Finance Minister Grant Robertson spent the run-up to Budget 2021 managing down expectations, and he was largely right to do so.
But Labour has finally gone some way to delivering on the expectations raised by its anti-poverty rhetoric and the Welfare Expert Advisory Group recommendations delivered in February 2019.
Robertson’s ability to do this while also forecasting a steady improvement in the fiscal position over the next three years is testament to the relative resilience of the New Zealand economy through the COVID pandemic.
Tackling inequality and child poverty package
Adult benefit rates will be raised by $32 to $55 a week in two stages – an immediate $20 increase on 1 July 2021 (with an additional $15 a week for families with children) and the rest on 1 April 2022.
Together with the Working for Families increases provided in 2017, this is expected to put an extra $175 a week on average into 109,000 family budgets.
Students will get an increase of $25 a week on 1 April next year and the Training Incentive Allowance to assist sole parents, carers and the disabled into work will be restored.
The Budget also provides $380m for Māori housing (plus a further $350m which will be ring-fenced in the Housing Acceleration Fund), and $242.8m for Māori health initiatives, including setting up the new Māori Health Authority.
The economic forecasts assume that New Zealand will remain at Alert Level 1 through to the end of this year, and that there will be a significant opening of the border from 1 January 2022 onwards.
GDP growth of 2.9% is forecast for the year to 1 June 2021, rising to 3.2% and 4.4% over the following two years then slipping back to 3.3%.
House prices are expected to rise a hefty 17.3% this year but Treasury has the rate of increase dropping sharply to 0.9% next year before settling at a little over 2%, reflecting Treasury’s view that the Government’s interventions (the extension of the bright-line test to 10 years, the removal of interest deductions on investment residential property and, on the supply side, the $3.3b Housing Acceleration Fund) will hit their intended target.
The picture for the labour market is fairly stable with:
- unemployment trending steadily downwards from 5.2% this year to 4.2% by 2024
- the participation rate steady on 70 to 71%, and
- hourly wage rates rising ahead of CPI inflation over the forecast period.
Robertson used the profile created by the budget to announce that the Government, Business NZ and the Council of Trade Unions (CTU) are jointly designing a Social Unemployment Insurance Scheme to provide time-limited support to workers who lose their jobs at around 80% of their former income.
Deficits as far as the eye can see but peaking next year at 5.3% of GDP then barrelling lower over the next three years to 2.6%, 1.4%, and 0.6%.
Budget 2021 has a new operating allowance of $3.8b, followed by allocations over the next three budgets of $2.7b.
Net core Crown debt, which Budget 2020 projected would peak at 53.6% of GDP in 2023, is now expected to top out 48%.
Another $57.3b has been allocated to infrastructure spending over the next four years. Components include $10b to transport through Waka Kotahi, $5.6b to education (including an additional $634.1m for classrooms), a further $700m capex to District Health Boards (DHBs) and $810m for new trains and wagons (some of which will be built in Dunedin).
Environment Minister David Parker has also secured $131.8m for the design, enactment, transition to and initial implementation of the resource management system reforms.
The big budget announcement was a $300m boost for NZ Green Investment Finance Ltd. The Government has also committed to hypothecate revenues from the ETS to the implementation of the impending Emissions Reduction Plan.
Most of the other items had been announced in advance.
Around $62m has been put through Vote Agriculture to assist farmers reduce on-farm emissions.
PHARMAC gets an extra $200m to buy drugs.
The DHBs get $2.7b on their operating budgets (bringing to 45% the increase received since 2017).