This is a Budget written in the shadow of an election that will likely define New Zealand for decades to come. It is also a Budget written in the backdrop of inflation, the climate crisis, and other profound challenges for our country.
“This Budget provides a $825m financial boost for Māori communities. More money for Māori housing, for Whanau Ora, and for Maori health services. This funding will support whānau wellbeing and help with the cost of living”.Grant Williams, Maritime Union of New Zealand
Much of this Budget set to ease inflation, with 79% of total costs used just to keep the lights on – against 69% last year and around 50% historically. Cyclone Gabrielle is now forecast to cost between $9 billion and $14.5 billion to repair. The Government had to walk a delicate line in managing these coalescing pressures.
Brighter economic forecasts demonstrate this Government’s economic management skills. Through decisive and compassionate leadership, New Zealand has weathered a global pandemic and subsequent inflation, and Cyclone Gabrielle.
The economy is no longer heading into recession, with growth now expected in each year of the forecast period. Yet there is an expectation that growth will be lower in each year of the forecast period. Our key challenge is to ensure this growth benefits every community within New Zealand.
Inflation is expected to trend downwards across the forecast period, falling back to the Government’s target rate of 1–3% by September 2024. The scale of the fall in inflation is very steep (see chart), so those struggling with the cost of living should expect some relief soon. If these forecasts are correct, it suggests the Reserve Bank should pause before making any further increases to the Official Cash Rate. We believe further increases are unnecessary.
Many workers will be wondering what this means for them. For those in work, wages are forecast to increase faster than inflation every year. Levels of employment rise in four years out of five in the forecast period. Unemployment is forecast to rise to 5.3% in 2024, but then start to fall again. Tougher labour markets are clearly ahead, but not yet at levels similar to the recessions of the past.
When political tensions rise, governments often fall into tired, fiscally conservative routines. This time, the Government has not fallen into that trap. In a country with challenges such as a $200 billion infrastructure gap this is not only welcome, but wise. Core Crown spending remains at around 32% of GDP until the end of 2027. Core Crown revenue is 32.2% of GDP in 2023, and 32.9% in 2027 – basically the same. Net debt is 18% in 2023, and 18% in 2027. The picture is one of stability.
Yet inside those high-level numbers the Government is making some highly targeted investments. The Government has clearly been listening to the CTU, following our advice in the Building a Better Future report and in the Inflation and Incomes Act – with investment in areas that we have been calling for across the Budget:
- Childcare – investments to extend 20 hours ECE funding to 2-year-olds.
- Transport – providing free public transport for under 13s, and permanent half-price fares for those under 25.
- Insulation – expanding the Warmer Kiwi Homes Programme to another 100,000 new heating and insulation installations.
- Co-payments for drugs – ending the $5 co-payment for prescriptions, helping around 3 million New Zealanders per year.
- Healthy School Lunches Programme – continuing the programme to feed children in schools until the end of 2024.
- Apprenticeship Boost – providing more funding for the scheme, which will enable 30,000 apprentices to keep working toward a qualification.
- Science – 3 new research hubs to tackle issues such as climate change and pandemic readiness, and support for an additional 260 PhD students.
- House building – delivering 3,000 more public homes by June 2025.
This is the kind of investment that makes sense. It improves the quality of life for some of the poorest and most marginalised New Zealanders. It makes the cost of living cheaper by reducing essential costs. It improves the outcomes that the Government cares about. These smart investments pay dividends not just now, but year after year after year.
An example here is the National Resilience Plan. This is $6 billion in new funding to tackle vulnerabilities in infrastructure around New Zealand. These are vulnerabilities we discovered during Cyclone Gabrielle and the Auckland floods. The Government has also set aside funding to create a new infrastructure agency – Rau Paenga – to ensure delivery. Done well, this approach will mean we spend less to repair our infrastructure when we have natural disasters in the future.
Another example is the investment that is being made in science and innovation. For many years, the New Zealand economy has relied upon selling low-value-add commodities like milk powder and timber. We need to move from selling volume (e.g., selling lots of timber) to selling value (e.g., processed timber products). We have lagged other countries in our investment in science and research, and now is the time to catch up.
A picture is emerging – there is the start of a plan here that could make a difference. But we are still hiding behind fiscal indicators instead of delivering the kinds of transformational change that would create the country we want to see. New Zealand should be moving the structural levels of taxation and spending to levels we see in the countries that we compare ourselves to. The full plan to deliver the more productive, sustainable, and inclusive economy we want to see is still just out of reach.
We hope the election campaign will begin to set this out. But this is a good start. The battle lines are becoming clearer. We can choose to make more investments as seen here to protect the most vulnerable and to catch-up on decades of underinvestment. Or we can return to a country where people were left to fend for themselves, and where a person’s ability to pay dictated their access to public services. Our economic growth has made New Zealand the best place in the world to be in business. Now, we want to be the best country in the world to be a worker, and to be a child.