Fiscal Balance in New Zealand

New Zealand - Fiscal Balance

Government approves massive budget stimulus to buttress economy ahead of September elections

On 14 May, the government unveiled an NZD 50 billion (USD 30 billion) stimulus package, largely focused on supporting employment in an effort to kickstart the economy following the impact of the coronavirus outbreak and consequent lockdown. The budget, which will be spent over a four-year period, is the largest in New Zealand’s history. Moreover, on the heels of previously adopted measures to support the economy, it takes total crisis spending to over NZD 62 billion (over USD 37 billion) or around 21% of GDP.

The package sets the stage for Prime Minister Jacinda Ardern’s re-election campaign ahead of the September poll and is aimed at cushioning massive unemployment caused by lockdown measures by allocating funds to re-train workers, support wages and infrastructure spending. As for job policies, measures include additional investment in education and training; the extension of the wage subsidies scheme; and funds for nature-based jobs to improve the quality of the environment. Moreover, the package scales up funding for infrastructure investment, healthcare, public housing and tackling poverty.

Although the hit from the lockdown will be especially severe in Q2, afterwards the recovery should start at a sustained pace, also thanks to the significant stimulus package and as the government has already lifted the toughest containment measures. While the stimulus package will raise the public debt and deficit significantly, it should not pose significant fiscal risks given the country’s healthy fiscal metrics.

FocusEconomics panelists project the economy to contract 4.8% in 2020, which is down 5.6 percentage points from last month’s estimate, and to grow 5.0% in 2021.