Investing.com - New Zealand recently revealed that its budget deficit is greater than anticipated due to reduced tax revenue, increased inflation, and a decelerating economy. This has prompted the governing Labour Party to minimize new spending and expand its bond programme. Finance Minister Grant Robertson presented his final budget before the tightly contested election in October, allocating billions for infrastructure reconstruction following extreme weather events earlier this year along with several initiatives aimed at assisting individuals grappling with rising costs.
Robertson emphasized the government's focus on alleviating cost of living pressures, delivering public services, recovering from cyclone damage, and enhancing economic resilience. However, he also acknowledged that maintaining high levels of spending as seen in previous budgets would be fiscally unsustainable.
The country's financial situation has deteriorated since last December; it is now expected to post a NZ$6.96 billion deficit for the fiscal year ending June 2023 compared to an earlier prediction of NZ$3.63 billion. Surpluses are not expected until 2025-26 – one year later than previously projected.
To address this shortfall, New Zealand raised its bond programme by NZ$20 billion over four years through June 2027 – reaching a total of NZ$128 billion. On a more positive note, Treasury no longer anticipates an impending recession during H2 2021 thanks to cyclone rebuilding efforts stimulating activity and returning tourists after border reopening.
Inflation is predicted to decrease from its current rate of 6.7% down to around 3.3% by mid-2024 according to Treasury projections. A major contributor towards these unfavorable financial conditions is declining tax revenues as New Zealand's economy loses momentum.
Compounding financial strains were two significant weather events earlier this year, which resulted in estimated damages of NZ$9 billion and NZ$14.5 billion respectively. To address these challenges, the government announced a NZ$6 billion infrastructure fund aimed at covering rebuild costs while investing in more resilient long-term infrastructure.
Robertson reiterated that there is limited discretionary spending available within this budget, reflecting the ongoing economic challenges faced by New Zealand.