WELLINGTON (Reuters) -Thursday, the government of New Zealand said it would spend more than NZ$1 billion ($630 million) to help people deal with inflation, which has reached its highest level in 30 years.
The government said in its annual budget report that the deficit for the current fiscal year, which ends on June 30, will be smaller than expected, but it will take longer than expected to get back to a surplus.
Defense, infrastructure, like building new schools, and the country’s health system, which will get more money for drugs and infrastructure, will get most of the money.
“As the pandemic ends, other problems, both long-term and short-term, are becoming more important. This Budget tries to solve these problems, “In a statement, Prime Minister Jacinda Ardern said the following
“COVID-19, climate change, and the war in Ukraine have taught us that we need to build a more secure economy that protects New Zealand households from the external shocks we know are coming,” she said. Ardern wasn’t there when the budget came out because she has COVID right now.
THE BOOKS
The government said that the budget deficit for 2021/22 would be NZ$18.978 billion ($11.97 billion), which is equal to 5.2% of the gross domestic product. This was less than the NZ$20.844 billion that was predicted in a fiscal update for the first half of the year in December.
But the government now thinks that the budget will have a surplus in 2024/25, which is a year later than what was expected before.
Under an old way of figuring out net debt, it was thought that it would peak at 41.2% of gross domestic product (GDP) in 2023/24. In December, it was thought that it would peak at 40.1% of GDP in 2022/23.
Under a new way of calculating net debt, which was put in place to make the measure more in line with international standards, it will be 31.8 percent of GDP in 2022/23.
In a note, Westpac bank said that, as expected, the budget was still in good shape and that the current level of net debt was manageable.
INFLATION
The government made a package for low- and middle-income households that is worth more than NZ$1 billion and will be spent mostly in 2022/23. This meant keeping subsidies for public transportation, cutting gas tax and road user fees, and giving middle-income families extra money.
“We know the storm will pass, but it’s important that we do what we can to soften its edges,” Ardern said.
The government also said that it would pass a law to get rid of land covenants that allow supermarkets to stop competitors from building near them. This step is meant to make the sector, which is currently dominated by two companies, more competitive.
Mark Smith, a senior economist at ASB bank, said in a note that the budget was slightly less restrictive than the December update, so it would be “slightly more supportive for New Zealand short-term interest rates and the New Zealand dollar.”
“There isn’t much in today’s budget that will stop the RBNZ from raising rates by 50 basis points in May,” Smith said, referring to the Reserve Bank of New Zealand.
DEFENCE
Over the next five years, more money will be spent on defense.
Documents from the government show that the country will spend NZ$5.9 billion on new defense equipment in the five years starting in 2021/22. This is more than 40 percent more than what was expected before. The defense force will get an extra NZ$662.5 million to keep up the defense capabilities it already has during this time.
($1 = $1.5858 in New Zealand)
