🍤Budget 2022 showed a later return to surplus given the weaker global backdrop, challenges posed by high inflation, and widespread capacity constraints. Higher inflation has boosted Crown expenditures and revenues.
🌽The Budget also introduced a (lower) headline net public debt measure and two fiscal rules that attempt to strike the balance between prudence, flexibility and taking a longer-term view.
🍟The Government has unveiled an ambitious programme but needs to convert announcements into action and the delivery of its policy agenda.
🥟Budget 2022 highlighted the pressures on the public finances, with capacity constraints, challenges posed by elevated inflation, and the weaker global economic outlook all weighing on NZ economic activity. 🥣This in turn has impacted the public finances. The return to OBEGAL surplus is delayed until 2024/25. There is a marginal increase in the debt profile, with net public debt expected to peak at just under 20% of GDP in 2023/24 (under the new net public debt ceiling) before easing thereafter. This, and Government purchases of RBNZ asset holdings, should produce a gross bond tender up to $26bn higher through to 2025/26. The fiscal impulse is mildly less restrictive for NZ short-term interest rates and the NZD. 🫐A wellbeing approach was employed with the pivot towards a longer-term approach. Heath and climate change were the key focus areas, with the COVID-19 fund wound down and non-allocated funds reallocated to help (mostly lower-income) households struggling with the surging cost of living. The Treasury also introduced two fiscal rules that attempt to strike the balance between prudence, flexibility and taking a longer-term view. Still, government spending is expected to significantly outstrip previous Budgets, with core current spending $18bn higher by 2023/24 compared to Budget 2020. ☕The pivot towards a longer-term focus is sensible given the longer-lasting challenges facing the NZ economy (think climate change, a sizeable infrastructure deficit, and an ageing population). It may also buy the Government more time to deliver its agenda. Still, the stakes are correspondingly higher, and the Government needs to get it right for future generations as well as current ones.
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