Cautious approach as Budget shows deficits for next two years


The government has taken a measured approach to new spending and investment as it looks to negotiate high inflation, global disruptions, and geo-political uncertainties, which it is expecting to dent near term economic softness.

Finance Minister Grant Robertson making his Budget Day speech at Parliament, 19 May 2022.

Finance Minister Grant Robertson says the economy has remained resilient.
Photo: RNZ // Angus Dreaver

The Budget shows deficits for the next two years as expenses outpace the growth in revenue, with a return to surplus delayed a year until 2024/25.

Key economic numbers for year ended June 2023 vs Half year update forecasts

  • * GDP (annual) 4.2 pct vs 4.9 pct
  • * Inflation 5.2 pct vs 3.1 pct
  • * Unemployment 3.3 pct vs 3.3 pct
  • House inflation -2.5 pct vs -0.2 pct

Key fiscal numbers for year ended June 2023 vs Half year update forecasts

  • * Core tax revenue $116.1b vs $113.8b
  • * Core expenses $127.1 b vs $120.2b
  • * OBEGAL -$6.6b vs -$0.8b
  • * Net debt (pct GDP) 18.7 vs 40.1 (changed settings)
  • * Govt bond issue to 2026 $90b vs $66b

Minister of Finance Grant Robertson said the New Zealand economy had remained resilient in the face of the pandemic, rising cost pressures and global disruptions.

“New Zealand has come through the one-in-100 year economic shock from Covid-19 better than almost anywhere else,” he said.

“We are well positioned to respond to respond to both current and future challenges and build a more secure economy.”

The Treasury commentary highlighted uncertainty around the forecasts, including the effects of the Ukraine war and supply chain disruptions, but expected a boost from the early reopening of the border and gradual recovery of tourism.

Economic growth forecasts were trimmed from the December half-year update, with a more subdued outlook over the next four years, while inflation was forecast to peak this year around current levels, and a slower decline back in subsequent years into the Reserve Bank’s 1-3 percent target band.

Unemployment was expected to remain around the current 3.2 percent level for the next year, but then start rising above 4 percent from 2024, sooner than previous forecasts.

The tax take forecasts increased, as inflation resulted in a lift in GST, and lifted people into higher tax brackets.

Net debt under the new fiscal rules was forecast to peak at 19.9 percent of GDP in 2024 before declining to 15 percent two years later.

Treasury forecast housing prices to fall 5 percent this year, and a further 1.5 percent next year, with an accumulated decline of nearly 18 percent through to 2026.

The new spending on health, infrastructure, and new initiatives was partly funded from unused Covid recovery funds, while $1b living costs package was also largely short term, and unlikely to give much impetus to current inflation rates.

Robertson said, despite large government spending in the short term to cope with the pandemic, overall government spending through the forecast period was actually contractionary.

“We have had to strike a very careful balance.”



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