Govt to spend significantly more on new initiatives than expected

Finance Minister Grant Robertson delivers $3.5 billion budget surplus; Big-ticket items include spending on rail and reducing child poverty; Higher expenses to create more debt

30th May 19, 2:02pm by Jenée Tibshraeny

The Government is allocating more funding to new initiatives in Budget 2019 than it planned to six months ago.

It has set aside a net average of $3.8 billion per year for new operational spending over the next four years. Treasury’s Half Year Update, released in December, projected this allocation would be $2.4 billion a year.

The Government has also added $1.7 billion to its allowance – worth $14.8 billion – for capital expenditure over four years.

Capital expenditure results in an asset on the Government’s books, while operating expenditure doesn’t. So capital expenditure will be used to build a classroom for example, while operating expenditure will be used to pay a teacher.

Economists had not expected funding for new initiatives to increase by as much as it has.

The big-ticket new expenses include a huge boost for KiwiRail, funding to cover the cost blowout of the Auckland City Rail Link, indexing the main benefit to average wage growth rather than inflation, investment in mental health services and District Health Boards, fixing hospitals, supporting children in state care, and upgrading school property.

No new funding has been allocated to KiwiBuild – as expected. However, “KiwiBuild” hasn’t featured at all in the list of Budget initiatives. The KiwiBuild “reset” is yet to be announced.

In line with expectations, the Government’s operating balance before gains and losses (OBEGAL) is lower over the forecast period than it was six months ago.

While the OBEGAL remains in surplus, it decreases from $5.5 billion in 2018 to $3.5 billion in 2019, $1.3 billion in 2020 and $2.1 billion in 2021.

OBEGALs between 2019 and 2023 are expected to be a third lower than projected in Treasury’s Half Year Update.

This is largely due to the Government planning to spend more than it previously had.

Its expenses are projected to be a higher, as a percentage of GDP, than its revenue, even though tax revenue is expected to increase from $85 billion in 2019 to $106 billion in 2023.

Turning to debt, this is forecast to increase more than expected in the Half Year Update – especially in the latter half of the projected period.

The Government’s total borrowings are expected to increase from $112 billion in 2019 to $131 billion in 2023. The 2023 projection is $8 billion higher than forecast in the Half Year Update.

However net core Crown debt as a percentage of GDP isn’t expected to exceed 21% – even after 2022 when the Government’s debt target will broaden from 20%, to 15% to 25%.

Coming off a lower starting point, GDP is only projected to be a fraction lower over the forecast period than projected in the Half Year Update.

Treasury said economic growth in the initial period of the forecast would continue to be supported by “migration-led population growth, government spending, accommodative monetary policy and solid (although slower than recent years) growth abroad”.

“Increased government spending and stronger investment see real GDP growth reach 3% in the year ended June 2020. Growth then eases to 2.4% over the latter part of the forecast period, as the fiscal stimulus from the increased government spending fades, net migration growth eases and interest rates increase.”

This is how Treasury has broken up new spending according to the Government’s five “wellbeing” priorities:

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53 Comments

by edw | 30th May 19, 2:20pm 1559182832

not a surprise at all

by Boatman | 30th May 19, 5:35pm 1559194500

With all this sudden carry-on about mental health over the past 12 months ..........one would be forgiven for thinking we are a Nation of Nutters .......... New Lunyland .

Frankly I think this mental health issue is a record sized Red Herring , maybe its pillow talk between Clark and Jacinda about his fishing exploits that triggered this idea of distracting the chattering classes with this issue .

by KH | 30th May 19, 7:09pm 1559200152

Wrong boatman. Mental health was a national fermenting issue well prior to the election.

by tothepoint - d… | 30th May 19, 7:55pm 1559202909

Exactly!

When over the last half-century has mental health not been a big issue?!

TTP

by linklater01 | 31st May 19, 8:42am 1559248953

Boatman,

Either you are unaware of NZ's mental health issues-in which case your ignorance should disqualify you from any comment-or you simply don't care,something to make cheap jokes about-and I think that's much more likely.
A recent report by the UK healthcare think tank,the Nuffield Trust on adolescent health and wellbeing in 19 countries of similar economic and cultural backgrounds. NZ had by far the highest mortality rate for people aged 10 to 24 years old-around 35 deaths per 100,000 people. NZ ranked 18th on asthma related deaths-often the result of sub-standard housing.We have the highest suicide rate for 15 to 19 year olds. I could go on,but no doubt you will find these Facts very boring.
I found your remarks despicable,but sadly,not at all surprising.

by pankers | 31st May 19, 12:59pm 1559264379

Boatman your comments are very rude , I don't support the Govt and frankly haven't got a cent out of this budget.
Until you have a real family crisis you don't know squat or circumstances about mental health , you are not on the same PLANET. Grow up go buy some properties or practice how to be a nutter since you are an expert on this.
You are one of these arrogant people who don't want know about mental health.
One thing that does concern me a wee bit is a lot of the mental health money is going to Christchurch shootings which yes they do need help but what about our kiwi people.

by waymad | 30th May 19, 2:32pm 1559183527

Jenée, here's the BEFU, which is an essential set of Assumptions about the forecasts. The Judgments and Assumptions look Heroic to my Mk I eyeball...... from the link:

Key economic forecast judgements and assumptions
These forecasts cover the period through to June 2023, and include the following assumptions:
• The trade-weighted exchange rate index rises from 73.7 in the June quarter of 2019 to 74.1 in the 2022/23 fiscal year.
• Net migration declines from 50,000 people in the 2017/18 fiscal year to 25,000 in 2021/22 and is steady thereafter. Owing to the size of experienced revisions of new migration data from Stats NZ, the Treasury has put more weight on earlier data and assumes the declining trend since 2016 will continue. Assumptions regarding net migration are discussed in more detail in this chapter.
• Working-age population (15 years of age and over) growth averages 1.5% per year over the five years to June 2023, including the contribution of net migration.
• The labour force participation rate rises from 70.9% in the December quarter of 2018 to 71.4% in the year ending June 2022 and is steady thereafter.
• Over the five years to June 2023:
− economy-wide multifactor productivity growth averages 0.5% per year
− economy-wide labour productivity growth averages 0.9% per year, and
− potential output growth averages 2.7% per year.
• The long-run neutral nominal 90-day interest rate is 3.75%.
• The long-run non-accelerating inflation rate of unemployment (NAIRU) is 4.25%.
• The price of West Texas Intermediate (WTI) oil is stable at US$60 per barrel across the forecast period.
• A number of public sector pay equity claims are settled, resulting in higher wages in those occupations. These settlements are assumed to have positive flow-on effects for private sector wages.

by Ludwig | 30th May 19, 2:54pm 1559184852

Yeah, I’d bet on most of those assumptions getting blown away by 2023. That’ll leave our struggling middle class footing the bill for all this extravagance, so more misery ahead by the looks of it. All they need to do now is adjust all of those statistical parameters to score an “achieve” after the next electoral cycle...assuming they get in again.

by Lanthanide | 30th May 19, 3:26pm 1559186787

Wow, they even try to forecast the price of oil.

by waymad | 30th May 19, 3:30pm 1559187046

No, they make Assumptions about it...and about everything else in that piece of the BEFU as I've excerpted. Cannot Budget without assumptions about the future.....pity if the assumptions are way off beam....

by Yvil | 30th May 19, 2:38pm 1559183938

Wow great budget, I might have to start voting for Labour

by Boatman | 30th May 19, 5:36pm 1559194619

@Yvil .......... that increased mental health spend , I suspect, is directed at people like you.

You would need to be on a spectrum to vote for Labour

by pankers | 31st May 19, 1:05pm 1559264734

Once again you are pigheaded and don't much about mental health.
I have staff that have problems , why judge them? They are just the same as us, they need support.
Think you may need to see a doctor mate and if you were on my work team you would be a gone burger right out that door bully and harassment

by dictator | 30th May 19, 2:52pm 1559184750

Hopefully we will see a lot of positive outcomes for mental health and for the wellbeing of children. There's a few areas that are getting boosted that were subject to cuts by National (they never gave a reasonable or rational explanation for the cuts).

Building a productive nation seems to have gotten the money from transforming the economy. I'm not really sure what transforming the economy means, but there does not appear to be any economic transformation other than to centre our economy around residential houses. I'm not sure why that would cost any money at all.

by Advisor | 30th May 19, 3:00pm 1559185256

The New Zealand economy is sound, with robust growth and low unemployment. The stimulus coming from additional government investment in this Budget will lift growth in the near term, supporting household incomes, with increased demand flowing through into business investment. Growth will also be supported by historically low interest rates, continued net immigration inflows and historically high export prices.
Direct quotes from the fiscal strategy addendum on the 2019-20 Budget. How is that any different from how we've been running things all this while? Wasn't the previous budget supposed to deliver fiscal stimulus to the economy in the near-term as well. And how did that go again?

by Casual Observer | 30th May 19, 3:35pm 1559187338

Growth will be supported by..........historically high export prices They really are showing their business naivety with that.

by powerdownkiwi | 31st May 19, 11:15am 1559258124

Those who think business acumen is important at this stage in global proceedings - overshot and dwindlingly resourced, are the naive ones.

Interesting attempt in Otago to mine diatomite to sent to Malaysia to fertilise palm plantations to send palm kernel to NZ to feed.......

gotta laugh

by Foyle | 30th May 19, 3:19pm 1559186375

Spending up from $80Billion 2018 to $103 Billion in 2023. A near 30% increase!!! Just like Cullen/Clark and the mess they left us in with massive spend-up and recession in 2008. Every labour government in last 60 years has left NZ in recession, but seems every new generation has to learn the lesson of how irresponsible they are through their own personal economic pain.

by Yankiwi | 30th May 19, 3:22pm 1559186566

The comparison that I would like to see is the current Labour budget plan as compared to their PREFU 2017 budget plan. I see that they are now estimating a GDP growth that is about half of what their expectation was a couple years ago. Yes, GDP isn't the "end-all". Anchoring to GDP does however provide an anchor to available govt funding, or at least, sustainable funding. (The alternate scenario is similar to Venezuela or a generic African country such as Zimbabwe).

by cs | 31st May 19, 1:52pm 1559267574

Government spending needs to be counter-cyclical not pro-cyclical. It should go up when GDP growth stalls and fall in genuine booms with full-employment inflationary pressures. Governments like NZ have excel spreadsheets to provide financial funding. They don't need our tax dollars. It's the real economy that matters. NZ is so vastly different from the situations in Venezuela and Zimbabwe (that have huge supply-side and political problems) that drawing analogies between them is misinformed scaremongering that prevents governments from doing what they need to do - spend enough to bring into productive use all idle capacity - including idle labour.

by NoFax | 30th May 19, 3:24pm 1559186659

And another year without the tax brackets being adjusted. So another year of bracket creep.

by Lanthanide | 30th May 19, 3:28pm 1559186910

Yes, if only National had supported Michael Cullen after the 2005 election and supported indexation of tax brackets to inflation, since that's what he proposed at the time and Winston called it a "chewing gum tax cut", a line that National ran with instead of doing the responsible thing for NZ taxpayers.

by NoFax | 30th May 19, 3:34pm 1559187290

It's a pity that Labour aren't in a position to do something about it.

by Lanthanide | 31st May 19, 10:13am 1559254398

Yes, it is a pity that National cut taxes to the bone when they were in power and that they did this to the benefit of the rich and not by indexing the tax brackets to inflation like Bridges is now trumpeting that they should do (after they rejected doing that in 2005).

by Roger Witherspoon | 30th May 19, 3:44pm 1559187843

Ha, says it all really:
Treasury said economic growth in the initial period of the forecast would continue to be supported by “migration-led population growth

Treasury spokesperson eats Whittakers:
Treasury said economic growth in the initial period of the forecast would continue to be supported by migration-led population growth and the money they bring with them. We can't afford to waste as much otherwise, but now we get to look very important and get paid more and splurge on stuff.

by Advisor | 30th May 19, 3:56pm 1559188587

Net migration declines from 50,000 people in the 2017/18 fiscal year to 25,000 in 2021/22 and is steady thereafter. Owing to the size of experienced revisions of new migration data from Stats NZ, the Treasury has put more weight on earlier data and assumes the declining trend since 2016 will continue.

I guess, by these forecasts, we have just over a couple of years to lift productivity and transform our economy to a knowledge-based one .

by bob cotton | 30th May 19, 4:53pm 1559192018

Yes agreed, but aren't already there? Aunty Helen said so about 15 years ago, if l remember correctly. Perhaps around the time she did away with the planes?

by RickStrauss | 31st May 19, 8:35am 1559248542

If only we had F16s we'd be a standout knowledge economy.

by Simo | 30th May 19, 4:27pm 1559190430

"No new funding has been allocated to KiwiBuild" It must be self-supporting now, 10,000 new houses here we come!

...and what about the planting of the one billion trees?

by Foyle | 30th May 19, 5:02pm 1559192525

102 homes built so far and I think I saw a figure of $700million in underwrites for a lot of houses that appear to be unwanted. More high quality expenditure from the coalition.

by Boatman | 30th May 19, 5:27pm 1559194044

RAIL ?

Why not just go back to the steam age ?

Or the horse and carriage ?

Rail is a nightmare , the capital cost is horrendous , unlike roads its use is limited to the tracks , there are all sorts of issues with Trade Unions , apart from the cost of infrastructure the rolling stock has a carbon footprint of 20 trucks and the track mantainance is way higher than roads , rail us useless for small loads ............. the list is endless

by FatFreddy | 30th May 19, 5:32pm 1559194352

our roads are also a nightmare with so many trucks. will be good if they move goods via rail.

by JimboJones | 30th May 19, 7:50pm 1559202602

Yes Japan looks like the Stone Age with all that high speed rail everywhere unlike good old high tech NZ with our cars and trucks plodding along at 80km/hr killing everyone and the planet.

by Boatman | 30th May 19, 8:32pm 1559205175

@Jimbojones .........dont be an idiot , have you ever been to Japan?

New Zealand IS NOT Japan FYI

Japan has a GDP of around S5 TRILLION , we have a GDP of less than a quarter of One Trillion

Japan has 126 ,000,000 million people and Tokyo has nearly 10,000,000 (10 million) so Tokyo alone has twice as many people as the whole of NZ

They have high speed trains because they have enough people to use them and pay for them .

We will never have a high speed train in your or my lifetime , of that I can assure you

by JimboJones | 30th May 19, 8:42pm 1559205727

You implied that trains are archaic, I just thought I’d question that. It’s not like cars and trucks are new tech!
Yes I have been to japan many times, it’s a fantastic place.

by Boatman | 30th May 19, 8:54pm 1559206474

Trains are suitable for only 2 scenarios

1) Mass urban people movers, and we dont have the population to warrant it or the tax -base to pay for it
2) Heavy commodity moving such as iron ore , bauxite , coal , etc and we dont have these commodities , and we will never mine them .

For the rest , rail is archaic , slow , smelly , dirty , costly and has severe limitations .........and is simply too expensive to set up

by Yvil | 31st May 19, 1:10pm 1559265003

Sorry Jimbo Jones but Boatman is correct, in order to make rail profitable (or at least not making losses) a country needs lots of population which Japan does have (I think about 125 Mill and NZ does not 5 Mill)

by Computer | 30th May 19, 8:20pm 1559204428

Citation needed?

No offense but I don't recall much in the way of industrial strife recently (at least none that has affected my twice-daily 17 minute commute in a train with about 100 cars' worth of fellow passengers), on tracks that don't seem to be full of potholes and council 'repairs', in a carriage that had little more carbon footprint in its construction that your average bus and is largely powered by falling water. Have I missed something?

by Boatman | 30th May 19, 8:47pm 1559206039

@Computer , you really are missing something

I am told we have about 370 DIESEL BURNING locomotives in NZ as well as many shunter diesel locos

We have less than 120 operational Electric locomotives , and very limited electrified lines basically only Auckland and Wellington .

And when digger driver rides into the power lines what do we do ? ................. bring in the diesel locos

by RickStrauss | 31st May 19, 8:36am 1559248615

How much did selling the rail assets off then having to buy them back once they'd been stripped of value set things back?

by kpnuts | 31st May 19, 11:06am 1559257590

not sure where you live - but in Auckland for every dollar that public transport users pay - ratepayers have to pay a dollar to subsidise it -- and the majority of ratepayers don.t have a viable public transport option - If its so good and so many people want it -- it would be nice if they actually paid what it costs to run instead of wanting others to pay for it.

by Yvil | 31st May 19, 1:13pm 1559265195

Correct, again, a country need lots of population to make rail viable, which NZ does not have, that's why riail works great in a country like Japan (125 million people I think)

by Malarkey | 30th May 19, 6:17pm 1559197070

My biggest regret about permanently leaving NZ is that I waited so long to do it.

by JimboJones | 30th May 19, 8:16pm 1559204214

Yet here you are posting on a NZ economy website...

by Yvil | 31st May 19, 1:14pm 1559265280

Well said JJ, clearly he/she misses NZ

by Squishy | 30th May 19, 9:45pm 1559209540

Reset? KiwiBuild needs a complete resuscitation at this point. Many cleverer people than me pointed out that it was very under resourced and lacked the legal power to affect change.

by i am not a nimby | 31st May 19, 7:49am 1559245773

Kiwibuild, or for that matter any unguided social policy will ever work. I hope it ((Kiwibuild) did work. At least it would have prevented "landlord / Investor" bashing.

by Pragmatist | 31st May 19, 11:35am 1559259305

Can we swap the resus for a mercy killing and memorial service please?

by Zack Brando | 31st May 19, 9:25am 1559251518

Spending on Rail is good, little else to say.

by waymad | 31st May 19, 10:11am 1559254296

Yes, I love choo-choos too, and cannot wait until every local shopping mall and supermarket is serviced with its very own spur line and goods siding. Gotta take all a them Trucks off of the Roads.....

It's either Rail, or Cargo Bikes for FMCG...I can see the posters now....

by Yvil | 31st May 19, 1:16pm 1559265360

Zack, you should try Sushi Train

by Zack Brando | 31st May 19, 1:18pm 1559265496

lol

by cs | 31st May 19, 2:02pm 1559268161

Well, a wee bit more spending. But will it be enough to provide sufficient fiscal stimulus to sustain growth and move us toward genuine full employment? Will it be enough to move us to aggregate demand levels that bring all idle labour into productive use with a enough of a deficit spendd to offset demand leakages to taxation, imports and savings? Nope. But at least the public debt levels are being relaxed slightly. Perhaps the government are sneakily reading a bit of MMT literature on the sly. As are most macroeconomists I reckon - whilst saying they knew it all along of course.