Is there such a thing as a moral budget? Linda Clark Hayden Wilson Partner Partner

As the country stands at that crossroads, today’s budget doesn’t “ is fast give an entirely clear direction as to approaching a crossroads. We which way we’re travelling. Blame can either take a road that Finance Minister ’s costs the country more but instincts. Robertson is a refreshingly eventually leads to better outcomes and the fast lane, or emotional politician, unafraid to show we can push our spluttering his heartfelt empathy for anyone car further with no facing tough times. But he is also maintenance into the slow coolly pragmatic. As fast as he wants lane.” to go, he has no appetite for scaring middle voters back to National which Economist Brad Olsen, means he’s keeping his foot only commenting ahead of today’s lightly on the pedal. budget As the country stands at that crossroads, today’s budget doesn’t give an entirely clear And yet … that net debt is now expected to direction as to which way we’re travelling. peak below 50 percent was highlighted both in Blame Finance Minister Grant Robertson’s the Minister’s Budget speech and in his earlier instincts. Robertson is a refreshingly emotional briefing at the media and analysts lock-up. politician, unafraid to show his heartfelt That the government’s operating balance empathy for anyone facing tough times. But he would return to surplus by 2026/27, well in is also coolly pragmatic. As fast as he want to advance of what was forecast even six months go, he has no appetite for scaring middle ago, was another statistic the Minister was voters back to National which means he’s happy to emphasise. keeping his foot only lightly on the pedal. So while he may not have a target, Robertson So from the Minister who brought you the pay clearly has an objective: to maintain his freeze that wasn’t, we now have the debt carefully cultivated image of fiscal prudence. target that isn’t. Finance Minister Grant While a budget is full of numbers, graphs, Robertson was today at pains to emphasise he financial projections and economic data, it is had no target for the net debt to GDP ratio – first and foremost a political document. And given the prevailing economic uncertainties, this year’s version was written with more than aiming at a particular percentage was one eye on those former National voters who meaningless, he said. jumped left at the last election and gave

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Labour the historic (and possibly not to be Last week the Government announced a new repeated) opportunity to govern alone. fair pay agreements system designed to strengthen union influence in workplaces and Fairly or unfairly, National is traditionally set minimum industry pay and conditions. regarded by many median voters as a safer Today’s budget restores benefit levels (in two bet to handle the nation’s finances. Despite stages – July 2021 and April 2022), lifting that party’s current state of disarray, Robertson benefits in two stages – in July this year and seems determined to establish Labour’s then in April next year. The increase – between credentials as a responsible steward. $32 and $55 per adult - will cost $3.3 billion At the same time, Robertson has armed over the coming four years, with the himself against accusations of austerity; no Government forecasting the changes would lift more so than in addressing benefit levels. up to 33,000 children out of poverty by 2022/23. In 1991 National’s Ruth Richardson presented what she proudly proclaimed was the ‘Mother No question the increase will make an of all Budgets’. It was the first budget to be immediate difference to individuals and the prepared by a woman finance minister, the first extra cash will all be spent in local budget to be televised and – most famously – it communities. But this won’t ‘fix’ the poverty slashed benefits, imposed market rents on problem or the increasing equality gap. Thirty state houses and introduced user charges for years on from ‘Ruthanasia’ (as it was then health care and other . The called) there are many other complex societal objective was to slash $1.27b from welfare factors embedding disadvantage and isolation. spending. It was a brutal shock to the poorest For evidence, look no further than one major New Zealand households and some never area of increased welfare spending that the recovered. At the time and in the decades Government didn’t highlight - the almost half a since Labour has railed loudly against that billion-dollar increase in annual 1991 budget but been timid to address its accommodation assistance projected for legacy. 2021/22. Every dollar spent is evidence of disadvantage, increasing accommodation Then in the first term of the Ardern costs and a dysfunctioning housing market. Government the Welfare Expert Advisory Group set out the case for urgent action. Nonetheless, Robertson framed the move on Calling on the Government to urgently increase benefits as a moral issue. ‘We have an benefit levels and address systemic low pay, obligation as a relatively wealthy nation not to the WEAG said bluntly that the welfare system accept the levels of inequality that are present was no longer fit for purpose. in our society,’ he told Parliament. But it also a credibility issue. Prime Minister Jacinda Ardern Evidence is overwhelming that incomes has made reducing inequality, and child are inadequate for many people, both poverty in particular, a personal crusade and those receiving a benefit and those in low- left of centre voters are watching closely. paid work. Current levels of support fail to cover even basic costs for many people, The benefit changes will attract the biggest let alone allowing them to meaningfully headlines. But while they may give the participate in their communities. impression of boldness, the overall budget is a At the time, that report and those calls for cautious and conservative start. urgent action went unheeded. But more than a For weeks now Robertson has emphasised the year, an election and an increased mandate need for a balanced approach, an approach later Grant Robertson has completed the that ‘protects New Zealand’s strong position by double. keeping a lid on debt and tracking a responsible return towards surplus, while

2 dentons.co.nz giving us the ability to make targeted Health Boards, which includes $700 million for investments where they are needed most to capital projects. secure our recovery’. Patient advocacy groups will no doubt b e But as Robertson also said today, ‘there were disappointed by the increased funding for no costless decisions in [developing a . The medicines buying agency response to] Covid-19’, and the cost of receives an additional $200 million over four maintaining Labour’s image of fiscal prudence years, enough to keep up with population remains open to question. growth and inflation, but well short of the $400 million a year that is needed to fund all A capital allowance of $12 billion over four medicines that PHARMAC has approved but years (with $3.9 billion earmarked for spending does not currently fund. this year) is not a significant increase on previous years and previous governments – governments who are now criticised for having under-invested in all manner of infrastructure. Māori Likewise government expenditure, while set to increase slightly in nominal terms over the next Key to Labour’s electoral success in 2020 was four years, is expected to decrease as a the strong support from Maori voters. That, percentage of GDP, forecast to fall to 29.2 along with the pressure imposed by a percent in 2024/25. resurgent Te Paati Māori, has helped Māori ministers (who make up 25 percent of the These assumptions don’t quite square with the Cabinet) win significant money for Maori Minister’s talk of ‘record infrastructure initiatives. investment’ or his and his colleagues’ ambitious goals to decarbonise the economy, There is $380 million to deliver 1,000 new reform the health sector, and create a three homes for Māori including papakāinga waters regime that is fit for the 21st century. housing, as well as repairs to about 700 Māori- They also call into question some of the other owned homes and expanded support services. assumptions made in compiling the Budget – $350 million of the $3.8 billion Housing notably Treasury’s heroic suggestion that the Acceleration Fund will be ring-fenced for Māori Government’s policy changes will see house- housing infrastructure. price inflation stall at a somewhat improbable Pre-Budget speculation was that Housing 0.9 percent. Minister turned down the initial Other things to note: bid for Māori housing initiatives, leading to strong push back from Labour’s Māori caucus. While suggestions of a stoush were denied by Health all sides, today's Budget suggests the Housing Minister had to back down. With significant health reforms on the way, including the abolition of DHBs, the Elsewhere the Government allocated $242.8 Government has set aside almost half a billion million for Māori health initiatives, including dollars ($486 million over four years) to setting up the new Māori Health Authority; establish the new health entities, Health NZ $150 million in Māori Education to support and the Maori Health Authority. Serious Māori boarding schools and lift kōhanga reo money, with no guarantee that it will lead to teachers’ pay; $42 million to build a sustainable Māori media sector and invest in improved outcomes for patients. programme content; $15 million for Māori The Budget has also allocated $2.7 billion tourism; and $14.8 million for the additional support over four years for District implementation of the Māori language strategy.

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This Budget and the work Labour’s Maori What it will cost to caucus are putting in generally shows that Labour is determined to hold on to Māori votes Extend the Warmer Kiwi Homes Programme and fend off the challenge from Te Paati Māori. 2021/22 $47.7 million; 2022/23 $72.4 million Support the New Zealand Screen Production Grant - International Trainspotting 2021/22 $162 million Provide Small Business Digital Training, KiwiRail will receive Advisory and Support Programmes 2021/22 $22 million; 2022/23 $22 million ▪ an $87 million capital injection to maintain core freight, tourism, property and ICT Meet increased operational costs for state and assets pending the commissioning of new state-integrated schools and for Early replacement assets Childhood Education services 2021/22 $27 million; 2021 – 2025 $191 million ▪ a $450 million investment in the rail network Redevelop Scott Base 2021-2025 Capital investment $306 million; ▪ a $723 million investment in new operating costs $43 million locomotives and rolling stock and in the development of maintenance facilities Implement and deliver Assisted Dying Services 2021/22 $12 million Climate change Build new homes and repair existing homes for Māori 2021/22 $127 million; 2021-2025 $380 million Not given much fanfare, given the Government continues to stand by the Prime Minister’s Establish multi-regional water service entities statement that climate change is this 2021/22 $114 million; 2022/23 $182 million generation’s ‘nuclear free moment’. Reinstate the Training Incentive Allowance for ▪ $19.7m for responding to the Climate NZQA Levels 4-7 Change Commission’s final report 2021/22 $44 million; 2021 – 2025 $153 million

▪ $3b revenue generated by the ETS will be spent on green investment and climate Key contacts change responses

Opening the border

While this Budget turns the focus on the usual business of Government, it is still clear that managing Covid remains a challenge and a potential drain on the economy. There is still $5.1b left in the $62b Covid response and recovery fund. But we now know Treasury is planning for a ‘significant opening of the border’ on 1 January next year. Like its housing price forecast that may be too optimistic.

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