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But government books show how only $ 44 billion in funding decisions have been made, while $ 14 billion has been left unallocated for a rainy day. That means the government has spent $ 4 billion less than expected.
The Treasury expects the $ 14 billion of unallocated money to be spent and the Government is planning to save it in the event of another COVID-19 outbreak, while the National Party promises to spend it on infrastructure if elected.
This is not to say that New Zealand is on an easy path. The Treasury expects the unemployment rate to peak at 7.8 percent in the next two years, yet that’s lower than the 9.8 percent peak predicted in the Budget.
Finance Minister Grant Robertson said the 7.8 percent figure is worrying. In the next two years, the subsidy queue will increase to 279,000 people. But Robertson said that is why the government has invested in making vocational training and apprenticeships free.
Unemployment unexpectedly fell from 4.2 percent in March to 4 percent in June, which was partly due to the measurement challenges that Stats NZ encountered during the lockdown.
However, financial support measures are also expected to have played an important role in supporting household income, particularly the wage subsidy scheme that has distributed around $ 13 billion so far.
The government is bracing for the “further deterioration” of its finances next year, as tax revenues plummet and the impact of the government’s multi-billion dollar financial support for Kiwis takes full effect.
But the Treasury expects the border restrictions to be lifted on January 1, 2022, and by that time economic activity will recover, resulting in an increase in tax revenue that will cause a deficit reduction of $ 31.7 billion. in 2020/21 to $ 12.4 billion by 2023/24. .
Robertson said that the Treasury’s expectation that border restrictions will be lifted in 2022 is not what the government is following due to the unpredictability of COVID-19.
“Policies like wage subsidy, business tax refunds and small business cash flow loans protected jobs and kept businesses running,” said Robertson. “Taking on debt to finance this response is the right thing to do in our fight against COVID-19.”
How much debt do we have?
The government calculates debt by comparing what it owes to what it produces, or its gross domestic product (GDP). The Crown’s net underlying debt to GDP was 27.6 percent as of June 30, down from the 30.2 percent forecast in the May budget.
The Crown’s net debt is expected to reach 55.3 percent by 2023/24, down from 53.6 percent that had been forecast. However, it is still much lower than that of other advanced countries facing net debt averaging 80 percent of GDP.
In the 2019/20 financial year, the government posted a deficit of $ 23.4 billion, while net debt increased by $ 25.7 billion to reach $ 83.4 billion. The deficit is expected to worsen to $ 31.7 billion in 2020/21 and then start to recover.
The Treasury expects GDP to fall 16 percent in the June 2020 quarter, described as a “historically large decline”, but less than the 24 percent forecast in the Budget.
The 16 percent drop compares with Kiwibank’s prediction of a 12.5 percent drop for the quarter, ASB’s 11 percent prediction and NZIER’s expected 10.5 percent drop.
How will this affect the home?
The housing market has been more resilient than expected during the COVID-19 crash, but border restrictions are likely to limit migration to New Zealand in the short term and lead to lower demand for housing.
Because of that, the Treasury is forecasting a period of weaker home prices for the year through June 2021, with prices expected to fall 5.1 percent from their March 2020 levels.
