Coronavirus: Economist expects 'oodles and oodles of spending' in Budget 2020

With the COVID-19 pandemic forcing the world into a "big economic hole", a leading economist is expecting "oodles and oodles" of spending from Budget 2020.

At 2pm on Thursday, the Government will reveal its latest Budget to deal with what Prime Minister Jacinda Ardern has labelled "the most challenging economic conditions faced by any Government since the Great Depression".

COVID-19 and the resulting lockdown has decimated many of New Zealand's vital industries, particularly tourism, by shutting off airline routes and keeping Kiwis away from stores.

The unemployment rate has risen to 4.2 percent and is expected to continue to jump over this quarter. The number of Kiwis applying for the Jobseeker benefit has grown by 40,000 since mid-March, and spending across key sectors like retail and hospitality has tanked. 

Economist Shamubeel Eaqub is expecting a big spend-up in Thursday's Budget to help stimulate the economy. 

"I am expecting oodles and oodles of spending. We are in such a big economic hole, just like all over the world, that we are going to see Government pumping in huge amounts of money in lots of different areas to try and prevent the downturn, [but] also to really try and encourage the recovery, which is probably going to come towards the end of the year."

Newshub Nation will be hosting a Budget special from 1:55pm on Newshub.co.nz and Three.

No country will escape the downturn, however, Eaqub says, but our Government can try and cushion the blow - something it is able to do due to the rainy-day surplus it had up its sleeve.  

"What the Government can do is blunt the downturn and then look after the people who lose jobs and all that kind of stuff, and also invest in the recovery that has to come afterwards," he said.

"That is mainly because the Reserve Bank can't do what it did in the past, which was lower interest rate and encourage the economy, so it has to be the Government which pulls all of its levers."

The Government has already recognised the need to get money pumping through infrastructure, seeking out "shovel-ready" projects that could be funded, while money from the Provincial Growth Fund (PGF) will be also diverted to projects that can present near-immediate economic impacts.

Coronavirus: Economist expects 'oodles and oodles of spending' in Budget 2020
Photo credit: Getty.

Tourism

The tourism sector - defunct during the lockdown and which will have to rely on only Kiwis for a while with the borders closed - is expecting a specific package in Thursday's Budget, something confirmed by Minister Kelvin Davis on Tuesday.

"I've listened to the sector, we’ve worked together, and as the minister – and as a Government – I believe our response and recovery plan is balanced, timely and considered," Davis said.

But Eaqub says tourism operators are going to be hurting for a while. 

"I don't think we should do too much. We should try and encourage domestic tourism, but we should be realistic that there will be many businesses that will be faced with very little international travel for the next three to four years."

"There is a difference between opening our borders versus when international travel resumes."

In its latest update, the International Air Transport Association (IATA) forecast that travel is unlikely to return to pre-COVID levels until at least 2023, with long-haul travel affected until 2024.

"The impacts of the crisis on long-haul travel will be much more severe and of a longer duration than what is expected in domestic markets," said IATA director general and chief executive Alexandre de Juniac on Wednesday.

"This makes globally agreed and implemented biosecurity standards for the travel process all the more critical. We have a small window to avoid the consequences of uncoordinated unilateral measures that marked the post-9.11 period. We must act fast."

Eaqub found those forecasts "optimistic".

'Rolling crisis'

With COVID-19 affecting every part of New Zealand, Eaqub says more will be needed than just what is presented in the Budget. 

"What are the policies they are announcing today, what are they going to be spending their money on, and what is the contingency they have got baked in in terms of what other things, what more money have they got up their sleeve to be able to spend in the coming year?" he said.

"The Budget is just a one-off, but this is a rolling crisis and the nature of it is changing as each day passes. So, they are going to have to be quite flexible in terms of changing their programmes, giving more money or less money to certain parts of the economy."

Eaqub, Robertson, and Harman.
Eaqub, Robertson, and Harman. Photo credit: The AM Show / Getty.

Political journalist Richard Harman is expecting Budget 2020 will be like none before.

"This makes the mother of all Budgets, from the famous mother of all Budgets look like the toddler of all Budgets. This is going to be big," he said.

"The big issue today is going to be beginning the big debate: Do we save jobs or do we constrain debt... Do we impose the costs on future generations or do we try and preserve as much of the economy as exists now."

Harman said the wage subsidy has so far helped prevent mass lay-offs around the country as has been seen in the United States. But there has been no information yet about whether that will be extended.

"That's the choice the Government has. Fork out a bit of money now or have your dole lines stretch from one end of the country to the other."

Harman also believes retraining programmes could be coming for people from tourism and hospitality who will lose their jobs. 

Economist Cameron Bagrie on Wednesday said the response needs to be "microeconomic-based" and not built around a "massive spend-up".

"The temptation is going to be 'think big' as opposed to small and throw money around like confetti," he said.

"I'm going to be looking at whether we can turbo-charge what I call those 'small things'. Small things are things that we overlook but they're pretty critical."

In her speech on Wednesday, Prime Minister Ardern said around the world unemployment would rise "significantly", businesses would close and government revenue will decline.

Jacinda Ardern.
Jacinda Ardern. Photo credit: Getty.

She said Budget 2020 will not be "business as usual", but a "tailored solution to a unique situation".

"Our plan is to invest. By investing we will create jobs and get the economy moving again. Just as a rising tide lifts all boats, a growing economy supports us all – and allows us to bring the Government books back into the black," she said. 

"This is not the work of just one budget. It will require relentless focus on growth and jobs, and not growth for growth sakes - but in a way that acknowledges we have challenges to our environment, to our wellbeing, that we can also use this time to also help resolve."

She praised many of the initiatives the Government has already introduced to cushion the COVID-19 economic blow, especially the wage subsidy programme which has paid out more than $10 billion.

A number of pre-Budget announcements have already been made, including a $3.9 billion investment in District Health Boards, money for family violence services, additional funding for Pharmac, and a pay increase for early childhood teachers.

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