A 'let her rip' Budget

In our earlier communication regarding the business planning horizon, we identified the Budget as a key information source. We now know that Budget 2020 will go down as one of the biggest spending budgets in New Zealand history.

It provides for a whopping $50b Response and Recovery Fund, at least some of which will be funded by borrowing – helping to push net core Crown debt to 53.6% of GDP by 2023.

As Finance Minister Grant Robertson notes, even with this increase, New Zealand’s public debt levels would still be “among the lowest in the world” for a developed country and, of the $50b, only $29.8b has been allocated, leaving a little over $20b for a “rolling maul” of future initiatives.

But, even with these qualifiers, this is still a “let her rip” response to a crisis of huge proportions. The economic and fiscal forecasts are spine-tinglingly awful, and the forecast risks are very definitely skewed to the downside. So the Budget digs deep with an emphasis on saving jobs and enabling those who have been displaced by the pandemic to find new employment.

Broad implications for business as you look ahead over the next year

  1. For a lot of businesses and a lot of New Zealanders, the next year is going to be very tough. We need to be making decisions now that are suitable for a material contraction in economic activity over all.
  2. However that picture will also include a lot of change. Governments have learned not to go missing in a recession, and to facilitate new activity. There will be new infrastructure and other employment heavy projects stimulating activity in regions and sectors, and a significant push to help people move into new occupations and new ventures. There will be opportunity.
  3. The Government has held back $20b for the third aspect of its plan: rebuild back better. We have yet to see its hand on this. But the aspiration is to make strategic changes in the economy that speak to economic resilience, transforming our environmental impact, and fairness. And that is a sizable change budget. We will need to engage with this – where does this strategic thinking take your sector, and will your business be ready to take the opportunities when they arise?

The budget at a glance

Among all the big numbers, the allocation of only $3b for infrastructure seems small, especially as the Mark Binns led Infrastructure Industry Reference Group (IIRG) has received $136b worth of “shovel ready” project applications. But Robertson says this is just an initial instalment and that more will be coming.

Other measures:
  • a $4b business support package, of which $3.2b will go toward an eight week extension of the wage subsidy scheme. Other components include an $150m temporary loan scheme to incentivise businesses to continue R&D programmes that would otherwise be at risk because of COVID-19 and $216m to NZTE to support exporters
  • a $1.6b Trades and Apprentices Package to promote trade training and reskilling for New Zealanders of all ages
  • a $5b housing package – designed to create 8,000 new jobs over the next 4 to 5 years
  • a $1b jobs-oriented environmental package, and
  • $400m to develop and launch a Tourism Sector Recovery Plan.

Packages for the arts and for sports will be announced “in the coming days”.

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