Finance Minister Grant Robertson is digging in for war with the Reserve Bank by announcing a multibillion-dollar spending package that threatens to undermine the Bank’s attempts to tackle inflation.
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Labour will be hoping the Government’s cost-of-living spending announcements - expanding free early childhood education, abolishing prescription co-payments, and free public transport for children - will blunt the effects of higher interest rates and inflation, which Treasury now expects will be higher for longer.
Far from trimming back or reprioritising significant amounts of money, Robertson announced a Budget with billions more spending and billions more borrowing than expected six months ago, adding $300 million more this year, then $500m more in his next three Budgets, leaving the Crown with net core Crown debt of $181b in 2027 (37 percent of GDP), up from $128b now and $59b when Labour took office in 2017.
The books will be in deficit until 2026, one year longer than previously forecast.
Robertson said he did not believe the Reserve Bank would need to hike interest rates to deal with his increased spending.
“I don’t think this is the impact of what is in that Budget,” he said.
Key highlights:
- Extension of 20 hours Early Childhood Education to 2 year olds - $1.2b
- Abolition of $5 prescription co-payment - $619m
- Cheaper public transport for children - $327m
- $71m infrastructure spend
- Inflation stays higher for longer
- Net core Crown debt hits $181b
Meanwhile Treasury believes a toxic combination of higher interest rates and weak wage growth will smash house prices.
In December, it forecast prices would eventually reach their pandemic peak by 2027 - but now it forecasts no end to the crisis.
Prices will plummet to 21.3 per cent of their pandemic highs, before recovering, ever so slowly - but not regaining anything close to their pandemic peak in the forecast period.
Labour will be hoping the additional spending is enough to win them an election - and this Budget is full of election goodies.
But National says it contains “no ideas” to tackle the underlying causes of inflation and retain skilled Kiwis.
The Government’s 20 years of early childhood education programme for three-to-five year-olds will be extended to two year-olds at a cost of $1.2b over the four-year forecast period.
The $5 prescription co-payment will be abolished at a cost of $619m over the same forecast period, meaning people will pay nothing for most presriptions.
Public transport will be made free for children under 13 and half price for under 25s, costing $327m over the forecast period.
Whanau Ora has been given a boost and kapa haka festival Te Matatini has been given a long-sought funding injection of more than $30m.
$5b election year war chest
Robertson has cannily left $5.1b in the unallocated operating contingency, giving Labour a heavy election year war chest from which to fund campaign announcements.
Even the gaming sector gets a win, a $40 million a year subsidy, offering a 20 cent rebate on every dollar spent in New Zealand up to a cap.
The industry has lobbied hard for the change - its lobbyists even scored a seat at the Budget lock-up and a patsy question to the finance minister. The film industry also secured a $20m boost.
A new gender budgeting approach has delivered new investments for women. The Government will spend $20m on KiwiSaver contributions that “match” an employer’s contribution to people while they take paid parental leave.
Inflation is everywhere in the Budget. One of the larger announcements was $2.3b in new operating spending over the forecast period to give effect to public sector pay claims under the Public Sector Pay Adjustment.
This Budget was pointed squarely at the election, with Robertson making an oblique reference to National’s tax promises.
“There are many things that the government might like to do, or tax cuts that other parties might decide to promise, but for me keeping our children safe, warm and dry at school has to come first,” Robertson said.
Infrastructure is another big winner, with Labour promising a massive $71b spend on infrastructure over the next five years.
Robertson said this investment would initially focus on the recent weather events, but also include “future proofing road, rail, and local infrastructure wiped out by the extreme weather, as well as telecommunications and electricity transmission infrastructure”.
Infrastructure Minister Megan Woods won $6b for a National Resilience Plan which will go towards “building back better” from recent weather events.
“The North Island weather events have added a level of urgency to our infrastructure investment planning and highlighted the importance of building strong and resilient infrastructure,” Robertson said.
“It was unacceptable that basic lifeline services like telecommunications, power and transport links were knocked out for so long. It identified a serious basic infrastructure problem that this investment will help fix,” Robertson said.
Woods also secured funding for an additional 3,000 public homes by June 2025, on top of the 14,050 funded to June 2024
There is also support for Maori housing, which added 322 more homes for Maori and 400 relocatable cabins to assist people displaced by the North Island storms.
The Government snuck in a fairly sizable tax hike - lifting the trust rate from 33 per cent to 39 per cent, netting more than $1.12b over the forecast period .
Robertson denied this was a significant tax change,
“This is a change that we signalled that it would make, we saw evidence that we would make,” Robertson said.
This was a Budget characterised by a number of smaller, niche funding announcements.
The SIS was given $645,000 to improve its “capabilities and activities” in an increasingly uncertain world. It was given an additional $5.98m to fund inflation cost pressures.
Also in the security space, the Department of Prime Minister and Cabinet was given $5.18m to counter foreign interference and enhance “the resilience of New Zealand’s critical infrastructure system in the face of growing foreign interference risks”.
Robertson’s “implementation unit” was given an additional $3.9m to fund another two years of work.
Thirty million dollars was set aside for a grants scheme to fund zero emissions trucks.
Thirty-eight million dollars was allocated to establish “market governance regulation” for the Emissions Trading Scheme, which has suffered a collapse in the unit price since last December.
Rather ominously, Robertson has also given $14m to “enhance security measures” at MPs’ homes and offices and at Parliament. The security of MPs has been a concern since the pandemic.
“The ultimate balance,” Robertson said of the two choices of savoury dishes on offer for morning tea at the Beehive, during a livestream on Facebook alongside Hipkins this morning, ahead of the Budget lockup.
In the video, Hipkins described the cheese roll with a sausage in it as “an innovation” and Robertson said that innovation is what people should expect from this year’s Budget.
The Prime Minister also came up with a special touch to mark the first Robertson-Hipkins Budget – arranging for Robertson to be given one of the late Sir Michael Cullen’s ties for the occasion.
Cullen was a close friend and mentor of Robertson and served as both deputy Prime Minister and Finance Minister in the Helen Clark government from 1999 to 2007. He died in 2021 from cancer.
Cullen’s wife Anne Collins has chosen the tie for Robertson.
- additional reporting RNZ
