The New Zealand government believes it can keep the unemployment rate in single digits through the COVID-19 crisis, unveiling a budget that will see debt and spending soar as it fights to keep Kiwis in jobs.
Grant Robertson handed down his third budget as New Zealand’s Finance Minister on Thursday, with a centrepiece $NZ50 billion ($A46.9 billion) COVID-19 Response and Recovery Fund but no surplus in sight.
Gone is New Zealand’s historically low unemployment, with Treasury forecasting joblessness to peak at 9.8 per cent later this year.
Gone too is New Zealand’s above OECD average GDP growth, decade-high wage growth and healthy fiscal balance.
The headline figures, though understandable in the wake of the pandemic, are historically shocking.
The Kiwi economy is projected to contract by $NZ9 billion or 4.6 per cent this year.
The budget surplus has been obliterated, with a deficit of $NZ28.3 billion ($A26.56 billion) this year and similar amounts forecast in 2021 and 2022.
Government debt will balloon beyond $NZ100 billion by 2021, hitting $NZ200 billion by 2024.
Debt is already at 30 per cent of GDP, peaking at 54 per cent in 2023 before stabilising.
Mr Robertson said the one-in-one-hundred year shock necessitated the unprecedented spend.
“This is the most significant financial commitment by a New Zealand government in modern history, but it is the appropriate response to the most significant challenge our country has faced in modern history,” he said.
“I am not a fan of austerity.
“We will get through this by investing in people, in businesses and supporting our communities.
“The way that we are going to deal with the significant global downturn is one that throws back to the first Labour government rather than some of the more recent Labour governments and National governments.”
The new $NZ50 billion recovery fund comes on top of an initial $NZ12.1 billion stimulus provided in mid-March and a bumper $NZ12 billion ‘New Zealand Upgrade’ infrastructure spend in January.
The government has already assigned $NZ13.9 billion of the recovery fund on wage subsidies, business tax relief and sector-specific support.
Another $NZ15.9 billion is allocated in the 2020 budget, including an extension of wage subsidies to the hardest-hit.
“We have been successful in our initial response to COVID-19. Budget 2020 now lays our framework for our recovery,” Mr Robertson said.
“We think 140,000 jobs will be saved by the packages we’ve unveiled today.
“This is the rainy day, we’ve put the umbrella up.”
Around $NZ20 billion is left up the government’s sleeve from the $NZ50 billion recovery fund.
With an election around the corner on September 19, Mr Robertson pledged not to spend it as a pre-election slush fund.
“I wouldn’t characterise it that way. That spending is available as we need it. Some of it may not be spent this year, or even next year as we fully understand the impacts of COVID-19,” he said.
All figures in NZ dollars. $NZ1 buys $A0.93.