Budget 2022: Despite red hot economy, big spending Budget delivers higher debt, delayed
Louis and I are just back from the 2022 Budget lock-up inside the Beehive. We’ve spent the day trawling through what is the biggest spend up (in terms of locking in permanent operating spending) we’ve ever seen. As we worked through the 24 Ministerial media releases and the hundreds of pages of Treasury forecasts and appropriations, the word front of mind is ‘overwhelming’.
While households are tightening their belts, Wellington is feasting: Grant Robertson and Jacinda Ardern have not read the room.
New Zealand is in a weird situation where the economy is red hot, but households are hurting. Don’t be fooled by the gimmicks and flashy names for business-as-usual funding politicians want you to focus on. As we find in every year’s budget, the devil is always in the detail.
This update covers what the Government wants you to look at (its key announcements listed below), the economic updates by Treasury officials, and the boondoggles we’ve noticed immediately.
Key Budget 2022 announcements at a glance:
A new temporary “cost of living payment” for people earning up to $70,000 not already eligible to the Winter Energy Payment. The payment is $27 per week per person for three months from August. (This looks to us like a 'last minute' measure by Ministers)
A new Ministry for Disabled People.
26,500 more insulation and heating retrofits for low-income earners.
Two-month extension to the half price public transport scheme.
Two-month extension to the fuel excise duty and Road User Charges cut (which your humble Taxpayers’ Union has been campaigning for!)
The various climate change "Emissions Reduction Plan" measures that were announced on Monday – see the summary on our website.
The Government’s political cover for the cost of living crisis: blame the supermarkets
The Government knows that its measures won’t be enough to paper over the financial pain that middle New Zealand is feeling with the highest inflation in 30 years.
So instead of tackling its spending problem, Grant Robertson has announced “emergency legislation” to tackle the supermarkets.
Tonight, the Government will ram through a new law to remove the ability of supermarket companies to put restrictive covenants over land as a barrier used to stop competition.
We welcome the move, but it does nothing to tackle the real problem pointed to by the Commerce Commission: it’s the Government’s own regulatory taxes – specifically land use and resource management restrictions – that make it virtually impossible for competitors to get started on the scale necessary to compete with the two big operators.
Government is growing quickly as a proportion of the economy (and it's fueling inflation)
If you received David’s email this morning, you’ll know that Mr Robertson had indicated he would increase new spending (the ‘operating allowance’) for ongoing annual spending by $6 billion (or $3,209 per household).
First the good news: Grant Robertson restrained himself by 1.6%, increasing spending by just $5.9 billion.
But this is offset by an increase in next year’s operating allowance from $2.7 billion to $4.5 billion.
Despite the GFC and the Christchurch earthquakes, Bill English averaged new operational spending allowances of just $660 million per year over his time as Finance Minister.
Core Government expenditure now amounts to 35.3% of the total economy. When Jacinda Ardern became Prime Minister, the figure was 27.3%.
A better-than-expected economy means record Government revenues, but Grant Robertson’s pushed back the return to surplus
The economic forecasts are better than they were in December's half-year update. But the Government’s forecast debt will now peak $10 billion higher, and a return to surplus now isn’t expected until 2024/25. This is incredible when economic growth is forecast to hit 4.2% over the next year, and unemployment is forecast to drop from the current 3.2% (which is already the lowest in recorded history) to 3.0%.
Spiking inflation is a short-term windfall gain for the Government coffers – it drives up GST revenue and PAYE and taxpayers are driven into higher tax brackets. Payroll costs for Governments tend to lag behind.
For the first time since the Fiscal Responsibility Act came into force in 1994 a Minister of Finance is projecting a deficit in “an overheated economy”. Despite the record tax take, and one-off COVID expenditure winding down, Budget 2022 forecasts a deficit of $6.6 billion.
Put another way, Grant Robertson will borrow $3,528 for every Kiwi household to pay for non-capital spending (i.e. he's still borrowing for day-to-day expenses) over the next 12 months.
So where is all this money going?
Louis was with me listing the big, the mad, and the interesting spending items that jumped out:
Grant’s headline Budget sweeteners
First, a victory for the Taxpayers’ Union: fuel tax and road user charge relief has been extended by another two months, expected to save motorists another $235 million (or $124 per household). This is matched by an extension of half price fares for public transport.
The next big sweetener is a bit of a fizzer: New Zealanders who are not eligible for the Winter Energy Payment and who are earning less than $70,000 will receive a temporary $27-per week “cost of living payment”, for the three months from August.
As for tax relief: except for two months at the pump, Budget 2022 delivers nothing to lighten the load. We say this is borderline criminal considering the way inflation has stealthily pushed New Zealanders into paying higher rates of income tax, even when we’re no better off. (We'll have a lot more to say on this next week!)
As is usual in a Budget, the bulk of the paperwork dumped on our table covered a laundry list of spending announcements across almost every area of government. This year's barrage of spending items is almost overwhelming. What follows is a non-comprehensive list (note some spending is spread across multiple years):
$100m for a new “Business Growth Fund” to invest in small-medium businesses that banks aren’t willing to lend to – i.e. taxpayer funding for Dragon’s Den dropouts. Government representatives of the Fund will even get seats on SME the company boards!
$118m in “advisory services” for farmers and Maori land owners
$40m on “Transformation Plans” for forestry, wood processing, food and fisheries businesses
$350m “Affordable Housing Fund” for housing developers
$15.5m for “Pacific economic development” (i.e. funding for Pasifika-run businesses in New Zealand)
An extra $26m (now $155m in total) for “Progressive Procurement” – i.e. favouring Maori-owned businesses as government contractors
$349m for a Kiwirail bailout
An extra $3.1 billion (one-off) for the new co-governed health system ($1.8 billion of this disappears immediately: it wipes off existing DHB debt)
$580m for “Maori Health and wellbeing” including $188m for the new Maori Health Authority
$20m establishing new “Iwi-Maori Partnership Boards” (i.e. introducing co-governance to the new health system)
$70m for Pasifika health providers
$185m in arts and culture grants “to help build a resilient cultural sector as it continues to adapt to the challenges coming out of COVID-19”
$327m in funding for the new RNZ/TVNZ merged media entity
A $1 billion “Maori Budget” including: $91m on Maori trades, training, and cadetships, $3m for “marae connectivity”, $5m for iwi/Maori teachers
$200m for Maori education
$28m for Maori “language, culture and identity”
$162m for Maori organisations to reduce emissions, including $36m for “matauranga [traditional knowledge]-based approaches to reducing biological emissions” and $30m for “Maori Climate Action”
$38m for Pasifika training, education, and bilingual schooling
$14m for an "historical account of the Dawn Raids"
$2 billion in extra spending on education (to smooth over the end of the decile system)
$662m for Defence
More Police ($562m), initiatives focused on organise crime ($94m), and on reoffending ($198m)
$100m establishing a new “Ministry for Disabled People” ($100m) – of which only $11m is allocated to providing services
$178m for councils dealing with RMA reform, plus a new “National Maori Entity” to co-govern resource management
$40m to research RNA vaccine technology
$114m on family violence initiatives
More taxpayer money pumped into the housing market via more generous First Home Grant and First Home Loan rules
Some of this spending is uncontroversial. A lot of it is mad. But what really hit me was the share scale: spending items costing tens of millions were treated like minor bulletpoints by Ministers.
And New Zealanders didn't want it!
New Zealanders weren’t even asking for this new spending. You may have heard Newstalk ZB cover our recent poll revealing that, by a margin of four to one, New Zealanders did not want to see increased spending in the Budget.
In other words, Kiwi households taking prudent financial measures in the face of a cost of living crisis hoped to see the Government doing the same, but were instead delivered a classic Labour-style spend-up, but on steroids.
You can read for yourself the full Budget 2022 material that just went online at www.budget.govt.nz. You can also read our initial commentary to the media below.
In a few moments, I’ll be sitting down with economist Cameron Bagrie, who was also in the Budget Lock Up. We’ll be recording a special edition of Taxpayer Talk streamed live to our Facebook page.
As is usual, our team will spend the next few weeks trawling through the detail and will no doubt uncover far more boondoggles and examples of questionable spending to hold to account those who spend your taxpayer money.
Thank you for your support.
New Zealand Taxpayers’ Union