May 18, 2023

Playing catch-up in the "no frills" budget

And it undeniably lived up to its name

Cyclone and flood recovery, inflation, the cost of borrowing, all the recent talk on New Zealand’s tax system, and an election year – all of this looms over Budget 2023.

These dynamics, pressing in nature but also restrictive, have led to this budget being referred to as the “no frills” budget. It is not flashy or spendy. The operating balance in Budget 2023 is down 20 percent from the year previous – at an average of $4.8 billion per annum.

There is a focus on not adding to inflationary pressure and fuelling the Opposition’s argument. But there is also an immediate need to focus on addressing the severe pressure points in New Zealand. Budget 2023 is an attempt to balance these competing dynamics. In this article, we explore some of the headline initiatives from Budget 2023.

$1.2 billion for early childcare education and $327 million for reduced public transport

Budget 2023 has a clear focus on easing some of the pressure currently on households, as well as maintaining access to and engagement in the workforce for parents. Families in particular will receive some relief. The Government has extended the 20 hours free early childcare education (ECE) subsidy to include two-year olds, as well as making public transport fares free for children aged between five and 12 years old. This extension of the ECE subsidy, however, isn’t in place until March 2024 – not the most immediate relief for households.

Half-price public transport fares will also be in place for individuals aged between 13 and 24 years old. In matching this effort to continue increasing the uptake of public transport, Budget 2023 enables transport authorities to increase wage rates to $30 for urban bus drivers and $28 for rural bus drivers. But do not expect this to instantly solve staffing shortages and inefficiency issues.

$618.6 million over four years to remove prescription co-payments

The Government has announced that they will be scrapping the $5 prescription co-payment for most medicines, historically a barrier to accessing healthcare treatment for some. This will help ensure access to and affordability of healthcare for all New Zealanders and is one of Budget 2023’s main headlines. This will also have indirect implications for the competition between local healthcare providers and larger entities.

Cyclone and flood recovery a pressing need

The unexpected weather events in the upper North Island in early 2023 required an immediate disaster response, and placed further focus on the need to create resilience for the future. The focus on resilience has shaped Budget 2023, with initiatives building on previously announced resourcing, including, to name a few:

  • $609 million for infrastructure investment in affected regions
  • $130 million for business and community support
  • $130 million community protection.

Additionally, a new National Resilience Plan has been announced, with initial funding of $6 billion.

Progress towards improving fairness in the tax system

The structure of New Zealand’s tax system has been under hot debate as of late. The release of the High Wealth Individuals research from Inland Revenue (IRD) stirred plenty of questions and revealed the large difference between the average tax rate of an ordinary New Zealander compared to the super wealthy. Budget 2023 announced one step towards cooling this debate. From April 2024, the trustee tax rate will be aligned with the top personal tax rate of 39 percent. This alignment is already in place in Australia and Canada.

20 percent rebate for video game developers

New Zealand’s gaming sector brought in more than $400 million in revenue in 2022 and is growing significantly. This rebate will be available to game development studios that qualify under the requirements in an attempt to “attract and retain gaming studios to operate in New Zealand”. This rebate brings us closer to matching what Australia is doing, although it is still significantly less than the Australian rebate of 30 percent. Shouldn’t we want to at the least match that, or go beyond, in order to really compete in the international market with attracting gaming studios?

Playing catch-up in the “no frills” budget

Dubbed the “no frills” budget – and it certainly lives up to it – Budget 2023 is far from special. It’s not what you would usually expect from an election-year budget, but the landscape heading into the budget made for competing needs. There was an immediate need to address the cost-of-living crisis and cyclone and flood recovery, while balancing this against the current high cost of borrowing and not adding to inflationary pressure. Although initiatives have good intentions, they seem to lack the reach and immediate relief needed across New Zealand. If anything, it has shown we are playing catch-up to our international counterparts, who have already implemented similar initiatives before us.