After two years of big spending to weather the storm of Covid-19, New Zealand’s finance minister is tightening the belt, committing to limits on borrowing, introducing new debt caps and looking ahead to long-term spending on infrastructure over short-term cash injections.
The finance minister, Grant Robertson, gave a glimpse of the vision for New Zealand’s post-Covid economy in his first major pre-budget speech on Tuesday. This year’s budget will also help set the political scene as the country heads towards a 2023 election.
The finances will not be announced until 19 May, but Robertson’s initial outline indicates that if the past two years of spending were branded the “rebuilding” and “recovery” budgets, then this year’s could perhaps be dubbed the “rebalancing” budget.
“As we move to a new normal post the peak of Covid, it is the right time to resume a set of fiscal rules to carefully manage costs while planning for the future,” Robertson said.
Robertson said it was the fourth budget the Jacinda Ardern-led government had put together using the “wellbeing approach”, which includes a broader range of outcomes including human health to assess policy success and which first grabbed international headlines in 2019.
With rising inflation and the ongoing disruptions from Covid, supply chain issues and the war in Ukraine, this year will run at a deficit, with the next surplus expected in 2024-25.
Robertson announced that once surplus is reached, the government is committed to maintaining a small surplus of between zero to 2% of GDP over 10 years.
“The surplus target will also be the primary rule that controls our spending decisions and will require a careful and balanced approach,” he said, adding that there will be allowances made for significant shocks.
Robertson also announced the government had accepted Treasury’s recommendation that New Zealand start using a headline debt measure closer to the international norm, which will make for a more accurate comparison against other nations. That will mean including a wider range of crown assets and debt held by other crown entities that had not previously been covered.
A new debt ceiling cap of 30% of GDP will also be introduced (a change from 50% under the current system), to “ensure New Zealand maintains some of the lowest government debt in the world”, Robertson said.
“It is a limit rather than a target and again is flexible enough to allow a buffer against short-term shocks, while providing room for productive investment.”
Infrastructure, health and the environment will be the focus of this year’s spending – with a one-off $6bn injection going towards a new streamlined health system and helping reduce emissions. But the greatest current pressure on people’s day to day lives – the cost of living – did not feature in Robertson’s speech.
When asked whether the budget would target high living costs he said: “We’ll always look to see if there are ways we can support New Zealanders, but the priorities of the budget have been made clear and they are health and the environment.”
Robertson was eager to point out New Zealand’s comparatively stable economic position. GDP is up 5.6% from a year ago, while the unemployment rate is at a record low of 3.2%, despite early pandemic predictions that it could rise as high as 10%.
The nation’s debt is set to peak at about half of Australia’s, around a third of that of the UK and around a fifth of the US, according to the latest international monetary fund outlook.
With the spectre of the 2023 election beginning to loom, Robertson’s careful language around prudent and balanced spending could be an attempt to hold on to votes the Labour party snatched at the previous election from the centre-right National party – the party usually viewed as more fiscally responsible.
When asked if the budget was a response to the opposition’s accusation that the government was “addicted to spending”, Robertson said: “Every government in the world had to respond to Covid and New Zealand responded in such a way that we’ve come through with one of the best economic results and one of the best health results in the world.”
It was necessary to spend money to cushion the blow to New Zealanders during the pandemic, but now is the time to apply clear fiscal rules, Robertson said. “As a person who came to my political consciousness in the 1980s I know the damage that can be done when we lose the balance of our fiscal position.”
“This will be a pivotal change as we move towards a high-wage, low-emissions economy that provides economic security in good times and bad.”
