Grant Robertson with the 2021 budget (Image: Getty Images/Tina Tiller)
Grant Robertson with the 2021 budget (Image: Getty Images/Tina Tiller)

PoliticsMay 20, 2021

Budget 2021: Benefits boosted by up to $55 a week, ‘righting a wrong’, says Robertson

Grant Robertson with the 2021 budget (Image: Getty Images/Tina Tiller)
Grant Robertson with the 2021 budget (Image: Getty Images/Tina Tiller)

Grant Robertson has just released the government’s annual budget, declaring that it corrects the mistakes of 30 years ago. Here’s The Spinoff’s political editor Justin Giovannetti with everything you need to know. 

Follow our live updates for more from today’s budget and the reaction to it

New Zealand’s economy has roared back from Covid-19 much faster than expected and with billions of unexpected tax dollars pouring into the Treasury, finance minister Grant Robertson is doling out additional funding while accelerating plans to pay down debt.

Among the billions of dollars being added to hundreds of programmes and agencies, the most important figure in Labour’s first budget since the election is $55. That’s the weekly increase to benefits in the budget that some unemployed parents will receive over the next two years.

Three decades after the mother of all budgets slashed benefit rates, the government has committed an extra $3.3 billion over the next four years to boost all benefits by between $32 and $55 weekly — the larger sum goes to families with children. The first bigger cheques will be delivered in two months when all weekly benefits are increased by $20. The increase is expected to lift up to 33,000 children out of poverty, said Robertson.

“This is the biggest lift in benefits in more than a generation,” he said. “With the changes that we have made today we will finally return all main benefits to their values before that budget,” he said of former National finance minister Ruth Richardson’s mother of all budgets. “This is righting a wrong.”

He continued the theme in his address to parliament. “This year is … the 30th anniversary of the so-called ‘Mother of All Budgets’ that saw benefits slashed and other social programmes cut. We are repairing some of that damage by boosting main benefits by up to $55 per week, in line with the recommendations of the Welfare Expert Advisory Group,” he said.

The increased cost of benefits won’t swamp the government’s balance sheet as the Treasury forecasts the number of people receiving help will drop by a quarter over the coming years.

The government is also eyeing a new addition to the social welfare net by creating a new unemployment insurance programme. While the details have yet to be finalised, the scheme would see workers keep 80% of their income for a period of time after they lose their jobs.

Modelled on similar insurance programmes in Nordic countries and Canada, it would most likely be funded through a levy on pay cheques like the one collected by ACC and not through additional government spending. The idea behind the programme is that it would do away with the need for emergency wage supports like the ones created during Covid-19 and the global financial crisis.

The Council of Trade Unions and Business NZ is working with the government on the insurance programme’s design. Robertson said it won’t be ready before 2023 at the earliest.

There’s significant new money in the budget, $3.8 billion more this year along with an additional $12 billion for infrastructure over the next four years. However, what the spending document doesn’t do is increase the size of government to tackle the problems of the next decade, including a housing crisis and climate change.

Despite a number of new initiatives centralising more power in Wellington, the overall size of the government as a share of the economy will fall over the next four years according to projections.

By 2027, the budget should be balanced and debt levels once expected to hit 55% of GDP in the depths of the Covid-19 recession will peak at 48% instead.

To keep down the size of government, a number of programmes that have received more cash this year will slowly shrink in comparison to the populations they serve. Despite new money to boost funding for workers at early childhood education, the increases for that programme going forward are only half of inflation.

Māori housing had been teased as one of the big winners in the budget. The government has set aside $380 million to build 1,000 new homes for Māori. That’s a big increase in terms of the budget, however to put in context, $306 million has been committed to rebuild the country’s base in Antarctica.

The health sector overall has received a large boost. Pharmac has been given an extra $200 million over four years. Families seeking more unfunded medication had been asking parliament for $1 billion, closer to the figure put forward by Pharmac of what it would require to meet the need.

The country’s DHBs will receive $2.7 billion over four years as well, which is half of the projected increase in health costs over that period. That will be one of the last boosts those regional boards get as $486 million has been set aside to create a new centralised Health NZ body to replace them.

With no substantial new funding to rebuild a green economy, the government has indicated one source of money to help the climate. All revenue from the emissions trading system will be used to finance the government’s yet-to-be-written emissions reduction plan. The carbon market is expected to raise about $3 billion over the next five years.

Along with money for the new centralised health agency and $200 million for a new Māori health body, the government is also creating a new national farm planning system and a new central education services agency to support schools and the writing of curriculum.

Asked about the move to centralise more power, Robertson said it reflects the failure of devolution. “It hasn’t delivered,” he said of the move over the past generation to devolve more powers and responsibilities to the local level.

The Treasury has also concluded that the government’s significant housing package, released in March, will work wonders taming the country’s overheated market. House prices are only expected to increase by 0.9% next year, nearly half the expected inflation rate of 1.7%. CTU economist Craig Renney said the projection was unlikely, describing it as “heroic” with a smile.

The budget expects house prices to increase so little because it has predicted changes to tax deductions and the bright line test will drive leveraged property investors out of the existing housing market and into new builds. That’s despite annual net migration expected to bounce back to 43,000 new residents by the winter of 2025.

Despite the new debt being taken on until the budget is balanced in 2027, the cost of servicing all those deficits is actually expected to drop over the coming years. The cost of financing the debt is currently below 1% of GDP, nearly half the level it was a decade ago.

According to Treasury, the real cost of interest paid on the government’s new debt is now negative and is expected to stay so for years. That means inflation is higher than near-zero interest rates. In effect, money is free to borrow. Despite that, Robertson has pledged to keep borrowing as low as possible.

New Zealand has far lower debt compared to the size of the economy than Australia, Canada, the UK or the US. All those countries have committed to significant and growing deficits over the coming years to finance massive new infrastructure builds and new social welfare programmes. If projections hold, New Zealand’s debt by the end of this decade will be a fraction of any comparable country.

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