If New Zealand was expecting a dynamic approach to the situation we now find ourselves in... it was not delivered in Budget 2022.
Finance Minister Grant Robertson starting by acknowledging inflation was a problem, then reeled out item after item of inflationary spending. Even the brief mention of inflation just positioned NZ against other countries, as if this fact alone makes the pinch in New Zealander’s pockets less painful. If you were bitten by a shark and lost your hand, but someone down the beach lost an arm, would you feel comforted by that information? “It’ll be OK, you should be grateful, the other swimmer is far worse off.”
It appears the Government have not read the room on this one.
Polling indicates people are less interested in climate change when they can’t feed their families, pay their bills, meet their staggering mortgage rate rise obligations and fuel their cars. Keeping the fuel discount for an additional two months isn’t a relief so much as a delay, and half-price transport is cold comfort to those outside major centres.
The majority of Hawkes Bay residents use their cars to get to work as public transport is scant and the network is poor - and the cost of doing so has never been higher. Motorists are reminded daily of the ever-growing cost of fuel as they drive past service stations on their daily commute or school run, and the AA is warning that $4 per litre might be around the corner.[i]
This budget proposes a game of whack-a-mole; throwing money at specific issues instead of looking at solutions to underlying problems.
The Cost of Living package sees a huge portion of people in New Zealand essentially become beneficiaries with various aid packages. The Government has just become an even bigger part of people’s lives with the new measures – $27 per week per person for three months from August, provided they earn under $70k, and they aren’t getting the Winter Energy Payment.
By no means am I minimising the needs of lower income households by criticising this spending. But the facts don’t match up with the finance; in this case, a bird in hand might mean there aren’t any birds left in the bush. And the bird was a rather wee bird to start with... so everyone’s still hungry.
To put it plainly; it’s going to be a tough winter for everyone, and a tough 3 years for middle-income New Zealand. The largesse of the 2022 budget means inflation likely won’t be going down any sooner than the predicted 2025.
Those hoping for a tax cut, or at least some tax relief from the fiscal thief that is inflation, can leave those hopes at the door. There’s no change to taxes in this budget – not even a 6.9% adjustment of taxation thresholds to match inflation, as noted in the opposition’s rebuttal. With rabid inflation, it equates to a tax increase for most Kiwis if no adjustment is made. Fiscal or bracket creep is inflation’s trusty sidekick, silently eroding the take home pay of hard working Kiwis.
Let's say you have inflation of 5% a year or 20% over four years, and you are on $70,000 today. You pay $14,020 tax. If your wages stay the same in real terms your tax paid increases by $4,620 or 33%. Your after tax income only increases by 17% so in real terms you have less money while the Government has more.[ii]
On top of that, Treasury is forecasting a brain drain; predicting a lower population than it did even six months ago. We will lose our best and brightest overseas. The only options open are to hunker down, hope and pray, cut personal spending if you are able - or leave. We could end up with a lot of Zoom grandparents here in NZ, with the whānau scattered across the globe.
In terms of housing, the Kāinga Ora First Home caps were lifted – but does it go far enough? The reported median house price in Hawkes Bay for April 2022 was $770k[iii], and the Kāinga Ora cap for existing properties in the region is now at $625k.[iv] While house prices are expected to fall, they have a ways to go for these numbers to match up.
The Minister spoke of more New Zealanders having the “security” of owning their own home through these changes. But even if you could afford the deposit by finding a house under median price, would many households be able to keep up with higher rates and higher interest on their mortgage until at least 2025?
The budget lacked any aspiration for the upwardly mobile. Where’s the aspiration to grow as a nation? As Kiwis we pride ourslves on the world stage for work ethic and ingenuity, good old fashioned hard work and number 8 wire, but sadly there’s very scant mention of economic growth (the phrase is used only four times in the entire budget document).
The Government dedicated almost a third of the budget to the Health sector, though we won’t see any capital expenditure here in the Bay. That’s earmarked for Whangārei, Canterbury and Nelson hospitals. It also seems strange to unveil a new health system when issues with workforces and equitable access will surely only get worse as inflation exacerbates income disparity.
The ultimate question is this: has the big budget spend made anyone significantly better off?
The quality of the spend can only be determined in the fullness of time.
· Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.rnz.co.nz/news/national/463179/prepare-for-petrol-to-reach-4-litre-aa-says
[ii] https://www.stuff.co.nz/business/128682547/budget-2022-no-tax-changes-but-existing-tax-net-will-catch-billions-more
[iii] https://www.blog.reinz.co.nz/reports-1/april-2022
[iv] https://kaingaora.govt.nz/home-ownership/first-home-grant/house-price-caps/
