How will Budget 2021 help to reinvent New Zealand?
This is a return to a more conventional Labour Government Budget with some big spending initiatives to reflect the Government’s agenda, the focus of which is wellbeing. Treasury forecasts suggest things are looking up, and the economy is recovering quicker than expected following COVID-19.
The Government has struck a careful balance between keeping debt under control and additional spending. The focus of the spending has been on increasing welfare payments, infrastructure investment and funding their reform agenda across health, education, three waters and climate change. It is less clear how this Budget will help businesses to continue their recovery in a COVID-19 world.
Given the exceptional uncertainty following the COVID-19 pandemic, the New Zealand economy has proved to be more resilient than anticipated. This provides hope that the intergenerational cost of the pandemic may not be as severe as previously thought.
The fiscal outlook continues to show signs of improvement with the majority of fiscal indicators stronger than previously expected. However, due to the continued impact of the COVID-19 pandemic, core Crown expenditure is forecast to increase to combat and secure New Zealand’s recovery.
Relative to 2020, Budget 2021 is comparatively upbeat, the sentiment supported by marked improvements in the Government’s forecasted operating deficits, net debt levels, and Gross Domestic Product (GDP).
The immediate financial market response was muted. The Budget document, while offering some spending and forecast surprises, contained little of direct impact to the markets. A $10 billion reduction in planned debt issuance was the most notable, but did not impact sovereign debt yields or the interest rate swap curve.
In the wake of the pandemic, the Government is faced with a unique opportunity to build back social and economic conditions that are more equitable and accessible for all New Zealanders. Budget 2021 has capitalised on this opportunity by allocating substantial funds to a range of initiatives that very clearly address the five enduring wellbeing objectives.
As anticipated, the ‘securing our recovery’, Wellbeing Budget 2021 puts a clear focus on ensuring that funding is directed to assisting those disproportionately affected by the COVID-19 pandemic, namely low income households and the tourism sector. However, the critical importance of addressing climate change has not been overlooked, as evidenced by its consideration across the Summary of Initiatives.
Tax Partner, Sandy Lau shares her thoughts on Budget 2021 including the anticipated release of updated tax policy work programme.
Sustainability and Climate Change Lead Partner, Annabell Chartres discusses key highlights of Budget 2021 for sustainability.
Capital and Infrastructure Partner, Natalie McClew addresses the key role infrastructure plays for Budget 2021.