NZ Budget 2020: Reflections

New Zealand is set to see its budget for 2020, which is just one stopover in its battle against and eventually recovering from COVID-19.

Finance Minister Grant Robertson will present the budget on 14 May and has declared that the original budget priorities for 2020 have been put on a back burner. In his pre-budget speech, the minister stated that it would be a budget given in the spectre of 1 in 100-year shock to the economy caused by the coronavirus pandemic.

Mr Robertson stated that the budget would address issues of inequality, climate change and future of work with a focus on providing robust public services. The NZ government followed a strategy of:

COVID-19 is a public health emergency that has taken over 290k human lives straining limited healthcare systems and bringing economies to a standstill rendering people jobless. Thus, Robertson’s budget will deal with the immediate response to COVID-19-induced recession and the path to be followed for recovery.

Here is a look at what is expected out of the budget:

  1. Targeted Wage Subsidy

The NZ government revealed its first wage subsidy directed at small businesses on 17 March which was later extended to everyone. The wage subsidy of a flat NZ$585 payment every week was intended to give people enough cash to live and keep them employed. This scheme massively aided many businesses with cash and confidence.

The wage subsidy scheme has already cost the government NZ$10.6 billion subsidising over 1.7 million Kiwis wages.

Facing allegations that many large and profitable businesses claimed money even when they were not in need, the finance minister stood by the policy alleging that the scheme has put money directly in Kiwis’ pockets. The question is how the government will deal with the scheme now. Robertson has asserted the necessity of targeted assistance, i.e. providing money to those who most need it and announce measures to increase business cash flow.

He asserted that sector-specific support would be provided to enhance economic confidence and revitalise hardest-hit sectors.

  1. Prudent fiscal management

The government has to balance its books through COVID-19 crisis as expenditure rose and tax receipts fell during the past months. NZ government has been running operating deficits and is likely to run them in the near-term to wriggle the economy out from the COVID-19 impact. Robertson asserted that tough times are still not over for the economy as unemployment will rise and business investments will be hit, which can increase net core Crown debt to high levels.

ANZ projected core Crown debt would increase between 40-50% of GDP from 19.2% in February.

Miles Workman, senior Economist ANZ states that “The NZ government is not likely to have all answers on the fiscal and economic situation of the economy in future. Sustained surpluses will be needed for NZ to become a growing economy.”

Prudent management of the books and investing money to support businesses and people will help in rebuilding the economy.

  1. Possibility of tax cuts looks dim

As of 9 May 2020, NZ$22 billion has been rolled out since 17 March in stimulus measures to respond to coronavirus with more to be spent that will be announced on 14 May. Now, with a single-digit daily rise in coronavirus cases, the time has come to pay back the vast amount spent. The real question will be to see if the Labour will lift the economic growth or increase taxes to pay for it or will balance it out by using a mix of both the strategies. Prime minister Jacinda Ardern declined to reject new taxes excluding capital gains tax.

With elections due in September, including new taxes when the economy is fighting recession, unemployment and resulting pay cuts would be too much for the electorate to bear. Tax changes can be considered in the next election. Also, the government is now expected to spend money very carefully as every cent they spend will come out of taxpayer’s money in future.

  1. Focus on climate and infrastructure spending

Finance Minister stated in his pre-budget speech that he has a commitment to make NZ a low carbon economy and is planning on lowering emissions.

As per the NZ Climate and Health Council, the government cannot let NZ go back to usual unhealthy and unfair business. The government must consider the environmental costs of future investments it makes.

Ora Taio of Climate Action Group has asserted on the need for investments in renewable energy, housing and plant-based food systems to address climate change, create jobs and reduce inequality. Further, the government has also been asked to be concerned about the environmental impact of “shovel ready” projects on the table.

Robertson has confirmed that he is ensuring that NZ infrastructure investments will be made taking care of future generations and protecting the economy from challenges like climate change while making investments in more sustainable technologies. He looks forward to seeing new proposals generated by the private sector and government on the infrastructure front in the months ahead.

  1. Push to affordable housing and upskilling workers

The government needs to make a significant allocation for housing. The Finance Minister stated that some significant long-term issues like the bulk of children growing up without basic necessities, expensive housing and people working hard but not feeling they are moving ahead need to be addressed.

He added the opportunity to break the housing shortage has come. The need for equipping workers with new skills, training opportunities and breaking the digital divide for workers and families has developed. Hence, the budget is expected to make needed developments in the sectors.

The government is anticipated to focus on rebuilding the economy better in the coming budget to get the activity going, interventions to sustain households and businesses, get people to work along with sector-specific support to gain confidence and lift the economy.



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