Branko Marcetic: NZ’s economic “bounce-back” is a myth – but lifting benefits would bring it closer to reality

Just as National once produced a “rock star economy” that Grant Robertson rejected as being only for the rich, the Labour Government has produced an economic “bounce back” that leaves out the poor. Branko Marcetic argues for a rise in benefit levels to give the poor a real bounce back.

 

Whatever you decide to call New Zealand’s strong post-Covid economic comeback — its “bounce back,” “better than expected recovery,” or “V-shaped economic rebound” — these phrases right now do the same kind of heavy lifting the words “rock star economy” once did for John Key. In both cases, a catchy phrase migrates from the lips of neoliberal economists to those of government ministers, who soon start throwing it around every chance they get. They were even coined by the same guy.

The point, in each case, is for the words to stick in the public consciousness, and make them forget what they’re describing is in reality a phantom. John Key’s “rock star economy” was notorious for leaving many thousands of Kiwis behind, becoming such a joke that current Finance Minister Grant Robertson rejected it in front of the Wellington Chamber of Commerce in 2019 because “this GDP growth had not translated into higher living standards or better opportunities.”

“How could we be a rock star, [Kiwis] asked, with homelessness, child poverty and inequality on the rise?” he said then. “This gap between rhetoric and reality was in many senses the defining issue of the 2017 election, and what led to the formation of the coalition government.”

Yet Robertson and the government he represents are now pulling largely the same trick as the Key-English regime, only with a new set of slogans. Homelessness, child poverty, and inequality are still as bad as ever, and the government is still pointing to GDP and low debt to claim victory. And just as in the Key years, ongoing reports of soaring food parcel demand tell a very different story to the dazzling numbers we’re asked again and again to fixate on. The only difference is the words “rock star” have been replaced by the words “bounce back.”

Needless to say, just as Key’s “rock star economy” didn’t exist for many struggling New Zealanders, neither does Robertson’s “bounce-back,” particularly for the sizeable number of people in this country who have only seen their living conditions get worse since the pandemic hit. According to the Salvation Army’s State of the Nation 2021 report, this miraculous economic rebound has seen the organization give out the highest number of food parcels in 14 years through 2020, which also saw the number of kids in benefit households surge by 23,000, all under a government that had pledged to lift 100,000 kids out of poverty by last year.

The government is well aware of all this. The prime minister herself was briefed in December that the pandemic will “have short- and longer-term negative effects on the wellbeing of children,” their families and wider communities, with material hardship tipped to “rise strongly.”

Eradicating child poverty, something the prime minster presumably still wants to do, requires a host of bold, structural changes, from a more progressive tax system that targets wealth to an aggressive state house building programme to Reserve Bank policy that revolves around something other than protecting house prices. But if the Labour government is interested in the bare minimum of at least making people’s lives more bearable while they live through a world-historical crisis they had no role in causing, there’s one obvious, simple way to do it: lifting benefits.

It’s been nearly two years now since the government’s own Welfare Expert Advisory Group urged it to raise main benefits by up to 47 percent, alongside 125 other recommendations, something the government has worked hard to avoid doing ever since. It committed to a puny three in the budget that immediately followed, and as of November last year, only fully implemented four, with 107 not done at all. It raised benefits by only $25 when Covid struck — the same exact sum the Key government once sprinkled out to needy families — then pointed to that miserly number when rejecting calls from dozens of charities to raise them further in advance of the holidays, just as desperate families were overwhelming food parcel phone lines. When Robertson released the government’s budget policy statement for the year, higher benefit levels were conspicuously left out.

But the government has no more excuses. The usual reason politicians give to justify starving children and letting them sleep in vans or temporary shelters is that, essentially, they deserve it, because their parents are supposedly lazy, uneducated, or otherwise useless to society. It’s untrue and repugnant logic that, one hopes, isn’t actually believed by a prime minister who claims to have entered politics out of concern for child poverty. But even if we pretend this appalling idea had merit at the best of times, it clearly does not apply to a situation where an out-of-control housing crisis (fuelled in large part by government policy) and a pandemic-induced recession are throwing more and more people into desperate situations.

There is no political roadblock anymore, either. The “handbrake” of New Zealand First is gone from the coalition, with the government holding an absolute majority in parliament, and its only coalition partner backing the idea. The prime minister quite literally has the power to do whatever she wants.

And now even public opinion is on board. A survey of nearly 1,200 people released yesterday found that 69 percent favoured some kind of boost to income support for the needy, including majorities of virtually every type of voter you can imagine: rural (78 percent) and non-rural (67 percent), renting (80 percent) and not renting (62 percent ), young (73 percent) and old (63 percent), those on modest incomes (74 percent) and more comfortable ones (66 percent), Kiwis who vote Labour (78 percent) and Greens (89 percent), and those who vote National (56 percent) — even 52 percent of those who vote ACT (!).

Doing this will certainly mean Robertson may have, at first, less impressive debt numbers to show off to business leaders at lunches and breakfasts held in luxury hotels. There’s no doubt Labour is scarred by the successive business revolts it’s faced upon coming to power both times in the last two decades, and wants to appease the beast.

But there is, in fact, a sound economic case to make for raising benefits. Unlike the rich, when working people doing it tough are given a little bit more money, they don’t put it into a savings account or invest it — they spend it on the core necessities they couldn’t afford before like groceries and basic household items, or services like repairs or restaurants. If they do save it, they’ll probably spend it on something like an expensive consumer product — as a birthday gift, for instance — or, at best, one of those trips the government keeps asking you to take to save struggling holiday towns. This applies doubly in New Zealand’s current housing situation, when the meagre amounts our country’s poorest are earning is being overwhelmingly siphoned off into the housing market, rather than the real economy.

All of this would mean more money in the hands of businesses, as well as more tax revenue for the government, which is exactly why economist Shamubeel Eaqub suggested doing it two years ago as a stimulus to jump-start the economy. This isn’t theory: we already saw it happen, when Robertson celebrated a surprisingly strong fiscal position at the end of 2020, with Treasury revealing that the government’s decision to come to the unusually generous economic rescue of working Kiwis under lockdown had kept consumer spending alive, netting the government back more than expected in taxes, and helping set the economy on the road to recovery.

Besides this, needy families with a little more pocket change also tend to do things like eat healthier, stop putting off doctor’s appointments, invest more in their kids, or fix the woefully low-quality houses that are themselves the product of decades-old free market policies. So even those who care more about business ledgers and government spending than human lives should be in favour of something that means a better, healthier workforce and less strain on our healthcare system.

Just like the last one, the current government defends its inaction on Aotearoa’s long-simmering crises on the basis of fiscal responsibility. But there’s a fine line between spending responsibly, and shooting oneself in the foot for the sake of a small number of conservative business leaders. If the government won’t raise benefits to help our society’s most vulnerable, it should at least do it to save our “rock star economy.”

 

Branko Marcetic is co-host of the podcast 1 of 200 and a staff writer for Jacobin magazine

This article can be republished under a Creative Commons CC BY-ND 4.0  license. Attributions should include a link to the Democracy Project.