Budgeting during a cost-of-living crisis

10:00 am on 7 May 2022
Jane Patterson, Political Editor

"We've got to get through this 2022 that's difficult, but we also know that we want a health system that's operating really well in '23 and '24 too," - Grant Robertson

It's Budget time again, but 2022 brings a number of major economic challenges.

These include massive costs pressures affecting households, business and government; ongoing supply chain shocks and disruption made worse by the ongoing war in Ukraine; housing unaffordability through the roof; expectations around climate change, poverty and inequality and funding large reforms like health.

National's finance spokesperson Nicola Willis says the biggest challenge for Finance Minister Grant Robertson is the cost of living crisis.

RNZ Political Editor Jane Patterson sat down for a chat with Willis and Robertson, ahead of this Labour government's fifth Budget.

Listen to the full podcast here

Photo: RNZ

Willis says the cost of living is affecting every New Zealander, and inflation is a robber at our doors. 

She says she would expect direct income support for households, but with more tax being collected by the government than before, and argues the government has a track record of wasteful spending. 

"The presumption there would have to be that he thinks he can spend New Zealanders money better than they can, and I just disagree with that premise. 

"Examples like $51 million being spent on consultants for an $800 million cycling bridge that hasn't gone ahead talk to a culture and government that's not great, but it's also about spending that hasn't been well enough planned and targeted on results." 

She says National's proposal for cutting taxes - including the 39 percent top tax bracket for earnings above $180,000 - strikes a fair balance.

"Grant Robertson this year is collecting around $14 billion more in income tax than when he came to office, our package would cost $1.7 billion ... that would mean the average household would benefit to the tune of $1600 a year. We think that's meaningful."

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Robertson admits 2022 is an "enormously challenging year", and the government must balance its long-term goals against short-term needs. 

"It's challenging for households, you know, it's the impact of two years of Covid, and now this global inflation spike ... the surplus now comes a year after when we thought it was going to be even just a matter of a few months ago, that shows you just how the numbers are moving around."

He says Covid has taught us the health reforms must go ahead, and discussions in the past week over how to tackle the backlog of planned care operations delayed by the pandemic highlight the difficulties of getting 20 district health boards to work together. 

"Those sorts of things are actually important to being more productive, but also more efficient with how we use our money."

He has signalled for some time that along with health, climate change will be the other big focus for this Budget, and says that will mostly be through the Climate Emergency Response Fund. 

"And I think that's the right thing to do. It's obviously the first time that we've taken those revenues from the Emissions Trading Scheme and just said 'they are for emissions reductions'."

He says the government will make a significant contribution to the fund in this Budget and it will be and will require an ongoing investment, but New Zealand's economy is in good shape. 

"We have come through this with an economy that is bigger than it was before Covid ... the ratings agencies saying 'yep, you're in good shape, triple-A, we're prepared to back you'; we've got ourselves in a position where our debt is manageable, and under control and low relative to the rest of the world."

The global environment is very challenging, Robertson says, but he argues that only makes the case for investment stronger. 

"The price of oil is the big driver of inflation. If we can move ourselves to decarbonize our transport fleet, then we're well on the way to be able to be resilient against these kinds of shocks."

The war in Ukraine did extend the inflationary pressures of Covid-19 and supply chain disruptions, but Robertson says it will start to come down later in the year, and some analysts are predicting that could happen earlier than previously forecast.

"There's a bit of 2020 hindsight coming from some of my political opponents to say 'look at the scale of what you've taken on'. Yep, that's because the rainy day arrived and we supported and protected New Zealanders and we've ended up with 3.2 percent unemployment, we should be pleased with that outcome but realistic about the fact that we now need to start to return to some more of the fiscal kind of rules that we've had in the past."

He says the government always looks at its expenditure to ensure it is getting value for money, and the spending on infrastructure is important to help improve productivity.

Some of the extra tax revenue is coming from inflation, he admits, but some is from companies making more money or more people being in work, and he believes now is not the time for tax cuts. 

"The IMF also backs this up ... we are still in the shadow of a Covid pandemic, still dealing with unmet demand, and a lot of areas of public services, health, education, housing, etc. So over time, of course, we would want to look at those issues, but I just don't believe now is the right time." 

In today's Focus on Politics podcast, Political Editor Jane Patterson sits down with the Finance Minister Grant Robertson and National's Nicola Willis to preview this month's Budget.

 Listen to the full podcast

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