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ANZ economist: Budget floats on borrowed money, but seems balanced

Finance Minister Grant Robertson has today released his 2021 'Securing Our Recovery' Budget, with benefit rises, a focus on Māori wellbeing, and infrastructure upgrades among the key figures.


The Budget sets out a total of $3.8b in operating allowance this year, and $15.1b over the forecast period.

Treasury: Budget At A Glance 2021


Net government debt was forecast to remain below 50 per cent of GDP, peaking at 48 per cent in 2023.


GDP is forecast by The Treasury to rise from 2.9 per cent this year ending June to 3.2 per cent and 4.4 per cent by 2022 and 2023, respectively.


Speaking on a post-Budget TVNZ panel, ANZ Chief Economist Sharon Zollner said New Zealand "does sit upon a regrettably active faultline", and therefore needs a bigger fiscal buffer than some other countries - but she also noted that New Zealand's debt is still lower than most other countries.

"The economy is the same size as it was before Covid, but the quality of growth has deteriorated massively," she said.


"We have borrowed from the future - that's not a trick that we can keep repeating.


"I think this Budget does strike a reasonable balance of looking out for the obvious problems that society's experiencing here and now - but with a bit of an eye to moving forward to the future and being prepared for the unexpected."


Unemployment is now forecast to trend downwards towards 4.2 per cent by 2025, after previous forecasts during Covid-19 of up to 10 per cent.


The Budget includes a big increase for those on benefits - they'll go up by between $32 and $55 per week from April 2022 onwards, with student Accommodation Benefits also increasing by $25 per week.


The benefit rises are in addition to the $20 rise for all main benefits scheduled for July, and on top of the $25 benefit lift which came in last year.


"They're shoring up the beneficiaries' income, even at a time when the labour market is clearly tight, because the economy is quite distorted and it's actually not easy for employees and employers to match in this environment," Ms Zollner said.


"So you do need to help the economy through what has actually a really difficult time of adjustment."


The Budget also includes a billion-dollar package investing in housing and a dedicated health authority for Māori, as well as significant infrastructure spending.


A total of $810m will go to KiwiRail for new trains, upgrades and maintenance, $761m will go towards education (most of which will be for classroom upgrades) and $700m for new District Health Board assets.


The Budget also puts $300m towards NZ Green Investment Finance Ltd, which is the government fund for investments in climate change mitigation, and $200m towards a tourism recovery package aimed at communities and businesses left most exposed by Covid-19.




New funding of $37m will go towards supporting farmers and growers with on-farm climate change planning, with money going towards skilled farm advisors to assist with measuring and managing emissions reductions.


A total of $22m has also been allocated to supporting compliance with, and enforcement of, the National Animal Identification and Tracing Scheme (NAIT), in order to help with the M. Bovis eradication efforts, and also support traceability for food safety and quality assurance programmes.


Rural internet access also got a mention, with $10m put towards supporting the rollout of 5G cellphone networks in rural New Zealand.




Writing in its latest NZ Economic Update, ANZ New Zealand Economics team noted that "Budget 2021 aims to strike a delicate balance between the need to rebuild fiscal buffers and directing a little more spending to where it’s urgently needed.


"The Treasury has upgraded its economic outlook, which has created a little extra wiggle room on the spending front while also contributing to a lower projected debt level than previously," the report said.


"But the overall deterioration in the Government’s books remains significant.


"Net core Crown debt is expected to peak at 48% of GDP in 2023 (more than $100bn higher than projected before this crisis)."


The team said the lift in benefit rates is likely to boost not only those who need it, but also demand.


"That’s going to make a big different for low-income households - and these households are likely to spend the cash rather than save it.


"The money will therefore be quickly circulated through the economy, supporting demand."


More investment in housing was good in theory, but the report noted that capacity is still not what it needs to be.


"Severe capacity constraints in some key sectors, construction in particular, are likely to blunt the impact of other policies.


"The construction sector is already rushed off its feet, so it’s not clear how additional capital expenditure to increase construction can happen without crowding out private sector spending."



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