New Zealand budget plan offers modest financial relief ahead of election

Months before an election, the New Zealand government on Thursday offered many people modest financial relief, making most prescription drugs free and increasing subsidies for childcare and public transport.

However, the government’s annual budget was characterized by a lack of major new initiatives. Since taking office earlier this year, Prime Minister Chris Hipkins has promised a return to basics, scrapping many of the more ambitious – and controversial – plans of his predecessor Jacinda Ardern.

Treasury Secretary Grant Robertson said the budget is all about getting the basics right.

“It’s pragmatic and practical, and it’s the right budget for these times,” Robertson said. “Are there other things I wanted to do? Were there other things the ministers wanted to do? There was one hundred percent. But now is not the time for any of these things.”

Polls suggest Hipkins and his Liberal government will face an uphill battle against the Conservative opposition led by Christopher Luxon in October’s general election.

A new Treasury Department forecast released on Thursday no longer expects New Zealand to enter recession as the economy slows this year. Nevertheless, the forecast predicts a sharp increase in unemployment and weak economic growth.

The government’s budget plan comes after the country suffered an economic setback earlier in the year when extreme weather events, including flash flooding in Auckland and a hurricane, caused billions of dollars in damage to infrastructure and homes.

The plan will eliminate a small co-payment for most prescription drugs, extend subsidized childcare for preschool children to two-year-olds, and make bus and train travel free for all children under 13.

The plan must be approved by the legislature, but that is considered a formality as Hipkins and his supporters command a large majority in Parliament. The budget will come into effect at the start of the fiscal year in July, although not all initiatives would start immediately.

Luxon, the leader of the opposition, said the government was spending-addicted.

“Treasury Secretary Grant Robertson has promised a bread-and-butter budget,” Luxon said. “What he delivered was a spending spree that led to a massive increase in deficits and a surge in debt for years to come.”

The Treasury Department forecast expects inflation to fall rapidly from the current 6.7% to around 3% by the end of next year. This suggests that the central bank’s policy rate has already peaked at 5.25% in the current up cycle.

The Treasury Department forecast expects the economy to grow 1% for the year from July before picking up to 2.1% the following year. The Treasury Department forecasts the current unemployment rate of 3.4% to rise to 5.3% by the end of next year before falling.

The government projects it will return to a budget surplus by 2027 after running deficits since the outbreak of the coronavirus pandemic in 2020. She expects public debt to peak at 22% of GDP before falling.