Budget 2021 – better days are coming?

In fact, other than banking on increasing tax revenue, the only nod to the recent tax changes was to note that some of the increased revenue will be coming from the increase to the top marginal tax rate for individuals. The recent property tax changes haven’t been factored into the budget because, to put it bluntly, the government hasn’t actually worked out exactly what they will be yet, let alone their impact. We wait with bated breath …

Grant Robertson was naturally happy to talk about the economy’s better-than-expected rebound from the initial COVID-19 downturn. In the darkest days of the pandemic, unemployment was tipped to go well into double figures, but is now expected to top out at 5.2% by the end of June 2021 before beginning to fall. Mr Robertson did note that while unemployment is forecast to fall, underemployment (workers willing and available to work more hours than they’re given) has been increasing, from 10.5% a year ago to 12.2% in the March 2021 quarter.

The headline announcements are increases to social welfare benefits, and more funding for the beleaguered health system.

Weekly main benefit rates will increase by between $32 and $55 per adult by 1 April 2022. The first rise in benefit rates will be $20 per week across the board, with another increase on 1 April 2022. Families and whānau with children will also receive a further $15 per adult per week, which it’s claimed will help between 19,000 and 33,000 children to be lifted out of poverty. Students too will get an extra $25 per week from 1 April next year.

If COVID has taught us anything, it’s the benefits of a well-funded and resourced health system, and to that end the health sector will receive $4.6b in new day-to-day spending over the next four years. There’s also $704m for new one-off expenses like buildings, and nearly $500m towards health and disability system reform including setting up Health New Zealand to replace the District Health Boards. PHARMAC also gets another $200m to increase access to new and existing medications.

The other big number is the government’s infrastructure plan. An extra $15 billion is being pumped into roads, rail, schools and houses on top of the $42b already budgeted for over the next four years. The Housing Acceleration Fund accounts for $3.8b of this (funded from the COVID-19 Response and Recovery Fund), and KiwiRail gets an extra $1.3b for new locomotives, wagons and infrastructure upgrades. Although chicken feed in the scheme of things, Dunedin got name-dropped in Mr Robertson’s speech due to the $85m earmarked for a new wagon assembly plant at Hillside.

While they would undoubtedly like more, tourism communities are being allocated $200m to “enable the reset” of the tourism sector in preparation for re-opened borders. This is targeted at key areas substantially impacted by the border closures, such as Kaikōura, the Mackenzie District, Queenstown Lakes, Fiordland, and South Westland.

Education isn’t left out with $761m allocated to infrastructure investment, $301m for funding rate increases, and $170m to increase teacher salaries. The Ka Ora, Ka Ako Healthy School Lunches Programme is also being expanded to the tune of $527m.

So, what’s this doing to the bottom line? Despite increased spending, Treasury is forecasting tax revenue to grow faster than spending. Core Crown revenue is expected to reach $121.3b by 2024/25, and the budget deficit is forecast to reduce to 0.6% of GDP in the same year.