Is a Budget always a budget?
By Thomas Pippos
It has been amusing watching the palpable anticipation surrounding the ‘Wellbeing Budget’.
Many have tried to get their heads around how a budget’s focus could pivot from financial to something else. In some cases also looking or hoping for a ‘magic wand’ to do something that hasn’t been done before, including at the extreme, being able to access an unlimited and constant supply of money.
And if that wasn’t enough, the last few days have further deflected from the purpose of the day which was to announce the Budget – which as the name ‘budget’ suggests, is about ‘rationing and prioritising’ through a short, medium and long term lens – as there is no unlimited supply of money.
So it was a mid-term budget by a centre left government, it was written in black ink and somewhat optimistic, notwithstanding being written during an economic autumn.
It overtly prioritised making good on infrastructure and social deficits. It assumed that the fiscal music will still be playing loud enough, accepting that all indicators show that the volume is clearly decreasing. There was effectively very little left in the tank, without going into the red, if the music stopped.
There is nothing particularly new in saying that economic measures alone don’t fully reflect national success. Non financial narratives always accompany a Budget, noting that the ‘wellbeing approach’ flows from the Treasury’s Living Standards Framework work that started in 2011. It also manifested in the phrase ‘social investment’ used by the previous Government.
And of course governments of all political persuasions look to foster a sense of wellbeing. That is, after all, one of the main ways to get elected…and re-elected...
Putting the wellbeing wrapping to the side then, what’s really different from previous budgets other than a look and feel that showcases certain expenditure and outcomes in a modified way? Quite a lot it turns out.
There seems no likelihood of any cash dividend (tax relief) under the current Government’s term. The Government’s risk appetite seems higher as the focus again has been on spending under a ‘wellbeing’ banner. And the communication is quite different.
However, budgets are meant to be multidimensional. They are meant to tell a balanced revenue and expenditure story. They are also meant to provide a narrative that looks to bring those numbers to life.
Budget ‘19 was quite different on this front. It tells a story but that story is skewed towards spending, projected as being more palatable by being badged ‘wellbeing’. It's very clever. The Government has sought to distance itself from traditional criticisms faced by centre left governments while still doing what centre left governments generally do.
Would it have been materially different under a different government? Yes.
There would still have been myriad additional spending. In some respects this is similar but clearly there would have been differences. The look and feel would have also been different. But the most substantive difference is likely to have been how much was left in the tank for the journey ahead.
So while this was the second of three budgets that will take the current Government into the 2020 election, it probably feels more like an election budget. It will certainly be interesting to see what will happen next year when surpluses are thin and the future outlook feels like we are in autumn not spring.
The Government will be acutely aware of balancing their desire to make their mark and differentiate themselves without spooking the population, while leaving enough for next year. Also, while those with extreme positions often make the most noise, the majority of the voting public who sit at the centre are considerably less vocal and economic wellbeing weighs heavily, more so when it's not there. The recent Australian election highlights this. At the end of the day, views around the economy held by the quiet majority enabled the incumbents to cross the line first.
The great truth in democracies therefore is that economic issues resonate highly with voters; even more so when the economy is viewed as fragile as was the case in Australia. It represents their wellbeing.
The unsung hero of Budget ‘19 therefore is once again the New Zealand economy. For now, it’s the gift that keeps on giving.
Wellbeing needs to be delivered in that context, a context where the voting public’s comfort to it correlates to the economy’s overall financial wellbeing.
Budget ‘19 was then deliberately focussed on showcasing aspects of expenditure around wellbeing and aligning the current Government with those programmes. Downplayed in a noticeable way was the traditional overall financial context and its trajectory.
With global economic sentiment being cautious, will voters place the same weighting on wellbeing if economic fortunes start to turn? Time will tell as a lot can happen in a year; much of which is outside of New Zealand’s control.
As a consequence Budget ‘19 was one that promised much and in many respects delivered on its ‘wellbeing’ promise, effectively spending everything and then some as operating balance before gains and losses (OBEGAL) is projected to drop and we plan to run cash deficits.
All good as long as the music is still playing. Not so good when it stops or slows more than projected.
Moving the net Crown debt targets may therefore be more than just a nice to have. And of course other than ruling out capital gains tax, the spectre of higher taxes (on a narrow base) may also loom on the horizon.
After all, every government places different weightings on competing priorities.