To fund the Budget, the Government has forecast bond issuance to $60 billion for the June 2021 year. Crown debt is expected to rise from 19.3% of GDP, up to a peak of 53.6% by 2023. This will surpass the level of 40% seen in 2013 after the GFC and the Canterbury earthquakes. The current Government Debt ratio is 19%, therefore we may have options other Governments don’t who’s current positions are significantly different to ours US (107%), China (50%) and even Australia (45%). Even if we balloon to over 50% by 2023, I think the trouble will be the wont hold that figure, its aspirational.
The key element is the establishment of the $50 billion COVID-19 Response and Recovery Fund (CRRF), with $20+ billion of it still to be spent over the next 4 years, with $29.8 billion of it committed through Budget 2020 – ten times that which the Government was planning to spend pre-COVID-19.
Treasury indicated that its forecasts and assumptions on Government expenditure and revenue given the current environment are highly uncertain.
The Budget assumes New Zealand’s borders remain closed to international visitors until the end of March 2021 – three months sooner than forecast in the earlier Treasury’s economic scenarios. The scenario relies on a vaccine being developed and distributed by this time.
Workforce and Employment Support
Treasury expects peak unemployment of just under 10% in the September 2020 quarter. $1.6 billion has been dedicated to help support trades and apprentices and $1.1 billion of support for environmental jobs. $3.2 billion to extend the wage subsidy support package.
The 2020 Budget was a $50b spend titled – COVID-19 Response and Recovery Fund (“CRRF”)
The CRRF core delivery is on rebuilding the economy, investing in jobs, by protecting existing ones and creating new ones and pathways for workers to retrain.
No tax rate changes!
At a glance: The CRRF
- $900 million is allocated to support the Māori and Pacific Community.
- $230 million for entrepreneurship and risk-taking as kick-starter for growth, key targets SMEs, e-commerce and exporters.
- A further $4 billion business support which includes an extension of the wage subsidy scheme, to business with a 50% drop in revenue.
- Support for economic recovery in the SMEs area is encouraging the growth of exports to the global market, funding for this is via NZTE with a strategic focus on e-commerce platforms.
- $150 million made available for R&D loans to business that need intensive investment, this is to enhance the existing R&D incentives (tax). To start early June, and will encourage the continuation of pre Covid-19 R&D programs in place to be kept running.pre-Covid-19.
- $80 million of the $150 million has been earmarked specifically for entrepreneurs to develop new products.
- Agri $11.4 million towards agri-tech, targeting the continued to improvement of sustainable balance combined with key environmental outcomes, together with holding up productivity in the agricultural sector.
Budget General Key Points
- $3 billion contingency boost for additional infrastructure investment, on top of the $12 billion infrastructure scheme announced in January 2020.
Extension to the Wage Subsidy Scheme
- Wage subsidy extended from 10 June 2020 for businesses suffering a revenue reduction of at least 50%, over a 30-day period prior to application, as compared to the same 30-day period last year.
- Applications are open for 12 weeks from 10 June 2020. It is an 8-week lump sum payment at the same rates as the existing subsidy.
- The Wage Subsidy Scheme is also extended to R&D start-ups as recognised by Callaghan Innovation.
See here for further information: https://www.workandincome.govt.nz/covid-19/wage-subsidy-extension/index.html
- Additional funding for NZTE and NZ Inc to assist exporters in overseas markets and assist with the reconnection to our overseas markets.
Research & Development Loans
- $150 million in loans for R&D type businesses, to encourage the continuation of their R&D programmes.
- Loans will are at 50% of annual R&D spend with a cap of $100,000 and will be operational in June.
- In addition, changes will be made to ensure entities can deduct the cost of feasibility expenditure on unsuccessful projects or abandoned assets.
- $10 million fund to provide incentives and grants to encourage businesses to adopt e-commerce, train digital advisers and provide additional support for SMEs to incorporate e-commerce into the Digital Economy.
- Introduction of Trans-Tasman e-invoicing regime to make it easier to do business in Australia and New Zealand.
Tourism $400 million Tourism Recovery Fund:
- Tourism Transition Programme – For advice and support for businesses moving towards domestic and Australian markets, or requiring hibernation and other options.
- Strategic Tourism Assets Protection Programme – To identify and preserve strategic assets, considered to be vital tourist attractions and amenities, in order not to lose them.
- Tourism Recovery Ministers Group – This will oversee the “Tourism Industry Recovery Package”.
- New Zealand Futures Tourism Taskforce – Public – Private Taskforce Designed to lead strategic thinking on the future of NZ tourism.
More Public Homes
- A target of 8,000 new public and transitional homes aimed at supporting the residential construction sector and affordable housing.
- These homes are to be provided by Kāinga Ora, Community Housing Providers and Transitional Housing Providers.
Maori and Pacifica
- $900 Million to Support Māori and Pacific Communities to Rebuild Together
- Including investment in Health, Education, and Housing, via multiple agencies.
- Core focus is whānau to support business with $255 million being allocated to various initiatives across:
- Recovery and Transformation
- $1.1 billion for the environment targeting the regions, including $200 million for the “Jobs for Nature Fund”. 11,000 environment jobs, including regional environmental projects, biosecurity, weed and pest control, and additional DOC jobs.
- District Health Boards: $3.9 billion over four years, with a one-off $282.5 m to catch up on elective surgery after the COVID-19 disruption. Most non-urgent surgery was suspended during lockdown, including cancer screening and treatment which took a back seat.
- Disability Support: $833 million over five years, to ensure access to support for those with high needs. This brings annual funding to $1.7 billion, and increases support to Non-Government Organisations doing a lot of the heavy lifting in this area.
- Pharmaceutical: $160 million, in addition to the $35 million for essential medicines and supplies for COVID-19. In part this fits with the Government cancer strategy where Pharmac has struggled to supply cancer drugs in particular, with newer and more expensive drugs typically they drugs are not affordable for ordinary Kiwis. This will secure additional medicine as well as allowing Pharmac to expand funded treatments.
- Mental health: $40 million of funding for 100 new health practices to provide mental health and addiction services, currently available at 22 sites across NZ. It is based around Health Improvement Practitioners, peer support workers and counsellors to provide services to those who needs are not met within the confines of a short GP consult.
- Online tools for mental health and wellbeing: Funding to support increased digitisation to assist workforce capacity issues in this sector and improve accessibility of services – particularly in rural areas. Additional funding will provide access to a range of free online tools to help maintain their mental health and wellbeing.