New Zealand plans to spend NZ $ 1 billion to relieve inflation pain

ryanniesMay 19, 2022

Bloomberg News

Tracy Wizards

Tracy Wizards

(Bloomberg) —

New Zealand spends more than NZ $ 1 billion ($ 630 million) to help low- and middle-income households cope with rising inflation.

Treasury Minister Grant Robertson said in an annual budget announced Thursday in Wellington that the government would pay NZ $ 27 a week to about 2.1 million people for three months starting August 1. Fuel tax cuts to offset soaring gasoline costs will be extended by two months, similar to half-price public transport.

Robertson was under pressure to respond to what the opposition called the “living cost crisis” as rising consumer prices have pushed inflation the fastest in more than 30 years. Temporary fiscal stimulus will occur at the same time that reserve banks aggressively raise interest rates to curb inflation.

“Budget 2022 is being provided against the backdrop of a surge in global inflation, and existing supply chain pressure is exacerbated by pressure on oil prices from the war in Ukraine,” Robertson said. increase. His cost of living package “will help New Zealanders survive the peak of the global inflation storm,” he said.

The Treasury predicts that inflation will gradually slow from 6.9% today to 5.2% by June 2023 and 3.6% a year later. Until early 2025, inflation will not return to RBNZ’s 1-3% target range.

supermarket

The government will also seek to intensify competition in the supermarket sector to lower food prices. To allow new entry into the market, we plan to introduce an emergency law later on Thursday that prohibits supermarkets from signing contracts on sites that rivals may want to build.

Robertson said the overall budget is a “careful balance” between the restraint of spending that can help inflation and the investment that the economy needs.

Fiscal impulse financial indicators show that government spending provided a stimulus equivalent to 4% of GDP this year. Spending will shrink from next year, but the year to June 2023 will have far less pressure on economic activity than predicted by the December semi-annual update.

Mark Smith, Senior Economist at ASB Bank in Auckland, said: “The impact of the government sector on OCR settings also depends on how effectively implementing the government’s policy agenda can help ease capacity constraints.”

Living expenses are estimated at NZ $ 814 million and are intended for people with an annual income of less than NZ $ 70,000. Pensioners and those with income support are excluded because they are already eligible for winter energy payments. Extending the fuel tax cut will cost an additional NZ $ 235 million.

Living expenses are in line with new spending on health, climate change, and an ongoing pandemic response totaling NZ $ 9.6 billion over the year to June 2023. As a result, next year’s budget shortfall will increase to NZ $ 6.63 billion in comparison. To NZ $ 833 million expected in December.

Increased future spending means that the budget will not return to the black until 2024-25, a year behind previous forecasts.

Increasing income helps absorb some of the spending pressure. Taxes are projected to improve by NZ $ 2.3 billion between 2022 and 23, supported by economic activity, wage growth and corporate profitability.

The Ministry of Finance predicts that the average annual economic growth rate for the year to June 2023 will improve to 4.2%.

“The tightening of credit in the housing market and the resulting chill will have a negative impact on debt-bearing households and homeowners, putting downward pressure on consumer spending,” the Treasury said. “In addition to the impact of rising interest rates, actual government spending is projected to decline as spending associated with Covid-19 disappears.”

New Zealand’s tough labor market is expected to continue in the short term, with annual nominal wage growth expected to exceed 6 in 2023. However, as the economy cools, the unemployment rate is expected to rise and wage growth is expected to slow.

Robertson’s major policy announcement was NZ $ 11.1 billion in health spending over four years. The government is reforming the sector and will spend NZ $ 3.6 billion over the next two years to clean up the accumulated debt within the existing 20 district health committees. More investment is allocated for more services, better wages and new treatments.

The government will also outline new NZ $ 4.7 billion projects, including hospitals, schools and railroads, and continue to invest in infrastructure.

Bloomberg.com