Cost-of-living support is a major short-term concern; infrastructure and healthcare investments are key long-term priorities
Firms should note that because this is an election year budget, there is potential for key policies to be reversed or rolled back with a change of government in Wellington. The items that are most vulnerable to such changes are the cost-of-living support measures and the adjustments to tax policy. Other items, such as the investment into public housing and climate change resilience, will be carried over in some form, though some amendments are likely under a new administration. Only policies around infrastructure investment and healthcare are likely to be secure, regardless of regime change, and firms in these sectors can comfortably develop business plans based on the current budget. B2B firms in the construction sector should seek out opportunities in infrastructure investment given the scope of investments in the industry and the slowdown in private residential investment.
Additionally, firms should be aware of the increased likelihood of another rate hike by the Reserve Bank of New Zealand (RBNZ). After the release of the budget, market expectations for interest rates increased, because the budget was more expansionary than expected. As the RBNZ is aggressively targeting a consistent decline in inflation, an expansionary budget that could create inflation risks will not be viewed favorably by the central bank.
New Zealand’s budget for the upcoming fiscal year (July 2023 to June 2024) aims to balance several priorities, such as a cost-of-living crisis, an upcoming election, and the impact of Cyclone Gabrielle. The key items in 2023–2024 budget are:
- Cost-of-living support: Support measures include subsidies for public transport, childcare, and early education. The NZD 5 fee for medical prescriptions has also been scrapped.
- Infrastructure investment: Funding will focus on the recovery from Cyclone Gabrielle as well as long-term infrastructure development. An additional NZD 1 billion has been earmarked for the ongoing rebuild, while NZD 6 billion will be devoted to the National Resilience Plan to make existing infrastructure more resilient to natural disasters. Finally, NZD 71 billion will be spent over the next five years for infrastructure upgrades.
- Public housing: NZD 3.1 billion is allocated toward building 3,000 houses over the next four years to address the country’s housing shortage.
- Climate change resilience: The budget allocates NZD 403 million to increase energy efficiency in homes. A further NZD 300 million is set aside to incentivize private investment into lower emissions technologies and clean energy. Additionally, Wellington aims to enhance the country’s EV charging network by installing charging hubs every 150–200 kilometers along main roads as well as chargers in every community with over 2,000 residents.
- Healthcare: NZD 1.3 billion is provided for the healthcare budget, with the primary short-term focus on raising pay for nurses and healthcare professionals in order to attract more talent to the sector. Additionally, Pharmac will receive an additional NZD 75 million in funding to expand drug reimbursement.
- Taxation: To balance these rising expenses, the government is implementing stricter taxation measures. Trust funds, a popular instrument for tax avoidance, will be taxed at the same rate as the top income tax bracket of 39%. Digital platforms offering ridesharing, delivery, or accommodation services will be subject to the goods and services tax. Most importantly, however, MNCs operating in New Zealand will now face an effective tax rate of 15%.
The Labor government’s 2023–2024 budget clearly attempts to juggle a set of competing priorities, and the most important one is to secure an election victory. Since Chris Hipkins took over as prime minister, the cost of living has clearly emerged as a key priority for the government, as Labor was facing pushback from voters due to high inflation. At the same time, the Labor government is attempting to position itself as sound fiscal managers, emphasizing that this is a “no-frills” budget. It has balanced these two objectives by targeting cost-of-living support to a key voter group, young families.
However, it is important to note that as this is an election year budget, there is huge potential for change when a new government is elected in October. If Labor is re-elected, we expect broad policy continuity, with a reduced emphasis on cost-of-living support. If the National Party is elected, we will likely see major policy reversals, especially a rollback of some of the subsidies that have been included in the budget and changes to the proposed tax reforms. Moreover, the formation of a coalition involving smaller parties—such as the Greens, ACT, and Maori party—could further complicate policy continuity after the election.
There are only a few budget items that will remain key priorities regardless of which party or parties are elected to office in Q4 2023. Infrastructure investments will remain crucial due to the current rebuilding efforts and the need to make New Zealand’s infrastructure resilient to future natural disasters. Healthcare too, will be a priority for all parties given the current shortages in the industry and the reorganization taking place in the sector.
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