On Thursday, New Zealand announced a budget deficit that was worse than expected due to tax cuts, a slowing economy, and rising inflation. As a result, the ruling Labor government has been forced to increase spending on rebuilding infrastructure following severe weather events earlier in the year. Additionally, the government has announced a new initiative to help those in need. Treasury Secretary Grant Robertson explained that the focus of the budget was on relieving pressure on the cost of living, delivering public services, and making the economy more resilient. The government has minimized new spending and cut expenses in order to maintain financial sustainability.
The country is expected to record a deficit of NZD 6.96 billion in the year to June 2023, which is worse than the previous forecast of a deficit of NZD 3.63 billion. The bond program will also increase total issuance by NZD 20 billion to NZD 128 billion over the four years to June 2027. However, the Treasury no longer expects the country to plunge into recession in the second half of this year due to increased cyclone reconstruction and the expected reopening of borders. The Treasury Department also expects inflation to slow to 3.3% by mid-2024 from the current pace of 6.7%.
The decrease in tax revenue accompanying the national economy was a major contributor to the deterioration in financial results. Additionally, two severe weather events earlier in the year resulted in estimated losses of NZ$9 billion and NZ$14.5 billion, further straining finances. In response, the government has announced a NZ$6 billion infrastructure fund to help rebuild costs and finance new and more resilient infrastructure. Robertson emphasized that there is not a lot of discretionary spending in this budget.
Overall, the budget presents a challenge for the ruling Labor government ahead of close elections in October. However, the government remains focused on addressing key issues such as the cost of living, public services, and the economy’s resilience.