A Level 2 budget, for a Level 4 disease

A budget that does much. But not enough.

The government's budget announced yesterday is a "Level 2" budget: it moves us into a state of 'heightened' government action to tackle the economic fallout of the the COVID-19 economic shock.  But if that's all it does, is that enough?

We all understand the four level alert system for responding to the COVID-19 pandemic.  The response escalates at each level, depending on the epidemiology:
  • Alert Level 1 — Prepare: The disease is contained in New Zealand
  • Alert Level 2 — Reduce: The disease is contained, but risk remains
  • Alert Level 3 — Restrict: High risk the disease is not contained
  • Alert Level 4 — Lockdown: Likely that disease is not contained

Applying a similar framework to the economic strategy outlined in this budget, we might see it as a reasonable, responsible, but somewhat restrained response to the emerging economic issues.  It will "Reduce" the immediate impacts of the COVID-19 economic shock, but will not adequately address the underlying unease.

But anybody (who has been paying attention) understands the source of our economic unease:
  • Our economy is structurally similar to that of developing countries: heavily reliant on exports of 'low value-added' primary produce and tourism. We have a weak manufacturing sector and low investment in research and development.
  • We also have a structural problem with our trade in services, following the 1990's 'demutualisation' of our key financial services sector; exporting billions of dollars of profits per year to the overseas owners of our major banks and insurance companies.
  • Our domestic investment market is heavily skewed toward private property ownership, supported by a range of tax incentives. 
  • We are over-dependent on high-carbon energy imports (diesel and petrol fuel).

The 'symptoms' exhibited by our body politic are evident and well known: low productivity growth, increasing inequality, poverty and homelessness, stubbornly high carbon emissions, and poor freshwater quality.

This budget is a 'Level 2' response because it designed to contain the immediate economic shock caused by COVID-19, but the underlying disease still remains.  The budget does not acknowledge that our underlying  economic unease is endemic in Aotearoa New Zealand. It has been with us for decades.

The problem we face now is that the COVID-19 shock will reveal the severity of our pre-existing condition. Our economy has underlying health issues that have made us vulnerable to this kind of shock, and a 'Level 2' response will not be enough.

It is far too late to 'go early' to cure our economic unease, but we can still 'go hard'. I say we need to define, design, and implement an effective 'Level 4' response.

Our economic response to COVID-19 will be a turning point in our economic history, that much is certain. There are risks we must mitigate and guard against, but also opportunities we can explore.  A Level 4 response should do both.
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