New Zealand’s Ardern delivers welfare boost in annual budget as economy rebounds

New Zealand on Thursday lifted welfare benefit rates and promised billions of dollars more towards addressing rising inequality in its annual budget, as it predicted smaller deficits and a faster economic recovery from COVID-19.

The budget for the 2021 fiscal year allocated funds towards housing, healthcare, education and infrastructure, while also targeting issues like child poverty, climate change and welfare of the indigenous Maori.

The highlight, however, was a hike in the weekly benefit rates by up to NZ$55 per adult, which the government said was the largest income increase in a generation.

“Previous economic downturns have made inequality worse. We’re taking a different approach,” Prime Minister Jacinda Ardern said in a statement, releasing the “Wellbeing” budget.

“By investing in those who need it the most, we are driving the recovery by reducing need, at the same time as providing stimulus for our economy.”

New Zealand’s economy has seen a rapid rebound from the COVID-19 pandemic, but ample fiscal and monetary stimulus in 2020 has exacerbated long-standing issues of inequality, making it arguably the biggest political challenge facing Ardern’s centre-left government in its second term in office.

Critics have slammed policies that widened the wealth gap and had called on the government to use this budget to tackle these issues.

The Treasury predicteda budget deficit of NZ$15.127 billion ($10.84 billion) for the fiscal year ending June, compared to the NZ$21.576 billion seen in its half-year fiscal update in December. The deficit peaks at 5.3% of gross domestic product (GDP) in June 2022 before declining to 0.6% of GDP by June 2025.

Net debt will peak at 48% of GDP in 2023 compared to the 52.6% forecast made in December, according to the budget.

New Zealand’s GDP was expected to reach 2.9% in 2021 and gradually increase to 4.4% by 2023.

Finance Minister Grant Robertson said the budget strikes a balance between “securing the economic recovery and keeping a lid on the debt.”

Ratings firm S&P Global said the budget met its expectations and the country was recovering quicker than most advanced economies, though warned debt levels would remain elevated for some time.

“Given the pace of recovery, we believe the government’s credit metrics can withstand further negative shocks to the economy and its fiscal position at the current rating level,” S&P said in a statement.

ECONOMIC REBOUND

While New Zealand’s economy contracted in the final quarter of last year, recent improvements in business confidence and an unexpected fall in the unemployment rate to 4.7% in the March quarter have pointed to an economic rebound.

Unemployment is forecast to fall back to 4.2% by 2024 from the 5.2% forecast in 2021, with an extra 200,000 people seen entering employment over the next four years.

This recovery was helped by a record NZ$50 billion COVID fund released in the budget last year, backed by the central bank’s massive NZ$100 billion quantitative easing programme and low interest rates.

But these measures, coupled with housing shortages, sent property prices soaring, forcing the government to step and announce cooling measures.

The Treasury said it was now expecting a sharp drop in house price inflation to 0.9% by June next year, from a peak of 17.3% in June 2021.

Ardern’s popularity soared with her response to the pandemic, which has kept nationwide cases to barely 2,500 and helped secure her Labour Party’s emphatic election win last year. But opinion polls since show her support slipping.

Opposition National Party leader Judith Collins slammed the budget saying it did not reassure businesses.

“All New Zealanders are feeling the pinch right now – not just those on jobseeker benefits and the minimum wage – so where is the plan to take the entire country back to prosperity?” Collins questioned.

($1 = 1.3955 New Zealand dollars)