by Nick Clark, Manager General Policy, Federated Farmers of NZ
The Government this week released Budget Policy Statement 2021 for the upcoming Budget.
Last year’s Budget was focused mainly on the immediate need to keep New Zealand safe from COVID-19 and combatting the economic fallout. While continuing this work, Budget 2021 will move into recovery and rebuild while ‘laying the foundations for the future’. This includes addressing big issues like climate change, housing affordability, and child poverty.
The BPS set out the following priorities for Budget 2021:
- Continuing the COVID-19 response.
- Delivering priority and time-sensitive manifesto commitments.
- Supporting core public services through managing critical cost pressures.
- Continuing to deliver on existing investments.
Budget 2021 will also seek to work towards the following ‘wellbeing’ objectives:
1. Just Transition: Supporting transition to a climate-resilient, sustainable, and low-emissions economy while building back from COVID-19.
2. 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.
3. Maori and Pacific: Lifting Maori and Pacific incomes, skills, and opportunities, and combatting the impacts of COVID-19.
4. Child Wellbeing: Reducing child poverty and improving child wellbeing.
5. Physical and Mental Wellbeing: Supporting improved health outcomes for all New Zealanders and keeping COVID-19 out of our communities.
These objectives are much the same as the objectives from last year’s BPS, albeit with added references to COVID-19. It was good to see mostly positive wellbeing indicators, with an overall life satisfaction score of 7.8 out of 10, but it was apparent that Maori and Pacific people have been hit harder from the economic effects of the pandemic. Expect the Budget to target some spending towards them.
The economic outlook set out in December’s Half-Year Economic & Fiscal Update was a lot rosier than it was looking at the time of Budget 2020 and September’s Pre-Election Economic & Fiscal Update. This has translated into a much better fiscal outlook, with the operating deficit forecast to reduce to 1.0% of GDP in 2025 by which time net core Crown debt will be 46.9% of GDP (on its way down after peaking at 52.6% in 2023).
The Government’s top fiscal objective is to stabilise net core Crown debt (as a percent of GDP) by the mid-2020s and then reduce it as conditions permit. It also wants to continue to use fiscal policy to ‘secure economic recovery’. Gone is the pre-COVID debt range of 15-25% of GDP and commitment to maintain expenditure to within the recent historical range of spending to GDP (around 30% give or take). The key takeaway is that the Government still wants to reduce the deficit and return to surplus but it will not ‘go hard’ to do so.
Of greater immediate interest was the Minister’s speech launching the BPS. As well as talking up the economic recovery Grant Robertson paid particular attention to housing and rocketing house prices. He said demand-side measures aimed at speculators and investors will come in ‘late February’ as will announcements on the supply side, building on the Government’s housing programme. The day after his speech David Parker announced sweeping changes to the RMA, with housing a key motivation for them.
Grant Robertson concluded that ‘now is the time for bold action’. He said the ‘market has moved quickly and rapidly in a way that is not sustainable’ and that ‘we have to confront some tough decisions’.
Although there was no detail on what is being considered, in this opinion piece I take a look at some ‘bold actions’ in tax that might be on the table.
Traffic volumes ‘returning to trend’
ANZ’s monthly Truckometer has shown that in January 2021 compared to December 2020, the Light Traffic Index was flat, while the Heavy Traffic Index fell 3.8%.
In annual terms the three-month rolling average showed heavy vehicle traffic still 1.5% higher than for the three months ended January 2020, while light vehicle traffic was 5.3% higher than a year ago. ANZ considers both to be returning to trend following post-lockdown overshoot evident in the second half of last year.
Heavy traffic (mainly trucks but also buses) primarily reflects the movement of goods, while light traffic is all about the movement of people.
Job ads up but growth slowing
Job advertisements increased 1.4% from December 2020 to January 2021, according to the latest BNZ-Seek Employment Report. However, the month-on-month gain was the smallest since August 2020 and January’s jobs ads were 6.3% lower than in January 2020.
There was a 4% month-on-month increase in job ads for the ‘farming, animals & conservation’ industry, better than the overall 1.4% increase across all industries.
Card spending down
Retail card spending slipped in January, according to Statistics NZ’s monthly Electronic Card Transactions.
In January 2021 compared to December 2020, seasonally-adjusted retail card spending dropped 0.4%. There were increases for durables like furniture, electronics, and hardware (up 2.1%) and also for vehicles (up 1.7%), but there were declines for other sectors such as consumables like groceries and alcohol (down 1.3%), apparel (down 2.0%), and fuel (down 0.3%).
Statistics NZ also noted that hospitality spending in actual terms was down 4.9% compared to January 2020, mostly due to lower accommodation spending – although eating out was up slightly.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 11 February) show the North Island’s soils continuing to be significantly dryer than usual, especially in northern and eastern regions, and being particularly acute in eastern Bay of Plenty. The South Island’s soils are more ‘normal’ although soils are significantly wetter than usual in patches such as Buller/Grey, coastal Waitaki, and southern Fiordland.
The NZ Dollar weakened over the week, down 0.6% against the TWI, underwinding about half of last week’s increase. It was down against all our major trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was up 1 basis point and the yield for 10 year Government Bonds was up 2 basis points, consolidating on last week’s 28 point surge.
The Reserve Bank will next review monetary policy settings (including the OCR) on 24 February.
|This Week (11/2/21)||Last Week (4/2/21)||Last Month (11/1/21)||Last Year (11/2/20)|
|90 Day Bank Bill||0.29%||0.28%||0.27%||1.23%|
|10 Year Government Bond||1.37%||1.35%||1.05%||1.26%|
Source: Reserve Bank of NZ