Budget 2018: Budget Policy Statement

Economic and fiscal outlook

• The economy is growing at a solid rate and the outlook continues to be positive, driven by high net migration levels and low interest rates supporting consumption and residential investment
• Growth is expected to peak at 3.6 per cent in 2018/19
• Household debt has increased to near-record levels of 167 per cent of disposable income
• Annual per capita GDP growth is expected to rise to 1.7 per cent in 2018/19
• Unemployment is expected to remain steady before falling to 4.0 per cent in late 2020
• Wages are forecast to grow at over 3.0 per cent per year on average over the next five years
• The minimum wage will increase to $16.50 an hour, to take effect from 1 April 2018
• Headline inflation is expected to increase to 2.2 per cent in 2021/22
• By 2021/22, net migration levels are expected to drop to 15,000
• $6.6 billion higher tax take over the four year forecast horizon to 2020/21 compared with the Pre-election Update
• Reversal of proposed tax cuts in previous Government provides additional revenue of $8.4 billion over five years to 2021/22
• Core Crown expenses are expected to reach $92.7 billion in 2020/21 but expected to gradually fall from 28.5 per cent of GDP in 2017/18 to 27.6 per cent of GDP in 2021/22
• Net core Crown debt is expected to rise over the next few years then expected to reduce to 19.3 per cent of GDP in 2021/22

Rising OBEGAL surpluses will reach $8.8 billion in 2021/22 (2.5 per cent of GDP) and enable net debt to reduce as a percentage of GDP.

100-Day Plan

The Government is committed to their 100-day plan to address social and infrastructure deficits. This includes:

• The first year of post-secondary education or training will be fees free from 1 January 2018
• Student allowances and living cost loans will increase by $50 a week from 1 January 2018
• Legislation will soon be introduced to reverse the previous Government’s planned tax cuts and to pass this Government’s Families Package, and separate legislation has been passed to increase Paid Parental Leave, to take effect from 1 July 2018
• The Healthy Homes Guarantee Act 2017, requiring all rentals to be warm and dry, has been passed by Parliament
• Legislation will soon be introduced to ban overseas speculators from buying existing houses, and a directive has been issued to tighten criteria on purchases of rural land
• Instruction will soon be issued to Housing New Zealand to stop the State house sell off
• Work has begun on establishing a Housing Commission and starting the KiwiBuild programme
• Contributions to the New Zealand Superannuation Fund will resume on 15 December 2017 to help safeguard the provision of universal superannuation at age 65

The Families Package

The Government has introduced the Families Package which is estimated to cost $5.53 billion from 2017/18 to 2021/22.

From 1 July 2018, the Package includes:

• Working for Families tax credits changes
  • An increase in the abatement threshold to $42,700 while the abatement rate will increase to 25 percent
  • The minimum family tax credit threshold amount will increase to $26,156
• Best start
  • A payment of $60 per week to assist families with costs in a child’s early years
  • Replaces the Parental Tax Credit
• Increases in paid parental leave to 22 weeks, further extended to 26 weeks in 2020
• Accommodation Supplement and Benefit payments increases retained from Budget 2017
• Independent Earner Tax Credit will be retained
• Introducing a Winter Energy Payment to help superannuitants and beneficiaries heat their homes over the coldest months

The Provincial Growth Fund

The Government is allocating $1 billion per year to increase the level of investment in regions to enable greater regional economic growth. Some objectives that the investment is aimed towards include:

• Jobs and sustainable economic development
  • Investments that support increased jobs and sustainable economic development over the long term, particularly in areas where unemployment is high and there are significant social challenges
• Social inclusion and participation: 
  • Investments that support increased social inclusion through effective training, work preparation and support that enables more people to fully participate in work and society
• Resilience:
  • Investments that increase regional and national resilience by improving critical infrastructure and focusing on opportunities to grow and diversify our exports and economy

References:

• http://www.treasury.govt.nz/budget/2018/bps/bps-18.pdf
• http://www.treasury.govt.nz/budget/2018/families-package/families-package-dec17.pdf