Highlights and lowlights of Budget 2022

It seeks to build on the progress made in Budget 2021, and to deliver on the Government’s three goals for this term: 

• Continuing to keep New Zealanders safe from COVID-19
• Accelerating the rebuild and recovery from the impacts of COVID-19
• Laying the foundations for the future, including addressing key issues, such as climate change, housing affordability, and child poverty. 

To do this, Budget 2022 will see $5.9 billion invested in new net operating expenditure, while introducing multi-year funding packages that will continue through Budget 2023 and Budget 2024. 

Budget 2022 delivered on many of the initiatives signalled in the December 2021 Budget Policy statement. However, the Minister of Finance held back the biggest surprise until budget day with the announcement of a range of temporary measures to help New Zealanders with the growing cost of living.

This article highlights what we liked and disliked from Budget 2022.

Like – Payments and savings to reduce the cost of living.

A cost of living package will be introduced to ease the pressure for people earning under $70,000 per year. 2.1 million New Zealanders over 18 years old will receive an additional $350 over three months, the equivalent of $27 per week. The total cost of this package will be $814 million. This is in addition to a two month extension of the current Road User Changes (RUC) and Fuel Excise Duty (FED) reductions, which will save households $235 million, and half price public transport fares. These measures will temporarily reduce the pressure many households are facing from rising costs, and will ease some of the difficult decisions many households are making. However, it will not be the silver bullet that eases the long-term pressures this period of high inflation is putting on households. 

Dislike – The cost of living payments are short term fixes that will shock when they end.

While the cost of living payments and lower transport costs will be welcomed by many, Treasury forecasts that inflation will remain above the three percent upper band of the Reserve Bank target until 2024. While these measures will help people in the short-term, it is unlikely the pressure will be letting off in three months, as inflation and increasing interest rates continue to squeeze household budgets. The end of the cost of living payment, and the increase in transport costs when FED and RUC are increased again, will hit households once more. Not making the public transport fare decreases permanent also looks like a missed opportunity to embed a mode shift to public transport, and reduce emissions.

Like – The actions taken to address climate change.

Although the Government’s Emissions Reduction Plan failed to live up to the expectations of many, Budget 2022 sees the first investments from the Climate Emergency Response Fund (CERF). The Government will invest $2.9 billion from the CERF to tackle climate change and create a more secure economy, by focussing on immediate decarbonisation and energy security. For more on the Government’s investment to combat climate change see this article.

Like - The extension of the Warmer Kiwi Homes programme.

Extending the programme for an additional year is a positive step toward reducing the 20 percent of total emissions that come from New Zealand’s built environment, and toward improving the health and wellbeing of those living in cold, damp homes. The $73 million extension to the programme will provide for 26,500 insulation and heating retrofits.

Dislike – The extension of Warmer Kiwi Homes does not go far enough.

The Warmer Kiwi Homes programme is targeted at low-income households. However, New Zealand’s spiralling house prices and rising interest rates are going to burden many middle-income homeowners. The failure to extend the programme further represents a missed opportunity to include more households, to take an important step towards improving the quality of more homes, and to reduce the energy required to keep these houses warm and dry.

Like - Record funding boost for Health and multi-year funding.

Any investment to improve the quality and standard of health care is welcomed after two years of ongoing strain on our health systems. Budget 2022 continues the Government’s investment to reform the health system. The new multi-year funding model is intended to improve long-term planning and investment in the sector. Budget 2022 includes $11.1 billion total operating investment, before moving to a three year cycle in 2024. $1.8 billion will be invested in 2022 and a further $1.3 billion in 2023. The 2022 investment “clears the financial deck” to prove a clean start and clear the $550 million of deficits incurred by DHBs in 2021/22.

Significant health investments include: 

• $488 million investment in primary and community care to roll out local models of care tailored to the populations they serve and develop the capacity and capability of Māori and Pacific healthcare providers.
• $299 million support for Māori health services to enhance rangatiratanga for Māori in the health system, including additional funding.
• $191 million increase in the PHARMAC budget to ensure continued access to medications during a period of global inflation and continued pressures on supply chains.
• $202 million for mental health and addiction services.

Like - Upgrading and improving infrastructure.

In previous Budgets, we have criticised the Government for underinvesting in crucial infrastructure. This underinvestment has started to be addressed in Budget 2022. Treasury forecasts $61.9 billion will be invested in the next five years across housing, transport, health, education, and other areas. In Budget 2022, $349 million will be invested to modernise and replace rail assets, and further funding will be made available to progress the delivery of Auckland light rail. If New Zealand is to achieve its emissions targets, rail will play an important role in reducing New Zealand’s rate of truck use for long distance freight transport. 

In addition to the investment to modernise the health system, $1.3 billion investment will be made in health infrastructure, with a focus on Whangārei, Nelson, and Hillmorton Hospitals. Education infrastructure will also be developed with $385 million of capital investment and $50 million of operational expenditure for building and improving classrooms. 

Like – Growing skills to deliver infrastructure.

With new additional infrastructure commitments to honour on top of the committed infrastructure from earlier Budgets that have failed to be delivered, growing the skills of the construction and infrastructure workforce is essential. In his pre-Budget speech to Business New Zealand, the Minister of Finance identified that “the biggest economic constraint we face – but also the biggest economic solution – is workforce. Getting the right skills for the right job.”

A $230 million investment will provide for another 24,000 apprentices getting Apprenticeship Boost support and some 14,000 to keep being supported beyond August this year. The first-year subsidy rate will be lowered to $500 per month from 5 August 2022. The second-year subsidy rate will remain at $500 per month, until the initiative ends in December 2023. The commitment to growing skills looks relatively insignificant alongside the other measures.

Like – Investment in early child education.

For many parents, working from home while trying to look after young children during the COVID-19 lockdowns highlighted the value of early childhood education and care. The $256 million in operating funding over four years builds on the $170 million invested through Budget 2021. This will provide for pay parity in early learning, between qualified, certified teachers in education and care services and kindergarten teachers.

Dislike – Education operational funding fails to keep pace with inflation.

The 2.75 percent increase to funding rates in early learning services and schools operational grants fails to keep pace with inflation.

Overall, the announcement of the temporary cost of living initiatives made for a more interesting Budget day announcement than the last two Budgets. However, it remains a transitional Budget that addresses immediate cost of living concerns and shores up core services, while keeping the Government’s financial position strong for an election year Budget in 2023. But it again fails to deliver the significant aspirational changes many had hoped for.

More analysis will follow in the coming days as BERL analysts work through the Budget documents and BERL Chief Economist Hillmarè Schulze will be joining a webinar with the New Zealand Green Building Council at 12pm on Friday to discuss Budget 2022.