Budget 2021: Trickle-down 'difficult to prove', helping poor 'one of the most effective things you can do' - economist

Poverty campaigners have their fingers crossed Thursday's Budget will see a hefty increase to benefits - and an economist says that would be "one of the most effective things" the Government could do to boost the economy.

But a prominent business advocate says he'd rather see policies that "encourage people to get off the couch and stop sitting at home looking after the cat". 

Newshub understands benefits are likely to be given a boost in the Budget, which will be revealed at 2pm. 

"What I'm really, really hoping for is a significant increase in benefit levels that will really, genuinely on a day-to-day basis make quite a difference to hundreds of thousands of New Zealanders," Helen Robinson of the Auckland City Mission told The AM Show.

Two years ago, the Welfare Expert Advisory Group (WEAG) recommended massive increases to benefit levels, which were slashed in the early 1990s and have barely recovered since. Most of the report's recommendations have been ignored by the Government to date

"I'd anticipate, if they base decisions off that, to see a $50-$60 rise to benefit levels," said Robinson. "At the Auckland City Mission, we'd be hoping for about double that - somewhere in the vicinity of $100 to $150 per week, particularly recognising the increase in rents in the last two years."

The median rent has gone up $50 a week since early 2019, when the WEAG report was released. In comparison, the Jobseeker Support benefit for an adult 25 or over has gone up $30 a week after tax. For those on Sole Parent Support, after-tax incomes have risen about $47. 

While some economists have said the debt incurred to get the country through the economic shock of COVID-19 will restrict spending this year, much of that was spent on temporary benefits for people who couldn't work.  People who couldn't work due to COVID-19 and the lockdown were given twice as much as those already unemployed

"It shows the difference between that $250 and that $490 that people received - that difference represents people living in dignity," said Robinson. "The Auckland City Mission and many other organisations that have been calling for benefit increases recognise that that kind of increase means that people can live with dignity, which is obviously what all of us want here in New Zealand." 

Economist Frances Sweetman of Milford Asset Management told The AM Show there will be more room for spending than the Government thought it might have six months ago. Wiping out local transmission of COVID-19 restored normality to much of the economy, compared to our peers such as the UK, who are still dealing with restrictions.

"GDP has been stronger, unemployment has been better - so at all levels they've been getting more revenue and less expenses." 

New Zealand's debt is also lower than many of our peers, at about a third of GDP. The UK is around 97 percent, in comparison. Japan's is over 200 percent. 

"Clearly our debt-to-GDP is a lot more attractive than governments offshore," said Sweetman. "Most governments offshore are spending big, so he has a mandate to spend. But the economy doesn't actually need it at the moment - the question is whether it will need it in six to 12 months... that very much depends on whether the vaccine rollout can get done quickly." 

Sweetman said spending on the poor is "one of the most effective things you can do" to boost economic spending. 

Trickle-down is very difficult to prove," she said, referring to the theory that giving weather people tax breaks stimulates spending. 

Infrastructure spending is another effective strategy, but she doubts there is capacity to do much in that space.

"We're seeing wage rates go through the roof, even material costs go through the roof - so nothing can actually get done until we train more labour. We want to train more labour, but that takes time - the easiest way is to get migrants in."

Frances Sweetman.
Frances Sweetman. Photo credit: The AM Show

Michael Barnett of the Auckland Chamber of Commerce said he expected "ideology" to win out over "practicality" in the Budget.

"Practicality says we need to grow the economy, we need to grow jobs, we need to help those sectors that have suffered over the last two years - we need to help them recover. Will we see anything? Somehow I don't think we will. 

"I do think you'll see stuff around families... around tax relief for families and something for older people, around carers and meeting some of their costs." 

He said there are "more jobs out there than there are people".

"What's the environment we're creating to encourage people to get off the couch and stop sitting at home looking after the cat and come out and do some work?"

Robinson said no one wants to be on a benefit.

"There is not one person that I have ever met in my career - thousands of people - who has said to me, 'I want to be on a benefit.' The reality of life is that sometimes when we're sick, when we're raising children, when a whole variety of circumstances happen we need that state support to be able to survive and then have lives of dignity." 

Watch the Newshub Nation Budget Special from 2pm on Three or at Newshub.co.nz for full details of today’s Budget announcement.