Budget 2022 delivers big spend on health reform and climate change
20 May 2022
Yesterday, Grant Robertson delivered the Government’s Budget for 2022. As foreshadowed, much of the budget’s focus is on reforming the health system and tackling climate change. However, there were also cost of living packages and measures to support business.
Cost of Living package
In total, $1 billion has been set aside to help low- and middle-income households deal with increasing costs of living. The headline policy is a $350 cost of living payment to be paid in three monthly instalments to individuals who earned less than $70,000 in the 2022 tax year and are not eligible for the Winter Energy Payment. Also announced were a further two-month extension to the reduction in fuel excise duties and road user charges, and the half price public transport scheme.
Business growth measures
About $750 million has been budgeted for several measures intended to assist businesses to innovate and grow. Nearly half of this is tagged for topping up and extending the Apprenticeship Boost Initiative, Mana in Mahi and Māori Trades and Training Fund to help businesses take on apprentices. There is funding for supporting business innovation and Industry Transformation Plans, and a regional business support and tourism fund.
$100 million has been set aside for a Business Growth Fund. This fund is intended to be a partnership between Government and banks to provide access to capital for small- to medium-sized businesses. The capital will be provided by way of a minority equity interest in the business with the fund being able to appoint a director to the business’ board.
Further from the headlines are a few budget lines that will be of interest to business. These include additional funding for:
Fair Payment Agreements (FPAs) to allow up to six FPAs a year to be negotiated; previous funding had only allowed for four.
Employment Relations Authority to fix FPA terms if there is no employer side to the bargaining process.
Accident Compensation Corporation to continue work on the development of the Income Insurance Scheme which will see employers and employees levied to fund income replacement cover for people made redundant or who are incapacitated by a health condition or disability.
Implementation of new health and safety regulations concerning plant and structures which signals additional health and safety compliance costs for businesses.
Health reform and climate response
The funds budgeted for the cost of living packages and business growth measures pale in comparison to the $12.8 billion committed to reforming the health sector and the $2.8 billion set aside for climate change measures.
Most of the spend on the health system ($11.1 billion) will be spent replacing the existing District Health Boards with a centralised health authority and improving the health system. There is also $1.3 billion for health infrastructure (including new hospitals for Nelson and Whangarei), $200 million for supporting mental wellbeing and an extra $191 million for PHARMAC to make more medicines available to New Zealanders.
Budget 2022 highlights that:
New Zealand is one of only twelve countries with at least two Triple-A credit ratings.
Real GDP in the year ended December 2021 grew 5.6%.
Unemployment is at a record low 3.2%.
In addition, the government is forecasting a return to a budget surplus in 2024-25, following five years of budget deficits, and that net government debt will remain below that of other countries to which the government is comparing us.
Given less prominence is the $6.6 billion deficit for the current year and that net government debt as a percentage of GDP is forecast to continue to grow over the next few years. The government is forecasting the economy to grow by 4.2% over the next year but fall back to 0.7% growth the following year before slowly rising back to 2.5% growth in the 2025-26 year. The robust growth in the current year is expected to be driven by the reopening of the border, improved terms of trade and strong investment. Unemployment is expected to slowly climb and peak at 4.8% in the 2024-25 year.
Treasury noted that the economy is experiencing high inflation driven by strong domestic demand pushing up against constrained supply due to disruption to global supply chains caused by the COVID-19 pandemic and the Russian invasion of Ukraine. The Reserve Bank increasing interest rates to combat that inflation is expected to contribute to the slowing of economic growth in future years. Treasury’s forecasts assume that inflation will ease in the medium-term. However, if inflationary pressures prove more persistent this will have a downside impact on the Treasury’s forecasts.
Overall, this is a weaker economic outlook than presented in the December 2021 economic and fiscal forecasts.
Check out the full coverage from Budget 2022, which will continue to develop throughout the day as new insights and video content are published.