New Zealanders on benefits are set to see more money in their pockets, with the Government saying it is “righting a wrong” by giving a weekly boost of up to $55 a week, restoring “dignity and hope” to some of those on the lowest incomes.
The Finance Minister, Grant Robertson, is forecasting a significant jump in economic growth, a shrinking deficit and lower than expected levels of debt. But the effects of COVID-19 are still evident in the Budget, with the Government not expected to return to a surplus until 2027.
According to the Finance Minister, New Zealand’s economy has performed better than expected. Although the economic impact of the downturn is clearly still being felt, New Zealand’s economy is doing much better than had previously been expected by the Treasury.
This time last year, the Finance Minister was delivering a budget with $50 billion of new spending initiatives to combat the looming economic downturn of COVID-19. The Budget reveals that only $5 billion of that fund remains – and will be held in contingency.
GDP is expected to rise from 2.9 per cent this year to 4.4 per cent in 2023. Compared to the big spending Australians who announced their cash splash budget last week, the average four-year average growth rate is expected to hit 3.5 per cent, compared favourably with 2.9 per cent across the ditch.
An extra 221,000 people are expected to be in employment over the next four years with unemployment expected to drop to 4.2 per cent by 2025. That said, the jobless number is expected to peak at 5.3 per cent later this year. When compared with last year’s Budget, the books look in incredible shape. Last year there was an expected unemployment rate of almost 10 per cent. Today, unemployment is at 4.7 per cent and a fall in Government revenue of only 1.8 per cent from COVID-19.
On the debt front, the total level of money expected to be owed by the Government had dropped by billions of dollars – but the Government is still expected to owe $255 billion in 2025. That is 43.6 per cent of GDP. Last year, Treasury expected that to be closer to 55 per cent – that’s $20 billion lower than expected.
The Treasury is, however, still expecting the Government to produce a deficit for the next six years, producing its first razor thin surplus in 2027.
In terms of house prices, the Treasury is expecting 2021 to be the peak when it comes to growth. Its expectations of annual house price growth is 17.3 per cent this year – that number drops to 0.9 per cent in June next year and to stay around 2.5 per cent over the coming four years. This may be considered good or bad depending on which side of the home-ownership fence one is on.
Budget 2021 intends to strike a careful balance between continuing to support and stimulate the economy during this period, while looking towards the need to keep a lid on the necessary debt taken on during COVID-19 to protect lives and livelihoods. The Budget will make progress on the three core goals of the Government: to keep New Zealanders safe from COVID-19, accelerate the economic recovery, and tackle the foundational challenges of housing affordability, climate change and child wellbeing.