Budget 2023

Key Points

The government has a tightrope to tread in trying to deal with inflation, supporting the recovery from the Covid pandemic, and managing the significant economic effects of the Auckland Anniversary floods and the devastation from Cyclone Gabrielle. The Minister stood by his earlier statement that there would be no tax cuts in this Budget, but there would be increased cost of living support. 

Already announced over the last few weeks have been a $1 billion flood and cyclone recovery package, funding for climate change initiatives, and additional funding for education and the New Zealand Defence Force.

On the afternoon of Thursday 18 May, the Minister of Finance, the Hon Grant Robertson, presented the Wellbeing Budget 2023 – Support for today, building for tomorrow.

The Minister focused on four themes:

• Supporting New Zealanders with the cost of living
• Delivering the services New Zealanders rely upon
• Recovery and resilience, and
• Fiscal sustainability.

We summarise the key points of this year’s Budget.

Cost of living support

There is to be free public transport for children under 13 years old, and permanent half-price fares for those under 25 years old. The Minister said, “This will help passengers meet the cost of public transport and encourage increased use, while also supporting New Zealand to achieve its climate change goals.”

The $5 co-payment for prescriptions will be removed from 1 July.

The government has pledged to lower households’ energy costs. It has expanded its Warmer Kiwi Homes Programme providing around 100,000 new heating and insulation installations; 7,500 hot-water heat pumps; and five million LED light bulbs.

For early childhood education, eligibility criteria for 20 hours’ Childcare Assistance has been extended to cover two-year olds, as well as three-to-five year olds. The subsidy rates will be increased. This comes into effect on 1 March 2024.

Delivering more reliable services

The government has acknowledged the need to make significant investments to protect and improve public services for Kiwis.

 Housing: There is increased funding to deliver 3,000 new state houses. 

 Education: As announced a week ago, there is a commitment to boost skills, improve achievement, reduce class sizes and increase teacher pay. There will be 6,600 additional student places, and new classrooms and schools to fit them in. 

 Health: The government is to focus on the effects of winter on the health system; the urgent need for more medical staff (including 500 nurses), and to reduce the massive waiting lists. 

There is a commitment to spend more than $1 billion to increase the pay rates and boost staff numbers, and $20 million to lift Covid immunisation and screening for Māori and Pacific peoples. 

The Budget includes a range of investments to support Māori and Pacific peoples. These include:

• Investment of $223 million to improve housing outcomes for Māori. This includes $23 million for an extension to the Te Ringa Hāpai Whenua Fund and $200 million to increase the supply of Māori housing and to repair homes in Māori communities.
• Supporting whānau and tamariki by expanding Whānau Ora services and support for wāhine hapū in the first 1,000 days of life for their pēpi, and
• $143 million has been set aside to foster Māori and Pacific language and culture.

Recovery and resilience

The government has already announced its package for the recovery and its investment in regional resilience from the Auckland Anniversary floods in late January and Cyclone Gabrielle in February.

There is a commitment for $71 billion across the next five years for new and existing infrastructure investment (schools, hospitals, public housing, rail and road networks), in addition to funding set aside for projects that are still in the planning stage.

Acknowledging the need to rebuild New Zealand’s crumbling infrastructure, $6 billion over a 10-year period has been allocated for a new National Resilience Plan. Initially focusing on ‘building back better’ from the effects of the floods and cyclone, it will also fund the country’s long-term infrastructure deficit, and develop a credible pipeline to support the plan. 

Fiscal sustainability

Whilst the Minister held fast on his promise not to raise income tax, the trustee tax rate (currently at 33%) will increase to 39% from 1 April 2024 bringing it into line with the top personal tax bracket. The Minister says this will create fairness and remove a potential loophole.

Whilst the Minister confirmed that the country’s economy has emerged from the three years of Covid in a ‘solid position’ – the economy expanded by 2.4% over the 2022 calendar year and modest growth is anticipated for this year – there are headwinds. The continuing impact of the war in Ukraine, and worldwide inflation will affect New Zealand’s economy.

Although inflation peaked at 7.3% in June 2022 and eased to 6.7% earlier this year, rising immigration to this country and the government’s investment in infrastructure projects will increase demand. This may put more pressure on the Reserve Bank to contain inflation.

Whilst New Zealand is not in a recession, recovery from the knocks of the past few years may take longer than anticipated. The government expects the books to return to surplus in 2025–26, a year later than Treasury’s December 2022 forecast.

The 2023 Budget is very much what the government had said it would do – no huge surprises and keeping a firm hand on the tiller to make New Zealand a better country in which to live. The proof, however, will be in the pudding as the year proceeds.

 To read more detail about the Budget, click here for the Minister’s speech.

Read the full issue here