OPINION:

If ever there was a time for a Labour Finance Minister to deliver a Budget true to his party’s roots, it is now.

Grant Robertson is unencumbered by a veto-wielding coalition partner.

At the risk of tempting fate, the worst of the pandemic looks to be behind us.

The Crown’s books are in better shape than he, or anyone else, had any right to expect.

By March, three-quarters of the way through the current fiscal year, the tax take was running $4 billion or 6 per cent ahead of the forecast six months ago.

Even with the Covid-driven rise in its debt, the Government’s interest bill is $1b less than it was in the nine months to March 2020, so low are interest rates. And the minister has freed himself, for the time being at least, of any quantified net debt target.

It would be good to see the Budget direct some serious resources at reducing the wicked waste represented by the so-called NEETs — the 85,000 New Zealanders aged between 15 and 24 who are not in employment, education or training. They make up 13 per cent of their age group.

The International Monetary Fund delivered its annual report card on New Zealand last week. It is generally complimentary, but one area singled out as “could do better” is the labour market.

The head-count numbers in the March quarter labour statistics, released last week, were further evidence of a sharp V-shaped recovery.

The number of people employed is 9000 up on the March quarter last year, even if the increase (0.3 per cent) is the smallest for eight years.

At 4.7 per cent, the unemployment ratelooks good by international standards, even if the denominator of the ratio, the labour force, increased by only 0.7 per cent over the past year compared with 2.6 per cent the year before.

But drill down and it is not hard to find soft patches in the data.

A higher proportion of people employed are part-timers than was the case a year ago and there has been a big increase in under-employment — part-timers who want to and could work longer hours. That number is up to 124,000 — or 22.6 per cent of those employed part-time — from 93,000 or 17.5 per cent in the March 2020 quarter.

The latest survey also found an increase in the duration of unemployment. Nearly 16,000 people have been unemployed for more than a year, an increase of 43 per cent on pre-Covid levels. In general, the longer people spend out of work the harder it is to get back into it.

And talk of how resilient the labour market has proven to be will ring hollow in young ears.

The increase in employment overall did not apply to 15 to 24-year- olds, 13,600 more of whom were unemployed than a year earlier. By contrast, the number of people aged 65 or older who were employed rose by 11,200.

The IMF said that even before the pandemic, youth unemployment in New Zealand was relatively high, at 11.3 per cent in 2019 compared with 9.4 per cent among the group of seven largest advanced economies.

“Experience from past recessions suggests that poor labour market outcomes, especially for youth, can have persistent effects leading to scarring. Furthermore the larger impact on already disadvantaged groups is likely to aggravate inequality,” it said.

The IMF acknowledges the success of the lockdown wage subsidy and reckons it reduced the impact on youth unemployment compared with what historical relationships would have predicted.

But better than it might have been does not mean good.

When it looks intocross-country data, the IMF finds that high youth unemployment can have persistent effects. “A cohort which experiences a 1 percentage point higher unemployment rate during its youth also suffers from a 0.2 percentage point higher unemployment rate when they are 25 to 29.” Only when they are 35 or older does the scarring effect become insignificant.

The IMF recommends that New Zealand step up its spending on active labour market policies such as training and private sector employment subsidy programmes.

The international evidence is that they are generally effective, especially in the medium to long term, and that their effects tend to increase in recessions.

But the IMF noted that public spending on active labour market policies was relatively low in New Zealand before the pandemic and had been on a declining trend, from 0.5 per cent of GDP in 2004 to just 0.2 per cent by 2017.

To be fair, the Government has made some moves in this direction, with $300 million for the Targeted Training and Apprenticeship Fund, a similar amount for the expansion of Flexi-Wage subsidies announced in February and $1.1b for job creation in environmental projects.

But it is hard to shake the image of Oliver Twist in the workhouse holding out his bowl as the gruel is doled out: “Please, sir, I want some more”.

In a speech on Monday, Robertson said the better than expected economic recovery provided more options and that there was “a bit more space in our operating and capital allowances to support the recovery”.

No-one has any trouble understanding the productivity-stunting effects of under-investment in infrastructure and other forms of physical capital.

But it is also clear that as a nation and as a people we under-invest in human capital, aka the young.

The evidence is clear in the ethnic disparities in achievement among school-leavers, and indeed the depressing trend decline in PISA scores for pupils’ performance.

It is also clear in last week’s numbers that the young will be the last to benefit from recovery in the labour market.

We have suffered too long from the simple piety of the 1980s that whatever the problem, the solution is a market.

In this view, the labour market is nice and flexible and if it is failing to provide employers with the skilled workers they need, the solution can only be to recruit offshore people who have acquired those skills at someone else’s expense.

In a small country some of that will always be necessary. But not this much. It is a cop-out.

If next Thursday’s Budget fails to significantly increase investment in active labour market policies it will invite the question: “If not you, who? If not now, when?”

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