A temporary but wide-reaching cost of living handout is the most surprising part of Budget 2022, as Grant Robertson seeks to look after Labour’s ‘middle New Zealand’ voters while keeping reserves in an era of global volatility
The election-year lolly scramble may not have begun just yet, but the 2022 Budget is a reminder that polling day is growing ever closer on the horizon.
A temporary $350 cost of living payment is the biggest surprise in an otherwise cautious document, coming close to the ‘helicopter money’ some were calling for in the wake of the Covid-19 pandemic.
Finance Minister Grant Robertson isn’t quite taking to the skies and throwing $20 notes out the door, however.
For one, the payment is targeted, in contrast to the universal approach taken in the United States’ Covid stimulus, while the intent is less about economic stimulus and more about keeping households afloat until inflation starts to ease.
But the cash is still going far and wide: more than half of the 18+ population will receive the cost of living payment according to the Government’s numbers, with over 80 percent covered by either that or the winter energy payment.
Most tellingly, the initiative falls firmly in the realms of what critics might call middle-class welfare, and supporters a helping hand for hard-working Kiwis.
The bulk of the cost of living payment - 55 percent - is set to go to the middle 40 percent of all households based on government modelling.
Perhaps not coincidentally, a fair number of those households will be those whose exodus from National to Labour at the last election delivered Ardern a single-party majority - and who National leader Christopher Luxon has started to woo back in recent months.
The $70,000 eligibility threshold means many of the teachers, nurses and other ‘Kiwi battlers’ whose plight attracts opposition attention will be covered.
The targeted, temporary nature of the payment is also less likely to “unnecessarily exacerbate inflation” as the Budget puts it, a pre-emptive effort to head off both National’s push for tax cuts and criticism of Robertson fuelling inflation.
“If there’s one thing that Covid has taught me, it's that you need to be agile and adaptable. This is our plan, this is what we're laying out today, but I've learned a lot over the last few years about keeping our options open.” - Grant Robertson
There is a real risk that inflation will remain high for longer than predicted, with pressure to further extend the temporary measures once Kiwis come out the other side of winter.
Notably, Robertson did not rule out an extension of the support measures in the event of a more persistently poor environment.
“If there’s one thing that Covid has taught me, it's that you need to be agile and adaptable. This is our plan, this is what we're laying out today, but I've learned a lot over the last few years about keeping our options open.”
Looking at the Budget as a whole, the emphasis seems as much on filling in holes as blazing a bold new trail.
The $1.8 billion funding boost for health in the coming year is primarily aimed at clearing the deficits of district health boards before they are replaced with Health NZ - providing “a clean state”, as Health Minister Andrew Little put it - as well as catching up to the demographic realities of a growing and aging population.
In housing, increases to the price caps for first home grants - and their outright abolition for first home loans - is a continuation of the Government’s scramble to keep up with the ever-rising housing market (although with the Treasury predicting prices to fall five percent in the year to December, and a further 1.5 percent in 2023, the record gains of recent years may be partially clawed back).
The pre-Budget announcement of extra funding for police was also about aligning numbers with population growth, as well as reacting to the spate of ram raids and associated negative publicity.
In fairness, the most transformational elements of the Budget came on Monday, as part of the Government’s inaugural emissions reduction plan for a zero-carbon future.
'Backdrop of uncertainty'
And as Robertson was at pains to point out, “huge uncertainty” among economists about the global environment means it is wise not to overreach when circumstances could change rapidly within weeks or months.
“Budget 2022 has been delivered against the backdrop of uncertainty…around the world caused by Covid-19 and rising global inflation, climate change and the war in Ukraine.
“At its core Budget 2022 seeks to build a more secure economy that protects New Zealand households from the external shocks that just seem to keep on coming.”
In the downside scenario outlined by the Treasury, the pandemic and the war in Ukraine would create more persistent inflationary pressures, while slowing global growth drives down demand for exports and further delays the highly anticipated revival of international tourism.
Then there is the great unknown of how surging Covid numbers in China affect the country’s economy and its zero-Covid approach, with the ramifications rippling out across the globe.
“The risk of a major slowdown in China’s economy has increased in recent months, with outbreaks persisting and officials showing no intention of abandoning the zero-Covid strategy,” the Treasury says.
The Government has no control over how China handles Covid, just as it can’t force Russian forces out of Ukraine, but it will have to deal with any consequences nonetheless. After all, opposition politicians since time immemorial have not been known for their sympathy over global forces.
Robertson’s Budget is one of political calculation mixed with economic caution, but the biggest hurdles to a third term may be just around the corner.
