Finance Minister Grant Robertson laid out, in his first Budget, the new set of platitudes that will set the framework this government will work under.
He’d already done that in his December mini-budget, and the Labour Party had made clear in its election campaign that it wanted a change in emphases. The annual numbers game puts it in place.
The Opposition appeared to be still thinking under the old set, which amounted to exceedingly unbalanced largesse on one hand, extending to denial on the other.
In this brief summary on the Budget, I’ve ignored most of the numbers, emphasised the platitudes – you might call them the rules the new government will stand by – and pointed to 2 important economic factors for the property sector, migration & housing. At the foot, you can link to Treasury & Budget pages for more of the numbers detail.
“We must make our economy more sustainable for future generations. This means caring for our environment as a core value, not as an after-thought. It means transitioning in a just & deliberate manner towards a low carbon economy.
“To transform the economy we have to be more productive. We have to work smarter, build our skills & resilience, explore new innovations and adapt to change. We cannot continue to rely on merely increasing our population, exporting raw commodities and an overheated housing market to drive economic growth.
“Our economy must be more inclusive, too. This means a society where everyone has an equal chance to fulfil their potential, to contribute, and to live meaningful, connected, healthy & fulfilling lives….”
Next, the how
“Our plan will grow & share our prosperity, so that our whole society is lifted up, and everyone has access to good quality healthcare, education, housing & other social services.
“That is why, in this Budget, the Government is prioritising those investments that will rebuild the critical social & physical infrastructure in New Zealand, and address the long-term challenges we face.
“At the same time, we are committed to living within our means, and having a buffer to deal with the risks & shocks that can come upon a small country sitting on the faultlines of the Pacific….
“We must manage the country’s finances responsibly for the sake of future generations. This Budget delivers an operating surplus for 2017/18 of $3.1 billion, rising in 2018/19 to $3.7 billion, with surpluses reaching an estimated $7.3 billion by 2022.
“These surpluses allow us to reduce debt. The Budget responsibility rules commit us to reducing the level of net core Crown debt to 20% of GDP within 5 years of taking office….
“We are also delivering on our Budget responsibility rules by keeping government expenditure below 30% of GDP. Core Crown expenses are expected to track at about 28% of GDP each year through to 2022….
The funding switch
“Altogether, this means that over the next 4 years we have about $24 billion more than the previous government had planned to invest in infrastructure & social services, so we can repair the deficits that are undermining our economy & communities. This will lay the foundations for our economic & social transformation.”
“This government is determined to take action on the housing crisis & the scourge of homelessness which has emerged in this country.
“In December’s mini-Budget we allocated $2.1 billion for our ambitious KiwiBuild programme to deliver 100,000 long-overdue affordable houses built across the country, including 50,000 in Auckland over the next 10 years.
“Budget 2018 commits more than $1 billion in new funding to go towards housing, including $369 million in new capital funding.
The different priorities of this government are never clearer than in housing. One of our first actions was to stop the state house sell-off.
“Today, I am announcing that this government is taking serious action to increase the supply of public housing by investing $234.4 million in operating funding for Housing NZ & community housing providers. This will provide more than 6000 homes over the next 4 years.
“We are working with councils to deliver more houses. For instance, the Tamaki Regeneration Co, which is jointly owned by the Government & Auckland Council, will be given another $300 million to provide about 700 state houses, as well as another 1400 houses in Tamaki for the open market.
“These will be new, warm & dry houses. Too many of our homes are cold & damp, leading to preventable diseases. A new programme to make Kiwi homes healthier will provide $143 million to go towards grants for those on lower incomes to insulate & heat their homes. Investing in warmer homes simply makes sense….”
“In this Budget, our government will support more than 1400 of New Zealand’s most vulnerable homeless people & families through the Housing First programme over the next 4 years.
“Housing First supports people who have been homeless for a long time or who face multiple & complex issues. We recognise it is much easier for people to address issues like mental health, or drug addiction, once they are housed.
“This programme aims to end homelessness for people, not just manage it.
All these plans announced today, as well as the Families Package, will help to lift children out of poverty.”
Sustainable economic development
“We are focused on playing our part to support generating prosperity & sustainable economic development.
“To that end, we are prioritising infrastructure….
“This Budget formally establishes the $1 billion/year Provincial Growth Fund to support growth in the regions, as outlined in the coalition agreement between Labour & NZ First.
“This fund represents the single biggest investment in the regions of New Zealand in our lifetimes. It aims to enhance economic development opportunities, create sustainable jobs, contribute to community wellbeing, lift the productivity potential of regions and help meet New Zealand’s climate change targets.
“This year the Provincial Growth Fund will be made up of $684.2 million of operating expenditure & $315.8 million of capital expenditure. This includes significant investment in the One Billion Trees programme and support for regional rail projects.
“The Budget also sets aside funding for the establishment of the NZ Forestry Service. Our investment in forestry will help us to deal with climate change, lift our economy and provide employment….
“It is possible & necessary for New Zealand to transition to our goal of a net zero emissions economy by 2050. This will require some major changes, but we can do this if we work together.
The new economy
“This Government also sees the opportunity that this transition provides. Budget 2018 sets aside $100 million of new capital funding for the Green Investment Fund to kickstart investment in assets & technology to reduce carbon emissions.
“This fund, which is the result of the confidence & supply agreement between Labour & the Green Party, will help a just transition to a more sustainable economy that will ultimately create jobs in new, clean industries….
The regional equation
“Work is underway on developing lists of regional skills & labour shortages. We want an immigration system that really works for New Zealand. We want to match migrant skills to the regions & industries where they are needed most. We want to ensure that any genuine skill shortages are filled, with immigration levels that are sustainable….”
Understand the differentiation: Wellbeing to replace GDP focus
“Next year we will be the first nation in the world to deliver a Wellbeing Budget reporting our annual progress against a range of measures that highlight the health & wellbeing of our people, our environment & our communities. We will use the living standards framework developed by the NZ Treasury to help develop our Budget, and to measure our success.”
- That’s the end of my excerpts from Mr Robertson’s speech to Parliament yesterday. Below, some points on the key issues of migration & housing.
One key figure in Treasury’s economic & fiscal update is the migration projection, which previously showed a steep decline from a net inflow of 70,000/year now to 15,000/year in 3 years. The projected decline in yesterday’s update would reduce the net inflow to 25,000/year at June 2021.
Look at this statement to see how distorted economic measurements can be. Along with graphs showing its forecasts, Treasury provided a pithy statement of position for the Budget release. For housing, debt & gross domestic product (GDP), it said: “The growth in the housing market has seen household debt increase. In 2017, household debt reached 168% of household disposable income. If incomes don’t rise or interest rates rise sharply, then paying off mortgages could be difficult for some. If this happens, then people may spend less, or buy or build fewer houses, reducing GDP.”
The bottom line is GDP; acting rationally can reduce it.
It’s almost with surprise that the Treasury note reports that household debt has increased, even though interest rates have been at all-time lows. Why? Because buyers of houses buy to the limit of their outgoings and, as the debt component is lower, they can buy a more expensive house.
Those facts are factors of politics & misgovernance. The misgovernance has come in allowing – promoting – record immigration without creating a receiving economy that encourages dispersal of new arrivals. Hence, avoidable Auckland traffic congestion and pressure that forced house prices to spiral upward.
The new government has stated policies to grow regional development and reduce immigration – which another Treasury note says will plummet in a natural cyclical change anyway.
The Treasury note on housing also comments that there’s a shortage of skilled labour to build houses. Migration to Australia topped 53,000/year in 2012 (net outflow to Australia then was about 40,000/year) but has since slid to zero.
Assuming cyclical norms, the outflow will resume and rise steeply. In that case, a clamp on immigration will cause economic disruption. The better course is to provide a welcoming environment that’s spread around the country instead of being singularly focused on Auckland, encouraging immigrants to look at more options for a new life, and encouraging prospective emigrants to reconsider.
Attribution: Budget speech & documents.