On Thursday finance minister Grant Robertson laid out the fifth budget of his career – and easily his most conservative. It was a remarkable reversal for a politician who, only two years ago, was staring down the early months of a devastating pandemic, releasing billions of dollars in economic stimulus.
That stimulus was responsible for securing a record low unemployment rate, achieving a record run of economic growth and – if Robertson’s worst critics are correct – record growth in inflation. And that was the background to Thursday’s announcement. Inflation is running a little shy of 7% and forecasters warn that relief is unlikely in the short term. Petrol prices are over $3 a litre in most centres, food prices only go one way (up) and interest rate rises are certain to occur over the short to medium term, increasing the cost of servicing a mortgage.
In a different year, Robertson’s response might have tracked along traditional lines. Drawing on the Labour tradition, he might have drawn down a few billion more to offer universal relief, perhaps in the form of publicly funded dental care or a publicly funded ambulance service. But in this year, as inflation reaches 9% in countries like the UK, the finance minister delivered a budget former conservative National party prime ministers Bill English and John Key might have been proud of.
To those on Robertson’s left this is – at worst – heretical. At best, it’s a disappointment. But the economic conditions demand a tightrope act. If the government increases stimulus, inflation could match it, pushing prices higher than ever. If the government refuses to act, withholding support from the most vulnerable and the “squeezed middle”, it risks pushing more and more people into poverty.
That’s an intolerable outcome. And so Robertson is releasing a series of targeted measures: $350 in cost-of-living relief for people earning $70,000 or less; extending the half-price subsidy for public transport for two months, and making it permanent for community service card holders; extending the hold on the fuel excise tax, perhaps helping to keep petrol prices at $3; and increasing various discretionary grants. The government is lifting the ceiling for the dental emergency grant, for example, from $300 to $1,000. Taken together, these measures could help more than 2 million New Zealanders offset the worst impacts of inflation. In fact, the cut to the fuel excise tax is helping shave 0.5% off inflation.
Robertson’s critics might argue that this conservative, precisely targeted approach is unnecessary. In her budget speech the prime minister, Jacinda Ardern, argued that inflation was, for the most part, imported. Supply chain disruptions and the war in Ukraine were responsible for rising prices, rather than government spending and domestic demand. That seems reasonable, and even the orthodox economists acknowledge as much. The price of petrol, for example, is almost entirely a product of the war in Ukraine. Yet its impacts are felt across the domestic economy: everything from the cost of moving freight to the cost of getting to work is increasing. That leaves the government with few policy tools to help shelter New Zealanders from rising prices.
This reading of inflation leaves keen observers with one obvious question: if inflation is mostly imported, why not spend more ambitiously? Economists talk about the inflationary thief, an intruder that – when he breaks into the economy – steals the value of wages and savings. As inflation rises, the amount you can buy with your wages decreases. So too does the value of your savings. In the plainest terms, this means the poorest New Zealanders will struggle. Their money won’t go as far as it did even a year ago. With that pressing need it seems remiss, even neglectful, of the government not to increase spending to take – using the prime minister’s words – the “hard edge” off of the cost-of-living crisis.
In 2020, when Robertson delivered his third budget, the country was taking its first, tentative steps out of a two-month-long lockdown. Amid that uncertainty, and amid the unprecedented financial stress many people were under, Robertson released billions into the economy to support everything from wage subsidies to rail upgrades. In his fourth budget he dramatically increased benefits helping reverse the savagery of Ruth Richardson’s “mother of all budgets” in 1991. In those budgets – 2020 and 2021 – we saw a tantalising glimpse of a possible “Red Robbo”, committed to offsetting the worst impacts of capitalism.
But in 2022 we witness a return to form and a social democrat perhaps more committed to simply offsetting the worst impacts of the business cycle. That’s disillusioning for leftists. But that moderation might be enough to win back the fickle centrists departing to the National party. And in the end, this is perhaps a set piece for winning back those voters and guaranteeing a third term in 2023.
Morgan Godfery (Te Pahipoto, Sāmoa) is a senior lecturer at the University of Otago and a columnist at Metro