Outlook strong but Budget 2021 a missed opportunity

Gross Domestic Product (GDP) growth is expected to increase from 2.9 percent in 2020 to 4.4 percent in 2023. This is an improvement from forecasts in the December 2020 Half Year Economic and Fiscal Update (HYEFU). Unemployment is also looking better than most expected. In December 2020 Treasury was forecasting unemployment to peak at 6.8 percent in 2022, however this is now expected to peak at 5.2 percent in 2021. This will ease the concerns of those who worry about government increasing debt. Government is expecting the deficit to fall from 5.3 percent of GDP in 2022 to 0.6 percent by 2025. Net core crown debt is now expected to peak below 50 percent of GDP, compared to 53 percent expected in December 2020.

Budget 2021 continues the Government’s focus on the recovery from COVID-19. It takes a balanced approach to managing public finances and making the investment necessary to support New Zealand through the ongoing recovery. Like the Minister of Finance’s previous budgets, Budget 2021 continues to focus on addressing Wellbeing. A major focus of Budget 2021 is supporting the vulnerable communities impacted most by COVID-19.

Leading into Budget 2021 we set out our expectations and hopes. This article assesses how Budget 2021 delivers against our expectations and how government investment will promote improved housing, improving education and skills and reducing child poverty.

Housing

Housing has been a major talking point for the past four years. The Budget delivers initiatives that will increase the supply of housing, but arguably does not go far enough to seriously address New Zealand’s growing housing crisis or growing demand for public housing. Given the strong recovery, Budget 2021 presented the opportunity for government to make a push to significantly grow the provided housing stock and address one of New Zealand’s most pressing concerns.

In addition to the $3.8 billion Housing Acceleration Fund announced in March, an additional $380 million investment will be made in Māori housing solutions to deliver 1,000 new homes for Māori and repairs for a further 700. The new homes will be a range of papakainga housing, affordable rentals, transitional housing and owner-occupied homes. To ensure continued growth of Māori housing $30 million of the investment will be allocated to building future capability for iwi and Māori groups to accelerate housing projects and a range of support services.

$350 million of the Housing Acceleration Fund will also be ring fenced to support Māori and iwi providers to advance the building of 1,700 homes for Māori.

Government has delivered on its commitment to improve the quality of New Zealand’s houses through investments that promote and support better living conditions. The Warmer Kiwi Homes programme will be expanded to ensure that more low-income homeowners will benefit from insulation and heating retrofits. Government investment will see 47,700 homes receive significant improvements that will improve health, reduce energy use and emissions. The programme will cover 80 percent of the cost of ceiling and underfloor insulation and/or efficient heating.

Renters also receive support in Budget 2021. Investment of $16 million will increase enforcement of the healthy homes standard with the objective to reduce the negative health impacts of poor-quality homes and improve the lives of vulnerable tenants. Services that support tenants will receive $64 million of investment to maintain tenancy services and dispute resolution, improve tenancy systems and support increasing demand placed in the Tenancy Tribunal.

Education

Education and training have been a focus of the Government’s response to COVID-19 and this continues in Budget 2021. We were looking for training and development opportunities for those most affected by COVID-19, including women and young people, Māori and Pacific and the government has delivered on this. However, we would have liked to have seen this go further.

Vulnerable New Zealanders will be supported to grow skills and improve their education to deliver greater wellbeing over the long term. $127 million will be invested to expand the Training Incentive Allowance to provide 16,000 solo parents, disabled people and carers currently receiving Work and Income benefits to achieve degree level qualifications. However, this extension is currently only available for the next four years. The training inventive allowance is paid on top of the participant’s current benefit.

To encourage and support people to stay in education, support for students will also increase to support them through their studies. Student support rates will increase by $25 per week and extending the temporary hardship fund for learners will enable the most vulnerable New Zealanders to continue their education.

Support for businesses to transition to new technology receives significant investment. Small business will be supported to transition to new technologies with $44 million allocated to digital skills programmes that will provide digital skills training to 60,000 small businesses. Advisory services will also be made available to assess business needs and create bespoke digital business plans for 30,000 small businesses.

Investments in training and skills development to enable New Zealanders and New Zealand businesses to transition to a greener economy are lacking in Budget 2021. This appears to be a missed opportunity for New Zealand to invest in education to become a world leader in green technology to support global action to address climate change.

Child Poverty

We expected Budget 2021 would include initiatives that would improve material standards of living and access to care and support. This has been delivered. All main benefits will be increased to values not seen since before Ruth Richardson’s mother of all budgets 30 years ago. Between 19,000 and 33,000 children are projected to be lifted out of poverty by 2022/23 as a result of the increase to benefit levels.

The budget places a major emphasis on addressing child poverty. To tackle inequality and child poverty main budgets will increase by $32 to $55 per week. All benefits will increase by $20 on 1 July 2021, before a second increase on April 1 2022. This is pleasing to see and will bring benefit rates in line with the recommendations from WEAG. This increase in benefits is the biggest increase in a generation. By 1 April 2022, 109,00 families and whānau with children will be, on average, better off by $40 per week.

This investment will not just improve the lives of those who receive the benefit increase. Lower income households spend a greater proportion of their income. By giving these households more to spend it will flow through New Zealand’s economy.

In addition to increasing benefits, child poverty will be specifically addressed through income thresholds for childcare assistance being adjusted each year to keep up with wage growth. The announcement of indexation of childcare assistance income thresholds to increases in the average wage will see benefits keep up with wages. This will give 1,000 families confidence that they will be able to keep up with increases in the cost of living, without having to wait and hope for future government announcements.

More children living in hardship will be fed through a $527 million extension to the Ka Ora, Ka Ako Healthy School Lunches Programme. As well as providing the necessary meals these children require it will provide the nutrition required for these children to succeed in education, promoting long term wellbeing.

Overall, Budget 2021 addresses the most vulnerable communities and gives them the opportunity to improve wellbeing and live healthier lives. However, it is difficult to shake the feeling that given New Zealand’s strong recovery from COVID-19, the Governments mandate to increase borrowing, being released from the shackles of coalition partners, this has been a missed opportunity to use the historically low borrowing to make significant investments to be transformational.