A budget with Labour's future on the line

Tuesday, 12 May 2020

In election year, Finance Minister Grant Robertson will be content to disappoint everyone just a bit with his Budget on Thursday.

OPINION: 2020 is the year of tough choices — the kind for which there's no good outcome, just a 'least worst'.

The decision to put the country into lockdown was probably easier than we like to think. As Greens co-leader James Shaw put it, 'the choice is: do you have a major economic meltdown with tens of thousands of people dying or do you have a major economic meltdown without tens of thousands of people dying'.

Thursday's Budget will be different. It's the product of hundreds — even thousands — of decisions and represents the Government's canonical vision on how much to tax and how much to spend, and where. These decisions aren't as easy as the lockdown. Pitfalls are everywhere, and they're not always obvious.

An election-year Budget is also the meeting point between technocratic economics and emotive politics, a conflict in which Finance Minister Grant Robertson is content to disappoint everyone just a bit. He's flagged that debt will increase astronomically — economists like this, the Government needs to be the spender of last resort.

* Benefit numbers exceed GFC - and worse to come

* Coronavirus: Lockdown is essential to avoid economic pain, say ministers. Some disagree

The Government has also flagged that there will be no big tax changes — no tax cuts, but also no tax hikes either. At the moment, this is a happy marriage of politics and economics. It makes no sense to pillage back pockets when the economy needs all the cash it can get, and it certainly doesn't make sense to do it in an election year.

But such short-term thinking puts off another series of unpalatable political and economic choices — each as unpleasant as the decision to go into lockdown.

This is most visible in the dim prospects of New Zealand's youth.

Less than two months into what is likely to be many years of economic hardship, unemployment among the young is soaring. Benefit data from the Ministry of Social Development show that the number of 18-19 year olds claiming a jobseeker-workready benefit shot up 46.1 per cent for 18-19 year olds, 61.6 per cent for 20-24 year olds, and 58.2 per cent for 25-29 year olds between the end of February and April.

There are now 53,000 New Zealanders between the ages of 18 and 30 on jobseeker, almost more than the number of claimants from all other age groups combined. That figure will surely increase when the wage subsidy begins to expire for businesses in coming weeks.

The number of 45 to 65 year olds claiming jobseeker has increased by roughly 30 per cent over the same period.

The Government's assistance so far has been fairly blunt. That's justifiable. The aim was to get money to businesses and their employees quickly, rather than faffing about with complicated means testing.

But last week's criticism from former finance minister Roger Douglas was fair. Blunt corporate assistance has the effect of entrenching the privileged position of corporate titans who could and should fend for themselves.

The Government's steadfast refusal to adjust superannuation eligibility, or to consider a more equitable tax system, simply delays the inevitable generational reckoning. It won’t happen this Budget, but Labour needs to start looking at modernising the tax and benefit system to ensure responsibility for paying for this economic mess doesn’t fall on the lowest paid — its supporters.

The twenty-somethings kicked unceremoniously on to the job queue will somehow have to stretch their pay packets to fund the Covid-19 repair bill, along with the Government's already unaffordable guaranteed superannuation for over-65s.

Douglas' call to rethink the economic privilege enjoyed by blue-chip corporates and their bourgeois employees is a fair one.

New Zealanders often look with misty-eyed envy at the decadent social welfare systems of old Europe.

But we stand now on the very precipice those countries did 10 years ago, at the beginning of the global financial crisis. Their steadfast refusal to adjust to a new economic reality and their corporates' addiction to billions of euros of welfare meant that unionised, gold-plated bourgeois jobs were saved, while the economic drawbridge was pulled up for the young and the unskilled.

The result was a decade of sky-high youth unemployment, which still hasn't come down to pre-crisis levels. Going into the Covid-19 economic crisis, Spain, Italy, and France had youth unemployment rates of 30, 29, and 19 per cent respectively. Our rate over a similar period was just 11.4 per cent.

The European example is important — the response to this crisis must consider equity, not just cushioning the blow for the middle class and well-off. Not addressing the inequitable way in which the economic pain falls simply turns an economic problem into a political one.

Failure to reckon with these inequities and a commitment to bourgeois welfare above real help for the unemployed and the vulnerable have led to the near extinction of European social democratic parties, like our Labour. Voters cottoned on to the fact there was very little desire for economic justice behind these parties' aged brands.

The unfortunate leaked email from the prime minister's office shows Labour is more than willing to deploy Jacinda Ardern's star quality to distract from very real problems, but Ardern would be wise to use the tactic sparingly.

Just ask the Europeans; sooner or later the hoi polloi catch on.