It’s a tax, borrow and spend Budget!

Date: 23 May 2023

Spending has blown-out to $137 billion this year. After shuffling the books and “reprioritising” items the Labour Government  announced with great fanfare last year and did not get round to the business of actually spending the money the  Budget added more than $5 billion in additional spending in the year to June 2024, compared to predictions in the half-year update.

The biggest effect of the budget could be an increase in interest rates above they might otherwise have been. 

According to Infometrics chief forecaster Gareth Kiernan “it was likely to weigh on the Reserve Bank’s mind when it made an official cash rate (OCR) decision next week. The rate is currently at 5.25% but is expected to increase.” Flooting mortgage rates are already above 8% and the lack of budgetary restraint may hit 9%.

An additional issuance of $20b of bonds issued over the next four years will see net debt at $95.3b by 2025/26 compared to $5.4b in 2019. To add to the picture of economic gloom by the reckoning of the OECD we have the worst balance of payments (over $30 billion) figures of the 43 members.

Inflation is at 6.7 percent. With $90 billion of borrowing and spending it is no surprise we have high inflation

The OCR has risen from 0.25 percent in August 2021 to the current rate of 5.25 percent as the Reserve Bank tries to bring spiralling inflation under control.

ASB economists are now picking a rise of 50 basis points to the official cash rate this week, and possibly a further 25bp hike in July - peaking at about 6 percent. The bank was previously picking a 5.5 percent peak in 2023.

However, Brad Olsen, principal economist at Infometrics, says the Budget creates an extra $20 billion hole compared to earlier forecasts, with the Government saying it expects to spend $9.4b more over the next four years and earn $10.7b less.

What the spending was actually on will please a narrow section of the voting population. Making childcare cheaper for 2-year-olds costs $600 million over the next few years will be a boon to the (small) affected population but will not impress those who see their mortgages interest rate going up to 9%.

The prescription charges removal will likewise please the recipients to the tune of millions in public cost but will not impress those facing food inflation over 10% at the supermarket checkouts.

Likewise cheaper bus fares for children will be welcomed by those who pay to use a less than efficient public transport serve but it’s a drop in the bucket compared to the costs facing households from a rising tide of prices on a broader front.

There is more debt, much more debt, and the Government has to go to the bond market for billions more - in total $120 billion.

Deficits are worse than forecast. We're $7 billion in the red this year, $7.6 billion next year. If they are lucky, they might see a surplus by 2026.

The farmers and business got absolutely nothing in the budget. Well business got a smidgen in tax rebates to protect the gaming industry from higher subsidies in Australia, a bucketful to rescue the Early Childhood Education sector and a serious amount to rescue the independent pharmacies from the inroads of discount chemists.

The most important feature of the budget was the division of spending tranches by race. The phrase, “Māori got $850 million in the budget.” This is the first budget in history where a separate section of the ruling party caucus got separate spending items which depended on the race of the recipients. Separatism has arrived in the budget.  

To add to the identity politics flavour of Budget 2023 it included for the first time a gender budgeting “snapshot. If you have a government based on the politics of identity you get a budget infused with identity spending.

Some comments on the budget should send a chill into the rural sector.

This from the Greenpeace. It is a sentiment well amplified by the Greens. If there is a Labour Greens Māori Party government after the election this will be gospel.

“The intensive dairy industry, led by Fonterra, is New Zealand’s worst climate polluter. Changing the way that we farm is a necessity, and the Government had a golden opportunity to fund the transition from intensive dairy to ecological, low-emissions farming - but it has not delivered.”

Christine Rose Greenpeace

It’s a tax, borrow and spend Budget!