the only reason not enough houses were built under the Key-English Government was that the right orders hadn’t been issued to the Wellington bureaucracy.

By February 2020, the failure of Ardern’s 2019 “year of delivery” was so embarrassing that one poll indicated she was facing defeat by then National Party leader Simon Bridges and would be a one-term Prime Minister.

The good news is that, after four years of on-the-job training, Ardern and her ministers finally understand there is more to getting a house built, a forest planted or a population vaccinated than simply wishing it.

Yesterday’s Budget was therefore lighter on new infrastructure or other complex initiatives than expected, and heavier on shovelling money out the door.

The Government claims the bureaucracy is already overloaded with existing infrastructure projects, the health reorganisation, immigration changes, the freshwater and Three Waters reforms, replacing the Resource Management Act and climate change to do anything more. A bit of computer reprogramming to change what Work and Income pays out is something even the most operationally incompetent of governments should be able to manage.

Where new infrastructure is promised, the intention is to use the private sector, such as the money for iwi and NGOs to build new houses. They stand far more chance of doing it than anything run by bureaucrats. If they fail, Ardern avoids the blame.

Yesterday’s big benefit increases were widely signalled, both to deliver on Ardern’s promise to reduce poverty and inequality, and as a post-Covid fiscal stimulus.

The Government and Treasury seem confident there is spare capacity to avoid the cash evaporating into inflation, with the Consumer Price Index forecast to increase to only 2.4 per cent this financial year – still within the Reserve Bank’s 1-3 per cent range and close to the 2 per cent midpoint – before dropping back below 2 per cent.

This will apparently be accomplished with no increase in short-term interest rates, although the 10-year bond rate will rise fractionally each year.

After increasing 17.3 per cent this year, house-price inflation is meant to sit around the low CPI rates for the next 48 months. Despite the big increases to benefits and the minimum wage, and the radical plan to return to centralised wage bargaining, unemployment is meant to begin tracking down, helped by slashing immigration.

Hourly wage rates are forecast to increase faster than either CPI or house-price inflation. Total and per capita GDP growth are picked to be respectable. The trade-weighted index will stay around 75, which is not too bad for exporters but high enough to make overseas holidays affordable, when and if they resume. Net core Crown debt never passes 50 per cent of GDP and starts to fall by the middle of the decade.

If anything like this eventuates, Ardern’s third term and probably her fourth are secure.

National remains in disarray, as its response yesterday again confirms, and there is no John Key or Ardern in its ranks or even hanging around its periphery. Its top performers, Chris Bishop and Nicola Willis, are far too liberal for a caucus and wider party increasingly influenced by the so-called Taliban of ultra-conservative Christian evangelicals.

Moreover, Robertson has left enough fiscal room remaining for another spray of cash in election year. Who knows, the Government’s bet may pay off, that abolishing the very idea of low-wage jobs will lead to lower-productivity firms closing, and an economy-wide increase in productivity enhancing investment in technology and skills.

There remains, of course, one huge risk to Ardern’s re-election that could yet see Judith Collins have a shot at the top job, and it has nothing to do with the He Puapau report.

The Government has budgeted $1.4b for its Covid-19 vaccination programme. At around $280 per person – even assuming universal take up – it seems a lot, giving credence to rumours it paid top dollar for the Pfizer jab.

But vaccination is not about shovelling money out the door, at which the Government is so adept. It is more like building houses, planting trees, increasing the supply of mental health services, distributing personal protection equipment to health workers or painting schools – and so far it has been a fiasco.

Promises to high-risk frontline workers, diabetics and others with underlying health conditions have already turned out to be press statements unsupported by policies or plans. There may be a developed country doing worse than New Zealand but it is not clear which one.

If, as looks increasingly likely, the vaccination programme turns out to be another KiwiBuild rather than another Covid elimination effort, all bets are off. Ardern had better hope Robertson’s announcement of the $1.4b for the vaccination programme turns out to be one of those old-fashioned Budget initiatives that turn out to be at least somewhat correlated with reality.

– Matthew Hooton is an Auckland-based public relations consultant.

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