Finance Minister says Budget 2021 will take a balanced approach that continues to emphasise investment where it is needed most, alongside careful fiscal management.

With Budget 2021 coming up on Thursday 20 May attention is turning to where Government will direct its future spending. In his traditional pre-Budget speech to the Wellington Chamber of Commerce, Minister of Finance Grant Robertson stated that “Budget 2021 will take a balanced approach that continues to emphasise investment where it is needed most, alongside careful fiscal management.” This article looks at the key policy goals and objectives of Budget 2021 and what we will be looking for.

Overall, New Zealand’s economy has proved to be resilient in responding to, and recovering from, the impacts of COVID-19. Unemployment and GDP have defied expectations and look good relative to most of the countries New Zealand likes to compare ourselves to.

Going into Budget 2021 the Government’s financial accounts are in a better position than many expected.

For the nine months to the end of March 2021 the operating balance before gains and losses (OBEGAL) was $5.2 billion better than forecast in the Half Year Economic and Fiscal Update, released in December last year. This gives the Government more room to spend, or reduce borrowing.

At the time of writing, the Government had promised to spend $2.6 billion on new day-to-day initiatives, and $7.8 billion on capital investment over the next four years. Just because the recovery is going better than expected this doesn’t mean Government can stop spending. With interest rates at the lowest they are likely to ever be, the time is right for Government to borrow and invest for the future.

The Budget Policy Statement 2021 sets out the Budget priorities and wellbeing objectives that will guide the Government’s Budget decisions. The Government has set three overarching policy goals of Budget 2021:

  • Continuing to keep New Zealand safe from COVID-19
  • Accelerating recovery and rebuild from the impacts of COVID-19
  • Laying the foundations for the future, including addressing key issues such as our climate change response, housing affordability and child poverty.

The investment decisions the Government makes to achieve these priorities will be guided by the Government’s five wellbeing objectives:

  • Just transitions – Supporting the transition to climate-resilient, sustainable and low emissions economy while building back from COVID-19
  • Future of work – Enabling all New Zealanders and New Zealand businesses to benefit from new technologies and lift productivity and wages through innovation, and support into employment those most affected by COVID-19, including women and young people
  • Māori and Pacific – Lifting Māori and Pacific incomes, skills and opportunities, and combatting the impacts of COVID-19
  • Child wellbeing – Reducing child poverty and improving child wellbeing
  • Physical and mental wellbeing – Supporting improved health outcomes for all New Zealanders and keeping COVID-19 out of our communities.

Given Labour’s election commitments and the Government’s actions since being elected, we expect that Budget 2021 will continue the approach consistent with the Government’s initial response to COVID-19 and continued in Budget 2020.

Housing

Housing has received plenty of attention in the past 12 months and we expect it will be a big feature of Budget 2021. Three of the five wellbeing objectives have a direct relationship to housing. We will be looking for initiatives that seek to improve the affordability and condition of New Zealand’s housing stock.

If the government is committed to regaining some control over rising house prices, rents that are becoming unaffordable and a growing waiting list for public housing, we expect initiatives that will increase the supply of housing, including public housing.

Too many New Zealand homes are in substandard condition. A lack of adequate housing leads to negative health and wellbeing outcomes. New Zealand homes have a reputation for being cold and damp, especially at the lower end of the market. Overcrowding is an issue with many homes not suitable for the size of family occupying them.

Child wellbeing is enhanced by a safe, healthy and stable home environment. Having safe, warn and affordable homes to rent and buy will lead to positive health and wellbeing outcomes. We will be looking for investments that promote and support better living conditions, with a focus on how to improve housing situations for low income households.

With climate change set to be a major part of the Budget we expect Budget initiatives will promote more energy efficient homes, as well as materials that reduce operational emissions from households and embodied emissions from building materials. As well as reducing emissions more energy efficient houses have been shown to result in better health outcomes. Practical measures we could also see included in Budget 2021 are those that promote a more energy efficient housing stock that keeps homes warmer and dryer while reducing emissions and reducing long term operating costs.

Education

Education looks set to feature heavily in Budget 2021. Education, skills and training need to become more accessible, reflect changing requirements for employees and become more adaptable to learners needs. We expect initiatives in Budget 2021 will facilitate this.

A skilled workforce will be required to support the transition to a climate-resilient, sustainable and low emissions economy. This will require training and skills development opportunities to support the transition. These skills will not only need to be developed in the short term. In the long term they need to be maintained and enhanced.

As well as supporting the transition to a greener economy we will be looking to Government to make investments in training and skills development to enable New Zealanders and New Zealand businesses to benefit from new technologies to lift productivity and wages through innovation. Linked to improving technology skills we would also like to see Government promoting and investing in initiatives that encourage and support research and development within New Zealand businesses.

We expect that there will be specific training and development opportunities for those most affected by COVID-19, including women and young people. Māori and Pacific were two of the groups hardest hit by COVID-19 and we will be looking for initiatives targeting employment and training to increase incomes and reduce inequality.

Health

Along with keeping COVID-19 out of our communities, the Government has committed to supporting improved health outcomes. COVID-19 had the greatest impact on the health and wellbeing of lower income households. We will be looking for Government to address this by promoting improved health outcomes for lower income households, with a particular focus in the health of Māori and Pacific communities.

We expect that there will be a commitment from Government for sustained investment to promote physical and mental health.

We are expecting Government to introduce new initiatives or build upon or expand existing programmes that promote good mental and physical health as fundamental to wellbeing.

We will also be looking for initiatives that promote skills and workforce engagement for those with poor mental or physical health, to allow more people to contribute to the workforce and improve their standard of living.

Child poverty

The Budget Policy Statement signals that there is a requirement for sustained investment to address long term issues such as child poverty and mental wellbeing. Reducing child poverty and improving child wellbeing is one of the governments enduring wellbeing objectives.

We expect that this will be addressed in Budget 2021. We expect initiatives in Budget 2021 will aim to improve material standards of living and access to care and support. We will be looking for initiatives that provide a better start for children including those that support early stages of childhood and those that promote better housing for families with young children.

One way this could be achieved is through changes to the Best Start Grant, either to increase the payment value or extending the length of time payments are made for lower income families and households.