Photo: RNZ
The government is banking on a lift in migration, tourism, and cyclone recovery to take the edge off the economic slowdown, as it forecasts significant deficits for the next two years and increased borrowing as it spends to rebuild after bad weather.
The Budget shows expenses outpacing the growth in revenue, with a return to surplus delayed a year until 2025/26.
Key economic numbers (for year ended June 2024 vs half year update forecasts)
- GDP (annual) 1.0 pct vs -0.3 pct
- Inflation 3.3 pct vs 3.5 pct
- Unemployment 5.0 pct vs 5.5 pct
- Current acct -5.9 pct/GDP vs -5.6 pct
Key fiscal numbers (for year ended June 2024 vs half year update forecasts)
- Core tax revenue $123.2b vs $124.9b
- Core expenses $137.0 billion vs $134.5b
- OBEGAL -$7.6b vs -$0.5b
- Net debt (pct GDP) 22.0 vs 21.4
- Govt net bond issue 2023 to 2027 $45b
Finance Minister Grant Robertson said the New Zealand economy had remained strong in the face of slower local and global economic conditions, high inflation, and impact of bad weather.
"New Zealand is in a strong position to support households in this challenging environment with unemployment near record lows, wages rising faster than inflation and the government's books in solid shape.
"The Treasury is now forecasting New Zealand will avoid recession as the rebuild from the flooding and cyclone events support activity, along with stronger tourism."
Economic growth forecasts were more positive than in the December half-year update, with an expectation of modest growth over the coming year, while inflation was forecast to be slower to reduce because of the weather rebuild.
However, inflation was still expected to head back into the Reserve Bank's 1-3 percent target band by the end of next year.
Treasury forecasts said unemployment was on the point of heading higher from current near-record low levels of 3.4 percent to a peak of 5.3 percent by late 2024.
Tax forecasts were reduced as a slower economy and higher unemployment crimped returns, with forecasts more than $7b lower than in the December update.
The one tax measure in the Budget was a lift in the tax rate for trusts to the top rate of 39 percent from April 2024, as a way to capture more tax from the wealthy, who used trusts to minimise taxable income.
Revenue Minister David Parker said the trustee tax change would improve fairness in the tax system.
At the same time expenses were forecast to be $9.4b higher over the next four years.
The result was bigger deficits over the next two years, totalling nearly $11b, and a one year delay in the return to surplus to 2025/26.
Government borrowing was expected to increase by $20b to $120b over the next four years, an increase of $20b on previous forecasts, to cover maturing bonds and buyback of the bonds acquired by the Reserve Bank during the pandemic.
Net debt was forecast to peak at 22 percent of GDP in 2024 before declining to 18.4 percent in 2027.
Robertson said government spending would boost the economy in the short term, but over later years it would be a smaller part of overall economic activity meaning it would take the pressure off inflation.
Treasury forecasts were that the Reserve Bank's official cash rate would stay higher for longer, not falling below 5 percent before the end of 2024.
Robertson said the Budget was balanced and appropriate for the times.
"I believe it is a sensible, pragmatic pathway forward."