COVID-19: Treasury forecasts Govt's net debt to be $60b lower than predicted

New Zealand's economic recovery will cost $60 billion less than the Government had predicted, Finance Minister Grant Robertson has announced.

Last year, the Government accumulated significant debt to support the COVID-19 response, which included additional funding for the health system and protecting jobs through the wage subsidy, a scheme that provided financial aid to businesses that could prove a 30 percent decline in revenue due to the economic impacts of the pandemic and New Zealand's lockdown restrictions.  

Speaking at a BNZ business breakfast event on Tuesday morning, Robertson revealed that pre-election projections in September showed net debt decreasing from a peak of roughly 56 percent of GDP in 2024, to 48 percent in 2034 - roughly double the pre-pandemic range of around 20 percent.

Yet newly-released data from the Treasury on Tuesday now forecasts that net debt will reduce to 36.5 percent of GDP by 3024/2035, due to New Zealand's strong economic bounce-back following last year's COVID-19 crisis.

"Projections at the time of the pre-election update in September showed net debt falling from a peak of about 56 percent of GDP in 2024 to 48 percent of GDP in 2034," Robertson said.

"New projections using Treasury's Fiscal Strategy model today show net debt now at 36.5 percent of GDP in 2034/35. That represents about $60 billion less debt at the end of the projection period than at the pre-election update.

"While these are only projections they show the progress that we are making."

Robertson also revealed a $7 billion increase in capital allowances by 2033/2034, money earmarked for infrastructure investment.

Grant Robertson.
Grant Robertson. Photo credit: Getty

Budget 2021

The Finance Minister also released the 2021 Budget Policy Statement (BPS) - a statement setting out the Government's priorities for the 2021 Budget. He said the May Budget will provide a chance to "take stock of how New Zealand and New Zealanders have come through COVID-19".

Robertson acknowledged that budget allowances for this year are unchanged from those announced in December, although they are subject to change depending on economic conditions.

Budget 2021 will focus on ensuring that spending continues to be carefully prioritised and targeted at the areas and people that require it the most. 

"We will manage the books carefully including ensuring we are getting value for money in all areas of Government spending and reprioritising spending where appropriate," Robertson said.

Due to the strength of New Zealand's economic rebound, the Government will reassess the spending provided for the COVID-19 Response and Recovery Fund to see if money could be better allocated elsewhere.

"The significant resources we have put into the recovery and rebuild will be supplemented by further investment over coming Budgets, but quite clearly we need to strike a balance with rebuilding and maintaining a strong fiscal position," Robertson said.

"This includes rigorously assessing all of the spending that was provided for in the COVID Response and Recovery Fund. 

"As the economy has rebounded stronger-than-expected, we are taking the opportunity to assess if money can be better targeted or reprioritised where it has not already been used."

The Government's overarching objectives for this term are continuing to keep the country safe from COVID-19; accelerating the recovery and rebuild from the impacts of COVID-19; and laying the foundations for the future, including addressing key issues such as climate change, housing affordability and child poverty.

Specific Budget 2021 investments will fall under four priorities, Robertson said, including the continuation of the COVID-19 response; delivering priority and time-sensitive manifesto commitments; supporting core public services through managing critical cost pressures; and continuing to deliver on existing investments.

These are underpinned by the Wellbeing Objectives, which are now a requirement under changes made to the Public Finance Act. These objectives continue the evidence based focus started in the Wellbeing Budget. The 2021 Wellbeing Objectives are:

  • Just Transition: Supporting the transition to a climate-resilient, sustainable and low-emissions economy while building back from COVID-19
  • Future of Work: Enabling all New Zealanders and New Zealand businesses to benefit from new technologies and lift productivity and wages through innovation, and support into employment those most affected by COVID-19, including women and young people
  • Māori and Pacific: Lifting Māori and Pacific incomes, skills and opportunities, and combatting the impacts of COVID-19
  • Child Wellbeing: Reducing child poverty and improving child wellbeing
  • Physical and Mental Wellbeing: Supporting improved health outcomes for all New Zealanders and keeping COVID-19 out of our communities.

A significant part of the minister's speech was also focused on the housing crisis, with skyrocketing prices in the past year making it increasingly difficult for New Zealanders to afford the massive deposits required to secure lending. 

"There is a crisis when it comes to the housing situation right now in New Zealand," Robertson said. "In a sign of how economic forecasts have swung wildly during COVID, mid-way through last year, economists were lock-step in predicting that house prices were going to fall 5 to 10 percent over the next year due to the COVID-19 downturn.

"We've seen how the effects of rising demand for property by speculators and investors has blown those mid-year projections for prices to fall out of the water."

Speaking to The AM Show on Tuesday morning, commentator and the former of head the Property Institute of New Zealand, Ashley Church, claimed there was nothing in Robertson's speech that will make it easier for first-home buyers to get on the property ladder.