- Budget 2022 sees huge investment in our ailing health system and in the plan to address climate change but includes relatively little to increase productivity and support business.
- Temporary relief is provided to low and middle income Kiwis via a three month cost of living package and extensions to transport subsidies.
- The economic outlook, including the unemployment rate of 3.1 percent, is slightly rosier than previously expected but there are very strong headwinds ahead.
- Government expects to return to surplus from 2024/2025 and inflation to peak in 2022.
The Government gets a mixed scorecard on Budget 2022.
Peter Vial FCA, NZ Country Head of Chartered Accountants ANZ, eyeballs Budget 2022. He rates it against six broad measures: boldness, agility, vision, certainty, outcomes, and spending priorities.
‘Wellbeing Budget 2022: A Secure Future’ is Grant Robertson’s fifth budget and his third delivered against the backdrop of the pandemic. This year, however, inflation and the rapidly increasing cost of living are what are most on Kiwis’ minds – much more so than Covid-19. How has the Minister of Finance measured up against our expectations in 2022, a year beset by new challenges?
Our policy principles scorecard shows that the Government scores reasonably well on some of our key metrics but there is definitely room for improvement on others.
Budget 2022 is not particularly bold. The investments in health and climate are big but have been well signalled as the key investments in this term of Government. The business growth, housing and education initiatives are sensible but hardly radical or bold … or generous. There is little in these initiatives that will make a significant difference to New Zealand’s productivity and to the acute challenges the country faces in housing and educational standards.
The expansion of existing apprenticeship schemes and trades training is very welcome but it would have been bolder for the Government to increase its investment significantly by really putting these schemes on a firm long term footing. When a model is working, we should back ourselves and deepen the investment.
Agility ✔ / ✘
The Budget demonstrates agility by providing (albeit temporary and modest) cost of living relief to low and middle income Kiwis.
The extension of the subsidy for public transport and the excise duty relief at the petrol pump also show the Government is listening. These measures will also provide much needed relief but again they are temporary – demonstrating agility – but they are ‘more of the same’ rather than bold new initiatives.
There is little in the Budget that will really address New Zealand’s productivity challenge or, for example, increase digitisation in the business sector.
A pre-Budget announcement of $20m to assist the growth of New Zealand’s digital technologies sector is a step in the right direction, however considering the sector was worth $7.4b in 2020, it doesn’t feel like it’s a big enough investment, particularly into a sector that is also essential for a low emissions economy.
There is a lot more room for more agile and innovative thinking here.
Overall the Government’s agility in 2020 – in the face of the Covid-19 crisis – is less evident here, despite the fact we are facing a new and equally challenging crisis (inflation and cost of living).
Vision ✔ / ✘
Unsurprisingly the Government has prioritised responding to the immediate challenges of high inflation and large and rapid increases in the cost of living. The measures to address these challenges will be welcomed by low and middle income New Zealanders who are struggling.
But what is truly visionary and will make a difference to the long term future of Aotearoa?
Certainly the big investment in the plan to address climate change announced pre-Budget is focused on our long term future (as a people and a planet!) and is a non-negotiable in today’s world. As always where a plan is both ambitious and comprehensive, the devil is in the detail ... and time will tell whether the vision was big and brave enough.
Is the largest ever investment in health visionary? The jury remains out on whether the radical reform of the health sector and the $11.1 billion of new health reform funding will make measurable differences to patient outcomes.
The health highlights include:
- Lifting dental grants from $300 to $1,000
- Increasing Pharmac’s budget, by $191 million over the next two years
- Wiping DHB deficits as part of $11.1bn allocated to health
- Providing $37 million for training for GPs, nurses, physio, pharmacists, optometrists
The structure of the health system is changing, the DHBs’ deficits are being wiped - but will health outcomes be better and more accessible? Again time will tell.
So there is a clear vision in some areas but too short term a focus in others.
Certainty ✔ / ✘
The new fiscal rules that oblige governments to run surpluses on average over time and maintain net debt below a ceiling of 30% of GDP give a tick to ‘certainty’ at an economy wide level.
The fact that the country is predicted to be back in surplus by 2024 / 2025 is comforting. The inflation predictions – with the peak happening in 2022 at 6.7% and tailing off to 2.2% in 2026 - seem optimistic in the current climate but, if one takes them at face value, are reassuring.
But does the Budget provide certainty for the private sector – for the community and business? Does it provide a clear signal that New Zealand is open for business? Does it make it clear that the country can weather the stormy times ahead geopolitically and economically without risking the ‘team of 5 million’s’ wellbeing and increasing inequality?
Not really. Low and middle income earners are being given relief – but mostly only for two or three months. What will happen then if inflation and cost of living increases cannot be tamed? It won’t only be low and middle income earners who will be worried about what the summer brings. Many older New Zealanders who are no longer working struggle despite National Superannuation and the Winter Energy Payment and the Budget does not provide them with any real certainty about the undoubtedly tough road ahead.
Some business sectors get a degree of certainty. Funding for Industry Transformation Plans (ITPs) and for the Innovation Programme for Tourism are welcome but the relevant ‘votes’ (spend) are low.
The new Business Growth Fund (with the Crown investing $100 million as a minority shareholder) will help some SMEs access finance for growth. But the UK and Canadian equivalents – cited in the Budget documents as models – appear to have made positive but fairly modest differences to their respective SME sectors. New Zealand’s SMEs will be keen to see how they can access the scheme easily and quickly – and some will be wondering how soon the Fund will run dry. The Canadian fund has invested in 25 companies and created 1,510 jobs. The UK investment has created 11,500 jobs. In the New Zealand context the numbers could be proportionately modest.
Outcomes focus ✔ / ✘
Will the Budget deliver measurable public good outcomes? Or is it short on deliverables and long on ideology?
The Government has set itself key objectives for health and climate change and is investing sizable chunks of the tax take in achieving those outcomes. Not every Kiwi agrees with the the ‘ways and means’ of achieving the intended policy outcomes – and the jury is out on whether they will be delivered on time and on budget – but most would agree that prioritising health and addressing climate change is the right thing to do.
The investments in these areas are huge. The outcomes need to be specific and measurable. Post implementation reviews of policy changes need to be baked in and regular. The Government needs to be able to turn these ships around when outcomes are not delivered or are delivered too slowly. Agility will be key to ensuring the right outcomes are achieved.
At a more micro level the announced investments in ambulances, mental health and medicines are essential. Those investments should deliver real and measurable outcomes that are more obvious and immediate than the outcomes delivered by the planned structural changes to the health system.
Will the Budget improve outcomes for Kiwis struggling with inflation and cost of living increases they have not experienced in years? Through winter and spring 2022: yes. In the longer term more targeted initiatives (for the most vulnerable subset of the 2.1 million Kiwis who will benefit from the cost of living package) and longer term funding for those initiatives are needed.
In short there are lots of deliverables, some seemingly driven by ideology (e.g. the health restructure) but most in the public good. It is a waiting game to see whether the right outcomes are achieved in the right timeframes.
Quality spend ✔ / ✘
Health and climate are the key spending priorities. Few would argue with that at a macro level.
The $1.2 billion cost of living package – described by a TVNZ journalist in the lock up as a ‘short term sugar hit’ will provide much needed support for 2.1 million Kiwis struggling in the current economy and should not stoke the inflation fire too much. But it is essentially an extension of the welfare system and may not be the best use of the remains of the Government’s Covid war chest. However, rock and hard place come to mind. The need is immediate. In the Budget lock up Minister Robertson was quick to acknowledge that he had ruled out longer term changes to the tax system (rates and thresholds) as an alternative to the cost of living package as such changes are less targeted.
In a nutshell, will the spending announced in the Budget as a whole:
- increase wellbeing?
- in the short term and to a degree; the spending is more about ensuring Kiwis don’t fall behind as they grapple with the rising cost of living;
- in the longer term only if the health, climate and education spending delivers the right outcomes
- decrease inequality?
- modestly; for a Government two of whose core priorities are child poverty reduction and supporting Māori and Pacific aspirations, the investments in these areas seem relatively modest.
- grow the economy by supporting business growth and increasing productivity?
- not so much.
- business will welcome the investment in industry innovation, regional support, broadband, tourism innovation and the Business Growth fund but the $600 million spend in these areas is small and will be spread thinly across New Zealand’s hundreds of thousands of businesses.
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NZ Budget 2022 – Highlights and key measures
Chartered Accountants Australia and New Zealand brings you our highlights of the NZ Budget 2022 - 2023.