Finance Minister, Grant Robertson, has announced in the 2020-21 Budget that the Government will spend $50 billion over the next four years on getting the New Zealand economy moving again.

The Budget lays out the first $15.9 billion of investment including an extension of the Wage Subsidy Scheme, free trades training, and a state house building programme. Approximately $14 billion has already been allocated to previously announced initiatives, leaving about $20 billion unspent.

The key items in the Budget include:

  • $3.2 billion extension of the wage subsidy scheme for a further eight weeks
  • $1.2 billion railway package
  • $3 billion infrastructure investment with 8,000 new public homes being built
  • $1.6 billion trades and apprenticeship training
  • $220 million expansion of the school lunches initiative
  • $400 million targeted tourism support fund
  • $830 million disability support package.

Another funding package for the media sector is also in the works, with details to be announced later.

Treasury expects this spending to save 140,000 jobs over the next two years, but for unemployment to still bounce up to 9.8 per cent in September (due to the economy shrinking by as much as a fifth in the three months to June).

This spending will see debt ramped up massively, with the Government’s net debt over half the size of the entire economy in 2023 and 2024, up from about a fifth pre-COVID-19.

No tax hikes or big spending cuts are pencilled in for this spending, with low interest rates helping the Government books through six years of expected deficits, returning to a minor surplus in 2028.

The Government has already provided various support for businesses to cope with COVID-19 such as the Wage Subsidy Scheme, changes to the taxation system, low and interest free loans, and supportive changes to laws and regulations.

The Budget provides a further $4 billion Business Support package to keep people in work, and position businesses for recovery and growth.

Extension of the Wage Subsidy Scheme

  • From June 10, businesses which have suffered, or are expecting to suffer, a 50 per cent loss of revenue (compared to the same time last year) will be eligible for the extension. The application for the expanded scheme is open for eight weeks and it is estimated to cost up to $3.2 billion.

Increasing support to research and development

  • The Government is launching a $150 million short-term temporary loan scheme to incentivise businesses to continue R&D programmes. The loans will provide one-off finance and will be administered by Callaghan Innovation, with a $100,000 cap per firm.
  • Most R&D reforming firms would be able to access the loans, up to the equivalent of 50 per cent of a business’ annual R&D expenditure, with no details on interest rates, only that the loans will be offered on “favourable terms”.
  • $80 million is also allocated to encourage entrepreneurs and businesses to develop new products by enabling them to claim tax deductions for unsuccessful or abandoned assets.

Trade

  • The Budget will provide a $216 million boost to New Zealand Trade and Enterprise to expand the scope and intensity of support provided to exporting firms.

Increasing the importance of e-commerce

The Budget is setting aside $10 million in funding to support small businesses to improve their e-commerce service offerings, and incentives/grants to encourage e-commerce adoption.

The Budget contributes $3 billion to additional infrastructure investment with more details to come

The Housing package creates 8,000 additional public or transitional housing places over the next 4 to 5 years. This will be financed by $5 billion of building through the Kāinga Ora borrowing programme and investment in Community and Transitional Housing providers.

The Government is also providing $670 million of support and services to tenants with more details to come.

New Zealand’s rebuild creates an opportunity to address sustainability and environmental challenges.

The $1 billion Environmental Jobs package appears to be able to create thousands of jobs

The predicted unemployment rate would reach a record high as many New Zealanders find themselves out of work, or entering the labour market for the first time. It is crucial there is strong support for the people to gain the skills they need for work.

This package includes:

  • A $1.6 billion funding in a Trades and Apprentices Package
  • Injecting a further $121 million into He Poutama Rangatahi
  • A $16 million boost to Adult and Community Education
  • A $20 million hardship fund.

The Budget contributes $400 million towards the Tourism Sector Recovery Plan.

Māori COVID-19 Recovery Package totals $485 million and includes a range of measures to support Whānau.

The $195 million Pacific recovery package is comprised of a range of initiatives to support Pacific communities.

During the unprecedented and uncertain times, it is critical to support the communities and especially those vulnerable people.

Community Wellbeing package includes:

  • Investing in financial assistance for caregivers
  • Expanding the Free and Healthy School Lunch programme to 200,000 students from Term 4 ($217 million)
  • Providing $32 million to increase support for foodbanks, food rescue and other community food services
  • Establishing a $36 million fund to support community groups, with a focus on Maori, Pacific, refugee, and migrant communities.

Education – $813.6 million operating total and $115.1 million total capital

The Budget invests nearly $1 billion to support the core provision of education services.

Transport – $222.9 million operating total and $1.1 billion total capital

This investment will enhance the resilience and reliability of national rail and ferry networks, and over time, contribute to efforts to reduce our carbon footprint through decreasing emissions.

Health Sector – $5.6 billion operating total and $755 million total capital

Recent events have proven how critical it is to invest in the healthcare of the country. It is vital that the healthcare sector is able to safely respond to the pandemic while maintaining the sustainable delivery of existing services. The core health package is investing $5.6 billion in services and $755 million in capital investment.

Social Sector – $665.3 million operating total and $87.2 million total capital

The Budget provides substantial investment in both government and non-government social services to support New Zealanders’ employment, housing, and broader life outcomes. It also supports vulnerable and marginalised populations, with a particular focus on the elderly, people with disabilities and victims of domestic violence.

Primary Industries – $443.7 million operating total and $42.5 million total capital

As we move into the post-COVID-19 economic recovery, our primary sector is more important than ever. The Budget invests in initiatives that will ensure our primary industries are supported and sustainable now and into the future.

The Budget is the single biggest spending package in New Zealand’s history. Prime Minister Jacinda Ardern said there was nothing usual about COVID-19 and that meant an extraordinary response in its Budget. There are a number of multibillion-dollar job-creation and job-saving schemes included in the Budget, as well as a massive push for training and re-training.

While the Government revealed a $50 billion COVID-19 fund, only $15.9 billion of it is being immediately allocated to spending programmes. It is noted the $50 billion also takes in $13.9 billion spent over late-March and April, but not the initial $12 billion spent for the Covid-19 response. This means the total amount forecast to spent on COVID-19 recovery over the four-year forecast period is in fact $62 billion ($20 billion of that remains unallocated).

New Zealand’s economy, like the rest of the world, has taken a hit due to COVID-19. Hence, the Government had to drastically refocus its spending to help the country recover. To pay for the massive recovery package, the Government will borrow hundreds of billions of dollars. The Government debt will more than double to $200 billion and there will be deficits in the tens of billions for years to come.

Grant Robertson is optimistic the Government’s huge spend-up will see New Zealand start to recover from July.

“We are doing what it takes to cushion the blow, support businesses and workers, and position the economy for recovery,” he said. “We’re answering calls for significant new investment as we face this 1-in-100 year global shock.”

Grant Robertson’s prediction is in line with the IMF’s forecast that global growth will rebound to 5.8 per cent in 2021. However, it will largely depend on how the coronavirus is contained and whether other nations experience ongoing spikes.

The Budget aims to assist New Zealand’s recovery from COVID-19 by investing in parts of the economy to protect jobs, create new job opportunities and rebuild consumer and business confidence.