Budget 2022 wrap: Labour fights back with cost of living bombshell but mammoth price of health reforms dominate

Labour is fighting back against the narrative it has not done enough to help with the rising cost of living by giving $350 each to low and middle income earners. 

The Government is also extending its initial two-month fuel tax reduction and half price public transport for a further two months to help with rampant 30-year high inflation. 

But it's the mammoth cost of the Government's health reforms - $11.1 billion over four years to pay for District Health Board (DHB) deficits and set up the new systems - that dominates Budget 2022. 

Finance Minister Grant Robertson had already signalled "significant investments in establishing the new entities that will replace District Health Boards", with $6 billion in new spending for Budget 2022.

The Government announced on Monday a massive pre-Budget package to pay for Aotearoa's first Emissions Reduction Plan - $2.9 billion over four years on climate change initiatives, paid for with funds from the Emissions Trading Scheme (taxed emissions).

Overall, the Climate Emergency Response Fund (CERF) has been established with $4.5 billion from Emissions Trading Scheme revenue. 

Infrastructure spending is also at eye-watering levels: $61.9 billion over the next five years to pay for projects from Auckland's light rail, to water infrastructure, hospitals, classrooms and rolling stock for rail. 

Inflation nation

It's no secret inflation is hitting Kiwis hard. Recent Stats NZ data showed grocery prices were up 6.4 percent compared to last year, with the cost of fruit and vegetables up a whopping 9.4 percent. And wages have been lagging behind, up 3 percent.

The Opposition has been hammering Labour over what's been dubbed the 'cost of living crisis', suggesting the Government's enormous spending throughout COVID-19 inflamed inflation. 

The Government's cash splashing is under the microscope, with the Auditor-General writing to Treasury Secretary Caralee McLiesh earlier this month to express concern about the accountability of COVID-19 spending.

The Government's $61 billion COVID-19 fund established in 2020 still had $3.2 billion left as of April, so with no more lockdowns and the economy opening up again, the Government is closing the fund ($1.2 billion will be kept as a contingency in case of another major COVID-19 outbreak) and using the remaining cash to pay for a cost of living package. 

Over three months, $27 a week will be given to an estimated 2.1 million Kiwis earning up to $70,000 and not eligible for the Winter Energy Payment. It will be paid in three monthly instalments, from August 1, and is expected to cost $814 million. 

That's on top of the $235 million to extend the reduced fuel taxes and half price public transport, Finance Minister Grant Robertson said on Thursday. 

"Budget 2022 is being delivered against the backdrop of a global inflation spike, with existing supply chain pressures being exacerbated by pressure on oil prices from the war in Ukraine," Robertson said. 

"This will pass but we need to protect New Zealanders from the immediate impact."

Budget 2022 also includes improved access to dental treatment. Support for dental care for low income earners is lifted from $300 to $1000 per year and it no longer needs to be for emergencies. The package is worth $126 million.

The Government already increased benefit rates and tax credits in April and bumped up the minimum wage to $21.20.

There's also help for first-home buyers. The Government is changing the eligibility criteria for state-assisted first home loans and first home grants, to recognise the changes in house prices over the past year. 

Budget 2022 wrap: Labour fights back with cost of living bombshell but mammoth price of health reforms dominate

"We are also removing house price caps entirely from the first home loan, to provide a greater choice of homes for prospective buyers," said Housing Minister Megan Woods. 

"Income caps and lender requirements are sufficient to ensure that the first home loan is used by buyers who need support for a home."

Woods said it's estimated the changes will help thousands more first home buyers, with funding available for approximately 7000 extra first home grants and 2500 extra first home loans every year. 

It comes despite house prices cooling off as the Reserve Bank tightens lending requirements and bumps up interest rates in the wake of COVID-19 stimulus. Treasury now forecasts house prices to drop 1.2 percent in 2023 after rising around 30 percent last year. 

Robertson told reporters that more targeted support will be needed in the coming months to tackle inflation. But he has already signalled his intention to be tighter with the public purse. He's given himself new 'fiscal rules' including a debt cap

The good news is that wages are tipped to rise next year by 6 percent - more than the anticipated 5.2 percent inflation rate - meaning salaries will eventually rise faster than the cost of living. 

Inflation is predicted to rise to 6.7 percent in mid-2022, and hold above 3 percent until 2025.

Largest health spend ever

But the Government's cost of living package pales in comparison to the $11.1 billion over four years to pay for its health system restructure: Replacing all DHBs with a new centralised agency, Health NZ, that will work in partnership with the new Māori Health Authority. 

The Government has allocated $1.8 billion in this year's Budget to clear DHB deficits and to give Health NZ and the Māori Health Authority a "clean start", with $1.3 billion locked-in for 2023. 

"Not content with a $6 billion spending spree, they've also raided future Budgets – spending $2 billion from Budget 2023 and $0.4 billion from Budget 2024," said National leader Christopher Luxon. 

"And that's before you count climate spending and the cost of living bandaid – which are on top."

The Māori Health Authority gets $168 million over four years for direct commissioning of services, $20.1 million to support Iwi-Māori Partnership Boards, $30 million to support Māori primary and community care providers, and $39 million for Māori health workforce development. 

Overall, $11.1 billion will be spent on the health reforms.

The rest of the roughly $3 billion in health spending in Budget 2022 (normal yearly spending on health) includes a $102 million boost for community healthcare and $86 million over four years for GPs in high-needs areas to offer broader services. 

It also includes $100 million for specialist mental health and adiction services, $166.1 million over four years for 61 new emergency vehicles including 48 ambulances and 248 paramedics, as well as $90.7 million over four years for new emergency helicopters and crew. 

Budget 2022 contains the biggest-ever boost to the Government's drug-buying agency Pharmac - an extra $191 million over the next two years. 

A $1.3 billion capital investment will pay for rebuilds of hospitals in Whangārei, Nelson and Hamilton. 

A reformed education sector

Labour is delivering on its promise to replace the school decile system with an Equity Index, changes Education Minister Chris Hipkins admitted in a 2019 Cabinet paper were "likely to be disruptive for many schools and services". 

Budget 2022 provides almost $300 million to replace the decile system.

Labour thinks the change is worth it because the current decile system is "blunt", does not reflect the wide range of income levels within schools, and causes stigmatisation. 

The Equity Index would be based on the circumstances of individual students, rather than the neighbourhood they live in, and it would be updated more regularly than the five-yearly census. 

It's important to remember Labour is also reforming tertiary education. The Government invested $279 million in Budget 2021 for the reforms, now wrapping up. 

Funding is also being provided to meet the rising costs in tertiary education, with $266.9 million over four years for a 2.75 percent increase for tertiary tuition and training subsidies. 

Schools get a $777 million infrastructure investment, with the aim of funding a further 280 classrooms at over 40 schools. It builds on the $2.8 billion invested in school property since 2018. 

What about global threats?

With Russia's invasion of Ukraine and China's controversial security deal with the Solomon Islands in the Pacific, Opposition parties have committed to bumping up New Zealand's Defence Force spending to 2 percent of GDP

But the Government has opted to spend $662.5 million to "maintain existing defence capabilities" with $90 million over four years going towards improving the pay of lower-paid Defence Force staff. 

What else was announced?

  • $200 million for Māori education
  • $116 million for Whānau Ora 
  • $155 million for the Māori economy and employment
  • $151.4 million for cultural sector resilience 
  • More than $185 million for cultural sector resilience
  • More than $28 million to improve the coronial system and reduce delays 
  • $100 million for disability services, including establishment of Ministry for Disabled People
  • $118.4 million for advisory services to support farmers, foresters, growers and Maori owners with shift to sustainable land use 
  • $40 million to help transform the forestry, wood processing, food and beverage and fisheries sectors 
  • $327 million over three years to merge RNZ and TVNZ
  • $178.7 million to help councils transition to new Resource Management Act planning rules to help get more houses built 
  • $40.7 million over four years to invest in vaccine research and development
  • $13.7 million to implement the Government's commitment to deliver a Dawn Raids historical account for the Pacific community
  • $18.3 million to support Pacific people into more education and employment opportunities
  • $20 million for diabetes prevention targeted at Pacific communities in south Auckland
  • $50 million for the Pacific Provider Development Fund to help Pacific providers adapt to the new health reforms

What's already been announced?