While it may be tempting as a pandemic response to go on a spending spree to stimulate the economy, Federated Farmers has urged caution about that sort of approach.
Speaking to the Finance & Expenditure Select Committee on Wednesday March 31 as it considered the Budget Policy Statement 2021, Federated Farmers President Andrew Hoggard said the Federation had long had a keen interest in promoting responsible fiscal policy and had been a regular submitter and commentator on Budgets and Budget Policy Statements under successive governments.
The past year has been, to use what is now an overused word, ‘unprecedented’, Andrew said.
This has been very true of fiscal policy where COVID-19 necessitated a huge degree of fiscal support.
Federated Farmers believes the Government did the right thing with its fiscal response and the sharp rebound of GDP in the September quarter vindicates its action.
“It’s good that the fiscal forecasts have turned out to have been a lot better than forecast in last May’s Budget and also a lot better than forecast in last September’s pre-election economic and fiscal update.
“They may even prove better than the forecasts in last December’s half-year economic and fiscal update which this Budget Policy Statement has been based on,” Andrew said.
“That said, after the September quarter bounce back the economy has stuttered in recent months.”
GDP declined 1 percent in the December quarter and for the current March quarter economic indicators have been patchy and it could decline too. That would put New Zealand back into recession.
It seems likely that the recovery will be longer and slower than earlier forecast.
Any thoughts of a spending spree to stimulate the economy should be approached with caution.
“We believe the Government needs to continue to be responsible in managing its finances, ensuring its spending provides good value for money, and that its wider policies promote a productive, competitive economy that helps businesses prosper and to employ people.
“This includes value for money infrastructure investment, especially on transport, energy, and telecommunications, and investment in skills and training. All these can boost New Zealand’s productivity.”
Regulation needs to be sensible, practical, and affordable, Andrew told the Committee.
“We remain concerned about the poor quality of some recent regulation, especially around freshwater, and we are worried about some of what is set to come, such as RMA reform.
“We believe the tax system has served us well over the years and we do not support new or higher taxes.”
On the question of wellbeing, Federated Farmers believes policies to improve the economic and business environment remains the best way to improve wellbeing.
“While Federated Farmers supports the concept of wellbeing, we still need prudent fiscal policy to promote productivity and competitiveness as an overarching priority for Budgets,” Andrew said.
Regarding the fiscal strategy, Feds much prefers the fiscal strategy of the previous Labour-led coalition government.
“To improve the new Fiscal Strategy, we believe a percentage of GDP should be added to the net core Crown debt objective of the Fiscal Strategy, preferably for it to stabilise at no greater than 40% of GDP before reducing.
“We believe the operating balance objective of the Fiscal Strategy should be amended to work towards the restoration and maintenance of sustainable operating surpluses across an economic cycle and as economic conditions allow.
“We believe the Fiscal Strategy should include objectives to prioritise investments and ensure spending is phased, controlled, and directed to maximise its benefits.”
Andrew said the Federation argued the Fiscal Strategy should include a commitment to hold operating spending to within its recent historical range of spending to GDP ratio.