In his second major pre-Budget speech Finance Minister Grant Robertson has defended public service pay measures and says next week's Budget will support the economy while being cautious about debt.
Watch the speech here:
Robertson said the government would not be able to fulfil all of its promises in just one Budget.
While the country's better than expected economic recovery meant there was more space in the government's operating and capital allowances, the outlook remained highly uncertain and not all the government's manifesto commitments would be able to be funded this time round.
The Budget will be a 'Covid' Budget, in the sense of dealing with the ongoing effects of the pandemic. "But as well as being a Covid Budget, Budget 2021 will also be a recovery and wellbeing budget," he told a BNZ-Deloitte event in Auckland.
Robertson said there were enormous issues the country needed to face up to - like housing affordability, climate change, child well-being and productivity not being as good as it should have been - and it was important not to romanticise the pre-Covid economy.
"Our call is that we do need to keep investing ... but we are balancing that against the clear news that we have taken on enormous levels of debt. We in the middle of the decade be in a position where we can start reducing that debt down, but up until that point we need to keep it at the levels it's at to sustain the services we need and to support the economy."
The government would need to continue providing support to the economy for some time to come, and where there was increased spending, it would be directed toward where the need is greatest, he said.
In that context, he said, it was important to note the guidance by the Public Service Commission on the next round of public sector pay negotiations focused on those on $60,000 a year or less, and was not a pay freeze.
"The guidance breaks down three categories for public sector pay, 'lift' (those at $60,000 or below), 'adjust' (those between $60 and $100,000) and 'hold' (those above $100,000).
"Pay for public servants such as teachers, nurses and police officers will continue to increase as they move through the pay bands we have previously agreed, pay equity discussions continue and there is still a collective bargaining negotiation to go through."
The government has faced a backlash over last week's announcement, with unions for healthcare workers, teachers and police, with the move being called an effective pay cut with inflation and rising housing and rental costs.
The finance minister reiterated the government would not implement austerity measures in order to try to reduce our levels of debt before the recovery is secure.
"Our better than expected economic recovery does provide us with more options. There will be a careful balance here too.
"There is a bit more space in our operating and capital allowances to support the recovery in line with the approach that I have outlined today - focused on the areas of where we can accelerate progress and in tackling our long term challenges.
"At the same time there is some more scope to keep a lid on debt and look towards a faster reduction in that debt once the recovery is secure.
Robertson set out the wellbeing objectives for Budget 2021:
- Securing a Just Transition as New Zealand shifts to a low-emissions economy
- Lifting productivity and enabling all New Zealanders to benefit from the Future of Work
- Lifting Māori and Pacific incomes, skills and opportunities,
- Reducing child poverty and improving child wellbeing, and
- Supporting Physical and Mental Wellbeing for all New Zealanders and keeping Covid-19 out of our communities.
On the vaccination plan, he said the government would not be waiting until everybody had the jab to open up to other countries.
"Where we can safely open the borders up for the movement of people, we will do that. We will continue to look for opportunities to do that, particularly in the Pacific, where obviously there hasn't been a lot of Covid. But one of the things that gets a little lost there is that we don't want to be the exporters of Covid to the Pacific.
"I caution people against people from thinking it'll flick back to normal [like] there'll be some sort of switch, it's going to take time, not necessarily so much because of us, but also because of how other countries are thinking, what individual decisions people are making."
A vaccine passport would be an important part of border developments into 2022, he said.
"I would see it as an evolution rather than a flicking of a switch, that we will see person-to-person travel open up."
Robertson said the skills shortage showed how far New Zealand had come through the pandemic, labelling it as a good and strong position for the country to be in.
He said the government recognised the need for people to come in to fill skills gaps and the economy would always include an element of immigration to support it.
"We've just asked the Productivity Commission to have a look at the overall settings in our immigration policy to make sure that it is around skill gaps and lifting productivity and make sure we are genuinely adding value there.
"We are looking towards trying to get more people who are needed in our economy in through that route and there will be more to say about that soon."
On the construction sector, he said more than 100,000 had taken up the free apprenticeships and targeted trade training scheme made available last year. Of those 58,000 are apprentices, of which a third are in the construction sector.
"Construction now is going gang busters and so that workforce is going to be there now for the future, which is really important to us, but also within our policy is a recognition that those groups that I mentioned before that are more disproportionately affected by the downturn need to also be supported."
In relation to supply issues during the pandemic, he said the aviation support scheme put in place meant exports and imports have been able to carry on throughout.
He said $8b worth of exports have gone in and out on flights, while also noting global supply chain issues would continue.
"On the specific topic of building supplies though... New Zealand pays far too much for building supplies. You only need to look across to New South Wales or Victoria to see how different it could be."
He said the Commerce Commission would be taking a look at supermarkets and "the next cab off the rank might take us in that direction".
He said he sees a shift as time goes by in the co-ordination between central banks and governments.
"I will always stand up for the operational independence of central bank, their job is to look through current economic conditions, look to a long-term situation. Politicians by their nature will always take a slightly more short-term view than that so it's important to that operational independence.
"But I do think it's our job to set the rules and expectations and you saw that around housing for us, in that we felt it was important that all parts of the economic apparatus understood at least what the government's goals were."
Robertson has previously announced that $926 million unused from last year's Covid-19 Response and Recovery fund will be spent on the recovery, with details to be revealed in the Budget.
The Budget will also commit up to $53 million for a cervical screening test that women can do themselves and will reduce the need for smear test, and the government also will introduce a new breast cancer screening system with plans to reach 271,000 more people.
Official figures released last month showed a deficit of $4.5 billion for the eight months ended February - $3.7b less than forecast.
Details of the Budget will be revealed on 20 May.