Mike's Minute: Now is not the time for benefit increases

Author
Newstalk ZB,
Publish Date
Tue, 25 Feb 2020, 9:36AM

Mike's Minute: Now is not the time for benefit increases

Author
Newstalk ZB,
Publish Date
Tue, 25 Feb 2020, 9:36AM

Quietly unveiled at the end of Jacinda Ardern's post-Cabinet press conference yesterday was confirmation of benefit increases based on wage increases, not the consumer price index, as has traditionally been the case.

It was a change made in the 'Wellbeing Budget' and this ironically is in part why the books aren't what they were, or indeed should be. The books were talked of in the same conference yesterday by Finance Minister Grant Robertson, who assured us all that we are busy working on three separate coronavirus plans, and we are in good shape to deal with all three.

Plan 1 is a short shock with a second part of the year bounce back.

Plans 2 and 3 are more serious outcomes, he emphasised it's planning not preparation, they don't think it will happen. How he knows that, who would know, because he doesn't.

He subtly told us about the surpluses over the next four years, not mentioning currently we aren't actually supposed to be running any surplus, so whatever may come is merely a forecast not reality.

And the fact the books are currently slightly better than the deficit predicted is because a big wad of tobacco excise came in unexpectedly before Christmas, and will wash through the books.

In other words, it's a false reality.

Robertson talked of export receipts, and low unemployment, all of which is true. But retrospective, and presumably potentially badly hit if this thing gets ugly.

The reality going forward, is a government's role in a major downturn is to spend, and to spend we need to borrow, and we borrow from day one because we've already spent all the money.

The most useful thing they appear to have done so far is suggest redeployment in the forestry sector into the conservation estate so at least there is work to be taken care of.

The only other thing they've tangibly come up with is $11 million for tourism advertising. I can't help but think that's a drop in the bucket, and I doubt will make any difference at all.

Why did Air New Zealand talk about their hit yesterday and the cutting of services?

Because fewer people want to get on a plane. Of course the virus is not our fault, but the state of the economy is.

And although we are better off than many, in terms of debt and ability to borrow, we are nowhere near where we were or could or should be.

Which brings us to the benefit increases. A bit over three per cent instead of 1.5 per cent. The biggest increase, trumpeted the Prime Minister, in nine years.

And here's why that's wrong: Most who got a three per cent wage rise did so because they did something productive. They made more, produced more, worked more - that's the productive side of the economy. That's how you incentivise people: there is reward for work

Beneficiaries got the same rise, that's the non-productive side of the economy. Nothing more was produced, but more was put into it. And that is why the money is gone and we are borrowing.

Economies grow because of productivity, not because of non-productive spending. You need one to fund the other, and one must be stronger than the other. That's how you move forward, run surpluses, and afford to cover difficult days.

A level of redistribution, the likes of which we are currently experiencing, leads nowhere sound fiscally. It makes us increasingly vulnerable to global shocks, and we are too small to be running that risk.