15th May, 2020

NZ Budget 2020: Rebuilding in the wake of COVID-19

A year on from its first ‘wellbeing’ Budget, the Government has produced a Budget that aims to offer a lifeline to households, businesses and industry — including support for entrepreneurs.

Last year, the Coalition Government delivered what it dubbed the ‘Wellbeing Budget’, which drew a bit of criticism for what some believed was an overt focus on individual wellbeing while somewhat overlooking business health.

This year, with the economic shocks of COVID-19 and the Government’s lockdown measures just beginning to be felt, Finance Minister Grant Robertson has released a Budget that offers broad-spectrum support for both employers, employees and critical infrastructure.

The centrepiece of this year’s Budget is a $50 billion fund for COVID Response and Recovery, which will be invested in a range of new areas including a targeted wage subsidy extension, training and apprenticeships, infrastructure development, new support for SMEs, and funding for entrepreneurs.

“Today is about jobs. It’s about creating new jobs and it’s about preparing people for new jobs,” said Robertson.

The stimulus measures announced today are forecast to save up to 140,000 jobs over the next two years, and reduce unemployment from its expected peak (9.6 percent forecast for June this year), back to its current rate (4.2 percent) within the next two years.

“We are doing what it takes to cushion the blow, support businesses and workers, and position the economy for recovery. We’re answering calls for significant new investment as we face up this 1-in-100 year global shock and rebuild together,” said Robertson.

“We can do this because we went hard and early with our health response. Due to the amazing work of all five million New Zealanders during lockdown, our economic recovery is getting a head start.”

Budget 2020 at a glance

The new budget reveals a large amount of planned spending in excess of the $50 million COVID-19 response and economic recovery item.

Here’s a breakdown:

  • $50 billion COVID response and economic recovery plan (which includes roughly $15 billion of previously announced stimulus
  • $4 billion business support package, with $3.2 billion going to the wage subsidy extension
  • $3 billion in infrastructure investment
  • $1.4 billion for trades and apprenticeships training
  • $1 billion going towards environmental jobs
  • $3.3 billion in new funding to strengthen core services like health and education

MYOB New Zealand Country Manager, Ingrid Cronin-Knight, said the spending package will provide crucial support to many businesses across a range of sectors, helping them maintain staffing levels and provide greater certainty around their finances and operations for the coming months.

“Around the country, SMEs are preparing for a long winter ahead. As they navigate ongoing restrictions and face falling consumer confidence, having the subsidy extended will provide some breathing room – allowing them to continue trading, look at new opportunities and protect their staff,” said Cronin-Knight.

“SMEs in the tourism industry will also be pleased to see a targeted investment of $400 million, including a domestic marketing campaign, to address the critical needs the sector faces – a positive first step.”

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Good news for struggling SMEs

Small and medium businesses will find they’re provided a lot more support in this year’s Budget than what was presented in 2019, despite the fact that the majority of these initiatives are designed to stimulate the economy in the short term.

Nevertheless, things like extending the Wage Subsidy scheme, investments into trades and apprenticeship training and support for small businesses to get up to speed with e-commerce will all help improve the success rate for NZ’s SME landscape in the coming months and years.

READ: $4bn for business, wage subsidy extended

The eight-year road to surplus

While the full scope of the economic fallout from COVID-19 is only just being felt, the Government has already raised its plans to return the Budget to economic surplus.

It says it’s going to achieve this by ‘going hard’ against the economic impacts of the virus, with ‘a strong balance sheet to cushion the blow for households and businesses’.

The Budget announcement illustrates an economic picture of deficits averaging 9.3 percent of GDP from 2020-2022, which should then reduce to 1.3 percent of GDP by 2024.

“It is then possible that the Government books return to surplus from 2024/25,” said Robertson.

Treasury projections show a deficit of just 0.7 percent of GDP in FY24/25, shrinking to 0.2 percent and 0.1 percent in 2026 and 2027, before a surplus of 0.1 percent in 2028.

“We know from the previous Government’s experience with six years of deficits and a small surplus in the seventh year following the GFC and Canterbury earthquakes, that these projections are sensitive.

“We are targeting a surplus in a similar period of time as we respond to a 1-in-100 year shock.”

But the Government believes the New Zealand economy is well-placed to achieve this, with access to cheap interest rates allowing it to build its stimulus and support funding off the back of a long-term borrowing strategy.

“At its peak, net debt will be 30 percentage points below the average for advanced economies pre-COVID. It is forecast to remain lower than New Zealand’s most recent peak of 54.8 percent of GDP in 1992.

“Governments around the world are responding the same way. Analysts expect Australia’s net debt to also rise to between 50 percent and 60 percent of GDP, while the UK Government forecasts it staying over 90 percent.

“That shows what a good position our economy is in to be able to go hard against COVID-19, position for recovery and rebuild together.”