NZ Gov't Faces Tight Balance Between Fiscal Prudence, Social Spending in First Budget

New Zealand is expected to unveil a modest spending boost in its first annual budget on Thursday (17/05). (Reuters Photo/Thomas White)

By : Charlotte Greenfield and Jonathan Barrett | on 11:00 PM May 16, 2018
Category : International, Asia-Pacific

Wellington. New Zealand is expected to unveil a modest spending boost in its first annual budget on Thursday (17/05), but the government is facing the challenge of ramping up infrastructure investments and reducing homelessness while delivering on an ambitious debt repayment plan.

The center-left ruling Labour Party, led by popular 37-year-old Jacinda Ardern, took the helm in October after campaigning to make the economy 'work for all New Zealanders' as concerns mounted over increasing inequality that was masked by robust economic growth.

The government has inherited a rosy set of accounts underpinned by an expanding economy thanks to record immigration levels and strong dairy prices creating growth of around 3 percent a year.

But the May 17 budget is seen by economists as a balancing act between pouring funds into badly needed infrastructure and social services to reduce rising poverty and homelessness, and avoiding putting unnecessary strain on the country's finances.

"We can't spend every single dollar that's in the kitty in one budget, that would be irresponsible," Finance Minister Grant Robertson said in Wellington on Tuesday.

The government has previously said it would deliver operating surpluses for the next five years and trim government debt to 20 percent of GDP by 2022 - around two years slower than the previous National government had planned.

The budget will likely disappoint Labour supporters, said Bryce Edwards, political analyst at Critical Politics in Wellington, because the government fears that costly reforms would leave it open to criticism.

"They won't stray too far from the previous government's fiscal settings out of fear it will be labelled irresponsible," Edwards said.

"They actually risk bending so far to conservatives they won't be able to deliver for their supporters."

Room for More

An extra NZ$1.1 billion in crown tax revenue in the nine months to the end of March, suggested the government's surplus for the year ending June 2018 could be slightly higher than the NZ$2.54 billion forecast in December, economists said.

Labour has announced the government would inject NZ$42 billion ($29.03 billion) in capital spending over the next four years, $10 billion more than planned by the previous government.

"As things stand, we think there is room for a bit more capital spending," said ANZ economist Miles Workman. "There is a clear infrastructure deficit."

The country's new central bank governor Adrian Orr told Reuters in an interview on Friday that parts of New Zealand were "creaking at the seams" and he hoped for ramped up infrastructure spending.

"This is a budget that's about a plan for the future that make sure New Zealanders can get the public services they need and balances that with the fact that we do have the responsibility to plan for future generations," Robertson said.


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