Finance Minister Grant Robertson is dampening expectations ahead of Budget 2021 by highlighting the need to keep a lid on billions of dollars of debt.
"This will be my fourth time delivering the annual Budget for the Government, though the events of the past year have thrown out that calculation," Robertson said in a pre-Budget speech in Auckland on Monday.
"As we grappled with COVID-19 last year the Government produced what amounted to three Budgets, so by my count I am now up to six."
But the Finance Minister said there's a "bit more space" in operating and capital allowances, money that will go towards the Government's priority areas of child poverty, the housing crisis and climate change.
"What I am pointing out is that when you're in a constrained environment fiscally, as we are, having taking on the debt that we did, we have to make some choices and we do have to have areas that we focus on," Robertson told reporters.
"There is a little bit more room in both the operating and capital allowances because of the better-than-expected recovery, but I’m balancing that against the need to keep a lid on debt as well. "
The Government took on billions of dollars of debt to keep the economy afloat during the COVID-19 crisis. Treasury's update last week showed debt is more than $105 billion, representing 33.3 percent of GDP, up from 19.5 percent in February 2020.
"There is an important balance to be struck in Budget 2021. We need to continue to be careful with our management of the economy, while also providing stimulus to accelerate the recovery and to make investments where they are needed the most," Robertson said in his speech.
"As part of this balanced approach it is important to recognise that not all of our manifesto commitments will be able to be funded within one Budget."
Robertson wouldn't say which manifesto promises won't make the cut in this round. That will be revealed on May 20. But Robertson told reporters Labour is determined to get through the manifesto in three years.
"That's the goal."
While the Government's debt-pile may be eye-watering, the unemployment rate has surprised observers by falling, most recently to 4.7 percent. It compares favourably to 5.9 percent in Australia, 6.2 percent in the United States and 8.4 percent in Canada.
"There were no costless decisions in our response to COVID-19. With hindsight there are many views as to what we could have done differently. But I stand by our approach," Robertson said.
"We moved swiftly to save lives and livelihoods. Programmes like the wage subsidy scheme saved jobs and businesses and we set ourselves up to build back better. It was expensive, it was not perfect, but it has given us a head start we are determined to follow through on."
He said there is enough distance from the most direct economic effects of COVID-19 during 2020 to draw some "reasonably firm conclusions", that in the face of a 1-in-100 year shock, the New Zealand economy showed itself to be "remarkably resilient".
"Our better than expected economic recovery does provide us with more options. There will be a careful balance here too," Robertson said.
"There is a bit more space in our operating and capital allowances to support the recovery in line with the approach that I have outlined today - focused on the areas of where we can accelerate progress and in tackling our long term challenges."
But he's under no illusion that debt has to be paid back.
"At the same time there is some more scope to keep a lid on debt and look towards a faster reduction in that debt once the recovery is secure. In our view, an investment-focused recovery that supports all New Zealanders is the way to ensure that our finances remain sustainable.
"Budget 2021 will still be a 'COVID Budget' but also a recovery and wellbeing Budget. It is exactly that wellbeing approach that has put us in such a strong position compared to many other countries around the world - a balanced approach that will see us build on our head start, secure our recovery and tackle our long standing challenges."
Robertson says he doesn't want to pay down debt by implementing austerity measures, which is essentially cutting Government-funded services to save some coin.
"We have seen internationally the toll that cuts to social services take on the most vulnerable in society, and how social capital can be eroded by a country attempting to cut its way to some particular numerical goal that is divorced from the economic realities of that country.
"Our high levels of social capital are among our most valuable assets, and it is a large part of the reason why we were able to respond to COVID-19 as a country as well as we did."
But the Government is already facing backlash from unions after announcing a three-year hold on public sector pay rises for those earning above $100,000. The Government wants to lift the wages of those earning $60,000 or less.
Pay for public servants such as teachers, nurses and police officers will continue to increase as they move through previously agreed pay bands, and pay equity discussions will continue.
Robertson said he'll be meeting with unions to discuss their grievances.