Industry Representatives React to Budget 2023
The government has recently unveiled its budget for the year, which has been praised as a straightforward approach to addressing the cost of living. With a total allocation of $2.6 billion, measures have been introduced to provide relief to the public.
Key areas of focus in the budget include infrastructure and resilience, cyclone recovery, and the healthcare workforce. The government has set aside $77 billion for infrastructure, $1 billion for cyclone recovery, and an additional $1 billion for the healthcare sector, which includes the recruitment of 500 nurses.
Finance Minister Grant Robertson described Budget 2023 as a plan that supports the present while building for the future. He acknowledged the economic challenges posed by global uncertainties, high inflation, the lingering effects of COVID-19, and the impact of climate change through extreme weather events.
Addressing the issue of the cost of living was a major priority for this budget, and Robertson emphasized that it has been tackled in a targeted and responsible manner. The relief measures include extending the 20 hours of Early Childhood Education (ECE) to two-year-olds, eliminating the $5 prescription co-payment, providing free public transport for children under 13, introducing KiwiSaver contributions for paid parental leave, and expanding the Warmer Kiwi Homes Programme to reduce power bills.
Richard Klipin, CEO of the Financial Services Council, commended the government for finding a balance between easing the financial burden on New Zealand households and avoiding additional inflationary pressures. Klipin acknowledged the government's effective management of the budget, which is a challenging task.
Treasury forecasts indicate that unemployment, currently at 3.4%, is expected to rise to 5.3% by the end of 2024. Inflation, which stood at 6.7% in the year leading up to March 2023, is projected to drop below 4% by the beginning of 2024 due to weakened demand. GDP growth is anticipated to decline to 1% in the year ending June 2024, with an average growth rate of 2.7% thereafter.
However, Klipin noted that these projections are subject to change. With an election approaching, the government has intentionally reserved resources for various potential promises.
From a property perspective, CoreLogic property economist Kelvin Davidson stated that Budget 2023 has a relatively neutral impact. The allocation of $3.1 billion toward 3,000 new public housing units could support the construction sector, which is expected to slow down in the coming years. The $71 billion earmarked for infrastructure spending over the next five years is crucial for expanding housing stock to accommodate future population growth.
Regarding Treasury's inflation forecast, which predicts a return to 2% by March 2026, Satish Ranchhod, senior economist of financial markets at Westpac, expressed skepticism. Ranchhod believed that achieving such levels of inflation would require the Reserve Bank to continue raising the cash rate, potentially to 6%, rather than the 5.5% currently indicated. He cautioned that higher interest rates could challenge Treasury's economic growth projections for the next few years.
Ranchhod agreed with Treasury's assessment that a recession is unlikely to occur this year due to a significant increase in population growth. However, he noted that this growth masks the challenges faced by many households, as per capita household spending is expected to decline.
Regarding Treasury's forecast that net debt will peak at 22% of GDP in the year ending June 30, 2024, Ranchhod expressed concern that the projection did not account for the anticipated rise in population growth. Westpac believes that there is further growth to come based on current trends, and this increased population pressure may impact government spending projections.