New Zealand government forecasts narrower budget deficit for FY22

New Zealand's government on Thursday increased income support and promised significant investment in the health sector while forecasting that returning the budget to surplus would take longer than previously forecast.

The deficit for the current financial year, ending on June 30, will be narrower than previously forecast.

Heavy spending was targeted towards infrastructure, including new schools, and defence, while funds were also allocated to ease the impact of global inflation on New Zealanders.

The highlight was billions of New Zealand dollars in new funding for the country’s health system, which will, among other things, see more funding for drugs and infrastructure.

"As the pandemic subsides, other challenges both long-term and more immediate, have come to the fore. This Budget responds to those challenges," Prime Minister Jacinda Ardern said in a statement.

"COVID-19, climate change and the war in Ukraine have taught us we need to build a more secure economy that protects New Zealand households from the external shocks we know are coming," she added. 

Ardern was not at the release of the budget as she currently has COVID.

THE BOOKS

The government predicted a budget deficit of NZ$18.978 billion ($11.97 billion) for 2021/22, narrower than a deficit of NZ$20.844 billion forecast in a half-year fiscal update in December. However, the government now expects the budget to surplus in 2024/25, a year later that previously forecast.

Net debt under an old method of calculation was forecast to peak at 41.2% of gross domestic product (GDP) in 2023/24, compared with the December forecast for a peak in 2022/23 at 40.1% of GDP.

Under a new calculation method, introduced to bring the measure more in line with international norms, net debt for 2022/23 will be 31.8% of GDP.

INFLATION

With New Zealand facing its fastest inflation in three decades, the government moved to provide support for households.

It has extended subsidies on petrol and public transport and will extend supplementary payments to middle-income families not already receiving support.

"While we know the current storm will pass, it's important we do what we can to take the hard edges of it," said Ardern.

Along with the funding, Robertson announced new legislation that would remove land covenants that currently allow existing supermarkets to prevent competitors from building nearby. It is hoped this will make the sector - currently dominated by two companies - more competitive.

SECURITY

Defence spending will rise over the next five years.

Government documents show the defence establishment will spend NZ$5.9 billion on new equipment in the five years beginning 2021/22, up more than 40% on an earlier outlook.

Minister of Defence Peeni Henare said in a statement that the defence force would receive an additional NZ$662.5 million to maintain existing defence capabilities and more money to boost salaries of lower-paid staff in the defence force.

"What we are funding today is the regeneration and strengthening of our Defence Force," said Henare.

($1 = 1.5858 New Zealand dollars)

(Reporting by Lucy Craymer; Editing by Jacqueline Wong and Bradley Perrett)