Overview

Grant Robertson’s sixth Budget lands in complex times. The Finance Minister is navigating the muddy waters of Cyclone Gabrielle and an election year in which Labour’s prospects on 14 October remain decidedly uncertain.

But the ‘better times’ and ‘no frills’ combo pitched by Minister Robinson, while not high on excitement, might just be enough to turn a tight contest the way of Labour and the Greens five months from now. Although five months is a long, long, time in politics and the kind of voters who change governments are hurting.

Out of recession, declining inflation and more money to counter high living costs – Labour’s sixth Budget promises all that and better times ahead. Grant Robertson and Treasury are confident NZ will get back to sustainable expenditure and debt levels with a little less fiscal contraction in 2023-24 than was expected six months ago – and without re-igniting inflation. Budget economic forecasts show no recession as the year progresses, contrary to widely-held expectations – and inflation falling back within the 1%-3% target band by the end of calendar 2024.

The Government is increasing new spending in the coming fiscal year and the three years that follow in key social policy areas, in addressing New Zealand’s infrastructure deficit and in giving more support to science and technology. An upbeat Robertson readily agrees that this Budget is less contractionary than previously expected but says the economy is in a “strong position” and Labour will push forward with its ‘wellbeing focus’ on households with middle and low income, on building capability in core Government services and on helping lift Māori and Pacific peoples communities. 

The raft of Budget-day announcements are mainly a reframing of initiatives announced or extensions of existing programmes. There are some standouts – a NZ$1.2 billion extension to the Childcare Assistance programme meaning free childcare extends to cover two year olds and a scrapping of the NZ$5 prescription part-charge, which will benefit thousands of Kiwis every month.  Robertson has taken great care to emphasise “the tough decisions” and “the complex backdrop” involved in this Budget. He paints the picture of a Government fully committed to supporting affected regions through Cyclone Gabrielle recovery, along with households most impacted by cost-of-living increases, while also remaining fiscally responsible. The social policy focus has three elements: Help with cost-of-living issues; improved access for many to health, education and housing and budget boosts for core State agencies.

Obviously rebuilding from the cyclone and February floods had a critical role as Ministers finalised Budget decisions and Treasury redrew its forecast. They have largely confirmed previous announcements and also laid out a roadmap for adding momentum to higher investment in roading, rail and other infrastructure in the name of making New Zealand more resilient to natural shocks and better positioned for future economic growth. The Budget has little new for the country’s business sector – at least all those firms not engaged directly in innovation through basic science or in developing digital computer games. There was just one tax announcement; the alignment of trustee income tax with the top 39% tax rate. A tax increase, yes, but not one that will disadvantage voters Labour needs to keep on side.

Better times? For families juggling higher mortgage rates and increasing food bills there are small but important savings in today’s pick n’ mix. But the real juggling act was Minister Robertson giving NZ families just enough to show the Government has heard their concerns, with money in reserve so the real promises can come later during the election campaign. Hold the line, voters.

No recession and declining inflation

Treasury expects 3.2% economic growth in the year to 30 June 2023, followed by growth of only 1% in the following 12 months. New Zealand has, it says, avoided a recession in the wake of Covid-19, and amid current global disruptions. The relative buoyancy is attributed to a faster-than-expected recovery in international tourism, the boost to activity that will come with the cyclone and food recovery and the Government’s less contractionary stance in fiscal policy over the next four years. Treasury sees inflation pressures now easing, with global commodity prices in decline and indications that domestic construction sector inflation is also easing. The CPI inflation is forecast to be 6.2% in the year to 30 June 2023 and fall further to 2.6% in the June 2024 year.

Less fiscal contraction

The Government has raised new expenditure over the coming four years to levels higher than foreshadowed in the Fiscal Update of last December. The books are not now due to show a surplus until 2025-26: Operating allowances have been lifted to accommodate, Robertson says, the additional costs of cyclone and flood rebuilding and general price inflation. However, he says he is relaxed, given the relatively modest Crown debt level, which is set now to peak at 22% of GDP in the coming year (well below the Government’s self-imposed 30% ceiling). Government spending is forecast at 33% of GDP in 2023-24 and to edge back in the following years. Pressed on the likelihood that the less contractionary stance will add impetus to inflation, the Minister is emphatic that Treasury inflation forecasts have taken the slightly higher level of spending fully into account in its forecasts.

Science hubs to boost collaboration

The Budget announced the creation of three multi-institution research hubs, intended to bring scientists closer together and make it easier for start-up businesses to emerge from their work. Expenditure of NZ$400 million has been allocated to hubs under “climate change and disaster resilience”, “health and pandemic readiness” and “technology and innovation” banners.

Cyclone and floods recovery

Robertson has reconfirmed the Treasury estimate of NZ$9-$14.5 billion worth of damage to regions hit by Gabrielle and the floods, with about half of that amount being damage to publicly-owned infrastructure. More than NZ$1 billion has been allocated already and the Budget adds around NZ$1.4 billion in operating and capital expenditure, with NZ$30 million going to rebuild schools.

Infrastructure investment momentum

The Government has made much of a national infrastructure investment deficit in recent times: Labour says it has lifted annual investment to an average NZ$12.5 billion between 2017-22, compared with an average of NZ$9 billion under the previous administration. The Budget now includes a NZ$71 billion fund for investment over five years from 2023-24 onward. The fund is accompanied by a new Infrastructure Action Plan, with a new infrastructure agency.

In addition, there is a separate NZ$6 billion contribution to a new National Resilience Plan, which will, as the Government says, “build back better after the cyclone and floods”. This fund is to future proof road, rail and other local infrastructure.

Climate change resilience

The Government aspires to New Zealand becoming a “high wage, low emissions economy” and the Budget takes another step with new funding to extend the national EV (electric vehicle) charging network. There is NZ$120 million for new hubs, to be built in partnership with the private sector, every 150-200 km on main highways. The Government also talks of a new fund to provide grants for low emissions heavy vehicles (as many as 500). This will build on the Clean Car Discount that has accelerated the take-up of new EVs in the private market.

Cost-of-living – targeted supports

The Government has targeted child care for cost-of-living relief among families, the subsidised child care now extended to two-year-olds (three and four year olds are already covered. The policy, costing NZ$1.2 billion over four years, will also help bring parents back into the workforce.

There is new help also for those with healthcare prescriptions: The NZ$5 co-payment on prescriptions – charged to an estimated 3 million annually – is being scrapped. The Government says its research shows 135,000 people didn’t pick up prescriptions in 2021-22 because of the cost. It foresees flow-on benefits to the healthcare system and the workforce once all are able to access the medicines they are prescribed. The new spending involved is NZ$619 million over four years.

Transport costs have again been targeted as an area for cost-of-living relief, with the Budget announcing free fares on buses, trains and ferries for children aged 5 to 12 and half-price fares for all passengers aged 13 to 24. All this takes effect on 1 July. An estimated 774,000 Kiwis will benefit and so, too, it should help alleviate road congestions and emissions. The Government has made NZ$327 million available to public transport authorities to fund the fare concessions over the next four years.

Health 

The big step-change in the New Zealand healthcare system was unveiled in the last Budget – and all is confirmed again in 2023. The previously allocated NZ$1.35 billion of new spending will proceed. Much of this earmarked for the addition of 500 more nurses and for pay increases to attract and hold healthcare professionals.

Some of the new money goes to Pharmac, which receives another NZ$75 million in new funding for drugs in 2023-24. Robertson says his Government has now lifted total Pharmac funding by 57% since 2017.

Education

The Budget includes NZ$3.6 billion in new spending over the next four years, this is in part to fund 6,600 additional school student places and extend the Apprenticeship Boost programme. There is a big new injection for the operating costs of schools and tertiary education providers.

Housing

The Government prides itself on building more public and transitional housing than any other administration for decades: It continues in 2023-24 with a Budget allocation to build another 3,000 houses, this is to include 322 houses specifically for Māori. In all, the Budget has NZ$3.1 billion in capital spending for housing over the next four years and NZ$465 billion in related operating expenditure. Robertson says Labour has built 14,050 houses already since 2018.

Tax rebate for computer game developers

The Government favours New Zealand’s gaming industry estimated to have had total revenue of NZ$400 million last year. It fits the “high wage, low emissions” vision for New Zealand. The Budget follows through with a new 20% tax rebate for game development studios that have annual expenditures of over NZ$250,000. This form of rebate funding will be available by a qualifying studio with revenue up to NZ$3 million annually, with effect from 1 April this year.

Trustee tax rate alignment

Tax experts have been pointing out a misalignment in New Zealand’s tax treatment of income earned by trustees ever since Labour introduced a 39% top rate for personal income. The Budget proposes 39% as the top tax rate also for trustee taxpayers. This will bring in an additional NZ$350 million of revenue. Robertson says a small minority of trusts have income in the top bracket and the tax rate change will occur only after new legislation and review by a select Committee.

These insights into Budget ’23 are brought to you in association with GRC Partners + Porter Novelli Ltd, providers of public affairs and strategic communications counsel: www.grcpn.nz.