Venkat Raman
Auckland, May 19, 2023
Elections are terrible beasts of burden for every Finance Minister, for the urge to please voters somehow overrides economic factors that make up a budget.
Grant Robertson has faced a similar dilemma in presenting his fiscal policy this year which he calls, the ‘Wellbeing Budget 2023.’ Whether the Budget fulfils the earlier promise of the ‘Bread and Butter’ issue is now being debated all over the country. Middle New Zealand is nonplussed.
To give him the credit, Mr Robertson has had the unenviable task of meeting the challenges posed by multiple disasters since the onset of Covid-19. As the economy was coming alive after almost two years of border closure with devastating effects, Auckland and much of Northland experienced unheard-of floods, followed quickly by Cyclone Gabrielle. These have had a telling impact on the national economy, prompting the Finance Minister to set aside $941 million for rebuilding.
This has been bolstered by a whopping $6 billion allocation in the Budget for National Resilience Plan.
In his early days in office as Prime Minister, Chris Hipkins made a bonfire of some of the unpopular policies of his predecessor and vowed to provide relief to New Zealanders suffering the spiralling cost of living.
Concessions at a Glance
In response, Mr Robertson has allowed several concessions in his Budget.
Among them are (1) 20 hours of childcare facility for two-year-olds (at a cost of $1.2 billion) from March 2024 (2) Removing the prescription charge of $5 paid by superannuants (65 years and above, costing $618.6 million) (3) More ‘Warmer Kiwi Homes’ with a subsidy of 100,000 heating insulation installs, 7500 hot water heat pumps and five million LED light bulbs ($402.6 million) (4) Parity for Early Childhood Education and Care Service teachers ($339.3 million) and cost pressures for such services ($260 million) including a one-off $3 million for Playcentre Aotearoa (5) Free public transport for those under 13 years of age and half price for those under 25 years ($327 million) (6) Free Lunch in schools ($323.4 million) accruing savings of $60 a week for families with two school-going children (7) Improving access and uptake of childcare assistance with the introduction of online applications ($35.2 million) and (8) KiwiSaver payments to people receiving paid parental leave ($19.6 million).
Economists and academics agree that New Zealand faces the same adverse effects of economic decline and cost of the living crisis affecting much of the world, perpetuated by the pandemic, the war in Ukraine and various other factors. Public borrowing and therefore government debt is also recklessly growing and has hit the ceiling in the United States of America with US$ 31.4 trillion. The national debt currently makes up 98% of the GDP, the highest since World War II and within the next decade, it is expected to reach 110% of the GDP and cross 185% in 2052.
Improving Public Health
The Health sector is also a major beneficiary of the Budget. Mr Robertson has provided $2.6 billion over two years as additional money to respond to inflationary and other cost pressures on the health system, including increasing demand.
Professor Robin Gould, Co-Director at the Centre for Health Systems and Technology at the University of Otago believes that this new funding should account for some of the inflationary pressures but it is unlikely to be adequate.
“Too many people are missing out on treatment and there is a significant level of unmet need in the community for secondary healthcare and other health services. There has been no measurement of this in any systematic way and we really do not know how many people suffering in the community are in need of an elective procedure and have been denied access or are being treated by their GP instead,” he said.
Keeping debt low
Compared to the US and other fully developed countries, New Zealand is in a better position, with its public debt remaining less than 30% of the GDP.
The country’s low public debt allows for $10.7 billion total capital investment from the multi-year capital allowance, coupled with $6 billion into a new National Resilience Plan, focused initially on rebuilding from Cyclone Gabrielle and then on closing the infrastructure deficit which has built up in this country over decades.
According to Mr Robertson, careful fiscal management has allowed him to commit $71 billion for infrastructure investment over the next five years, while keeping net debt well below the 30% of GDP ceiling.
“Long-term investment allows for long-term planning, and a clear programme of work will provide confidence and certainty to the infrastructure sector. Anchored by the fiscal rules we set at Budget 2022, we remain committed to returning to surplus within the forecast period and keeping net debt under control,” he said.
In preparing the fiscal policy for the 2023 financial year, Mr Robertson had to provide relief against the cost of living crisis and suppress the pressures of inflation.
This Budget has ballooned public expenditure, much of which of course is to keep pace with the rise in prices.
According to Economist Shamubeel Eaqub committing a $77 billion investment in our massive infrastructure deficit is a highlight.
“An election year Budget is inherently political. The Budget is the agreed base on which political parties will look to change how they spend, invest, tax and borrow. There is not a lot of wiggle room in the Budget heading into the election, meaning that political parties will need to think carefully about what investments or operational spending they will reduce to fund tax cuts or reduce debt. The election race will force political parties to make difficult choices,” he said.
It must however be said that over the years, the New Zealand government has delivered a plan that has encouraged the economy to perform better than it did during the global financial crisis and better than most in the OECD.
This Budget also invests strongly to deliver core public services, including in health, education and housing. It takes significant steps towards the goals of our Economic Plan, for a high-wage, low-emissions economy that delivers economic security. Investments in the Budget will improve our economic resilience through investing in research, innovation and skills, and infrastructure.
