‘Once in a Lifetime’ Budget 2020

  • May 15, 2020 NZST
  • Team Kalkine
‘Once in a Lifetime’ Budget 2020

The Finance Minister, Grant Robertson announced the once in a lifetime budget for New Zealand against the backdrop of the COVID-19 crisis comprising of several packages, the biggest one being an extraordinary NZ$50 billion funds to save jobs and condense unemployment to pre-coronavirus levels within two years.

The Budget was delivered following a ‘1 in 100-year’ threat to the wellbeing of the people, communities, and the economy of New Zealand. The enormous figures announced in the Budget with several zeroes along comprises of the following highlights:

  • NZ$50 billion fund to deliver COVID response and economic recovery plan at the centre of jobs budget
  • NZ$4 billion business support package, including a targeted NZ$3.2bn wage subsidy extension
  • NZ$3 billion infrastructure investment and construction of 8,000 public houses to boost productivity and create jobs
  • NZ$1.6 billion for trades and apprenticeships training package
  • NZ$1 billion environmental jobs package
  • NZ$3.3 billion new funding to strengthen core services including health and education

 

The NZ$50 billion COVID Response and Recovery Fund has been announced with an expectation to invest in a targeted wage subsidy extension as well as free training and apprenticeships. Further, an 8,000 state and transitional house build programme as well as NZ$3 billion for infrastructure development, job-rich environmental projects and support for SMEs, entrepreneurs and exporters has been announced to nurture the economy.

Investments worth NZ$13.9 billion have already been allotted from the fund to tackle the COVID-19 as well as bolster the Nez Zealand economy. Also, a further NZ$15.9 billion of investments have been agreed upon by the Cabinet to endure the instant response and jump-start the economy, leaving NZ$20.2 billion residual for future investment.

The Budget pronounced for NZ lays emphasis on saving the jobs of those employed and restoring the lost jobs during the pandemic crisis.

Finance Minister, Grant Robertson said:

“Today is about jobs.”

“It’s about creating new jobs, and it’s about preparing people for new jobs.”

New Zealand stays with one of the lowest debt positions among advanced economies, and careful economic management translates that this is affordable.

Moreover, NZ$3.3 billion of noteworthy investments announced in the Budget are intended to guarantee continues flow of funds to the essential public services like education, health and domestic violence services required to meet burdens like population growth.

Undoubtedly, a robust public service infrastructure has played a pivotal role in controlling the COVID-19 in New Zealand. Since the uncertainty about COVID-19 still resides around the corner, it is high time that essential services like health and education remain intact and are further strengthened at a time when NZ is in the mode to recover and rebuild.

Treasure’s Forecast

The new Treasury forecasts integrating the fiscal stimulus announced during the session are projected to:

  • Save Up to 140,000 jobs over the next two years, and support employment growth of 370,000 over four years
  • Unemployment can be tamed from a peak of 9.6% in June 2020 to the current 4.2% rate within two years
  • The economy is expected to start the upward movement again in the year beginning 1 July 2020
  • Plans are underway for a similar return-to-surplus track to the preceding Government after the GFC and Canterbury earthquakes

The forecast by the Treasury assumes that the unallocated part of the COVID-19 response and recovery funding was operating expenditure and temporary. The measures declared during the Budget 2020 encompass around NZ$7.2 billion of net capital expenditure as well as NZ$1.4 billion of continuing expenditure anticipated to extend beyond the forecast period in June 2024.  

 

Fiscal impact of decisions after 20 April (Source: The Treasury, NZ Government)

Fiscal impact of decisions after 20 April (Source: The Treasury, NZ Government)

Moreover, several aspects, such as the cyclically adjusted balance, the long-term projections reported in the Fiscal Strategy section of the Budget document, and the operating balance before gains and losses are anticipated to be affected.

Business Support Scheme

Under the Budget 2020, the Finance Minister announced a targeted extension of the successful Wage Subsidy Scheme that has already paid out over NZ$10.7 billion to support workers and businesses. The extension is aimed at companies that continue to struggle and shall be accessible for an additional eight-week period for those who have incurred a 50% lower revenue in the 30 days before the application as compared to the previous year.

Along with this, the extension in the scheme is expected to add stimulus to the economy while keeping people in jobs and allowing businesses more time.

 Outlook

Before the outbreak of COVID-19, the growth in the real GDP during the year 2020 was forecasted to be beyond wage growth was at decade long highs above 3% and unemployment was historically low at 4%.

However, times have changed a lot and forecasts have taken a dramatic turn. For the year ending June 2020, New Zealand’s real GDP growth rate is expected to drop to -4.6 per cent from 2.8 per cent in FY2019 (ending June 2019).

This massive downturn in the GDP of the country shall be driven by the mega decline of over 20 per cent in GDP during the June 2020 quarter.

Any positivity in the average GDP growth (annual) is not estimated to return before the year ending 30 September 2021.

The increase in unemployment is estimated to intensify to 8.3% in the year ending June 2020 and might further peak to 9.8% in September 2020. However, a recovery is expected after that.

These forecasts may not stand to be true in future as the impact of COVID-19 around the world is still being seen while there remains no surety regarding the depth and duration of the pandemic. Modifications can be expected to the projections when further information unfolds with time.

Crown operating balance before gains and losses (OBEGAL) deficits are expected to average 9.3% of GDP between 2020 and 2022; however, the Finance Minister is hopeful of careful economic management that is likely to reduce the deficit to 1.3% of GDP by 2024.

Bottomline

With tough times still lie ahead, the Government strives to rebuild the country and move out of the misery caused by the COVID-19. The Budget is said to presents direction towards responding, recovering, and rebuilding the economy of NZ. NZ has been more successful in achieving a win in the fight against the COVID-19. With the Budget being announced, it shall take some time for the effect of the allocation to be seen, subject to changes in the governing factors.

 


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