....a slew of press statements and an improvement in the Treasury’s fiscal outlook
It’s the no-frills budget (says Labour) or the blowout budget (says National).
But let’s bypass much of the slew of information released today and turn to the Treasury’s Budget and Economic Fiscal Update, which says the Government’s fiscal outlook is expected to improve over the forecast period (which covers the next four years).
The key numbers:
- Core Crown revenue in 2023/23 is projected to be $134.5bn in the next fiscal year (up from $126.7bn in 2022/23);
- Core Crown tax revenue will be $123.2bn (up from $115.3bn);
- Core Crown expenses will be $137.0bn (up from $128.2bn);
- Total Crown OBEGAL will be -$7.6bn (worsening from -$7.0bn);
- Total Crown operating balance will be -$1.4 bn (worsening from +$4.2bn);
- Core Crown residual cash will be -$26.9bn (worsening from -$22.4bn);
- Net debt will be $91.2bn (worsening from $71.0bn);
- Net worth will be $177.9bn (down from $179bn).
- The operating balance before gains and losses (OBEGAL) is expected to return to a surplus of $0.6 billion in 2025/26, before reaching $3.2 billion (or 0.7% of GDP) by 2026/27.
- Net debt peaks as a percentage of GDP in 2023/24, falling to 18.4% of GDP by 2026/27, while, in nominal terms, net debt starts to reduce by the end of the forecast period.
- But in the near-term the recovery in OBEGAL “is somewhat static with deficits expected to remain stable at 1.8% of GDP.
- Core Crown tax revenue is expected to remain stable at around 30.0% of GDP across the forecast period, broadly reflective of expected growth in nominal GDP.
- In contrast core Crown expenses decline from 34.6% of GDP in 2021/22 to 31.5% of GDP by 2026/27, as temporary costs cease and smaller operating allowances are signalled by the Government for future Budgets.
Even so, its forecasts are open to the complaint they are too rosy.
Compared to the Half Year Update, the Treasury now expects a more moderate slowdown in economic activity over the next 12 months. Growth slows to 1.0% in the June 2024 year, and averages 2.7% thereafter.
Continued strength in tourism, stronger growth in net migration, rebuild activity associated with the North Island weather events and less contractionary fiscal policy will help to offset slowing demand in other parts of the economy.
The net result is that, relative to the Half Year Update, the unemployment rate is forecast to peak lower, while interest rates are likely to stay higher for longer to manage inflationary pressure.
Inflation has already begun moderating, and the Treasury expects further moderation ahead, with inflation falling to 4.5% by the end of 2023 and dropping inside the Reserve Bank’s target band of 1-3% inflation by late-2024.
But as economic activity slows, labour market conditions will deteriorate, resulting in the unemployment rate rising to 5.3% by late-2024, before falling back to 4.8% by the end of the forecast period.
Wage growth will decline, from a peak of 7.4% in September last year to a more moderate 4.2% by mid-2027.
The forecast of growth in nominal gross domestic product (GDP), an important driver of tax revenue, is lower than the Half Year Update forecast.
Point of Order has yet to digest all the information released today as part of the Budget package.
But here’s how the Budget goodies have been announced on the government’s official website –
Budget 2023 continues our investment in numerous programmes to continue keeping communities safe, including a successful youth offender programme, more support for police, focusing resources on victims of crime and improving access to justice.
Budget 2023 increases support for disabled people to access disability services and continues our crucial transformation of disability support services.
Budget 2023 ensures New Zealand’s tertiary education and training institutions are in the best possible position to prepare Kiwis for the future.
A top up of funding for emergency repairs to the transport networks of $60.7 million in 2023/24 will ensure that rural communities are less likely to be isolated after an extreme weather event.
Budget 2023 delivers new targeted initiatives so more Pacific communities are supported to succeed in education, jobs, business, language skills, and culture.
Budget 2023 reflects the critical importance of Whānau Ora.
The Māori Budget this year continues investment in whānau wellbeing, access to whare, and whakapapa, all of which support the Government’s plan to address the cost of living.
Budget 2023 continues the Government’s commitment to tackle the housing shortage by delivering 3,000 more public housing homes, supporting more people at risk of homelessness, building more houses for Māori and those impacted by recent severe weather events.
The Chris Hipkins Government is tackling pay and workforce pressures in the health system with a billion dollar boost that will increase pay rates and the number of nurses.
Budget 2023 will keep up the momentum on the Government’s plan to address climate change with an array of transport, energy and resilience measures.
Budget 2023 will help reduce power bills and help drive down climate emissions.
The Government is setting aside $6 billion to build back better with greater resilience from the recent Auckland floods and Cyclone Gabrielle, and protect New Zealanders from increasingly severe and unpredictable weather events.
Budget 2023 positions the New Zealand economy for a low-emissions, high-wage future with a major investment into our science, digital and horticultural technology sectors.
Budget 2023 lays the foundations for a low-emissions, high-wage economy with a major investment into our digital and technology sectors.
The trustee tax rate will be aligned with the top personal tax rate of 39 percent from April 2024, improving the fairness of the tax system and reducing opportunities for high-income taxpayers to circumvent the top personal tax rate.
The Chris Hipkins Government is boosting investment in New Zealand’s transport network to make it both more resilient to weather events, and climate friendly.
The Chris Hipkins Government is helping ease cost of living pressure on families by providing free fares on buses, trains and ferries for children aged 5 to 12 and half price discounts for all passengers aged 13 to 24 from July 1 2023.
The Chris Hipkins Government is reducing the cost of health care for New Zealand households by removing the $5 co-payment for prescription medicines from July this year.
Budget 2023 invests heavily in early childhood education, making it cheaper, more widely available, and boosting the pay of early childhood teachers.
The economy is set to perform better than it did during the GFC despite the challenging global environment, with Treasury forecasting New Zealand will avoid recession.
Budget 2023 contains a package of cost of living measures targeted at easing the pressure on under the pump New Zealand households.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton
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