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Government to invest $12 billion into infrastructure projects with debt set to rise

The Government is pouring $8 billion into new infrastructure projects including roads, rail and schools and making state owned buildings become low carbon.

New Zealand money. Source: istock.com

Another $4 billion will go towards the Government’s multi-year capital allowance.

Finance Minister Grant Robertson made the announcement at the Half Year Economic and Fiscal Update (HYEFU) – but did not release specific details of the projects, waiting instead until early next year. He insists there are “shovel ready” projects but failed to name a single one.

Of the $8 billion for infrastructure:

- $6.8b goes to transport, mainly roads and heavy rail.
- $300 million goes to regional projects (for investment such as wharfs, separate to the Provincial Growth Fund which invests for economic opportunities).
- $300m goes to District Health Boards for projects such as upgrading earthquake-prone hospitals, removing asbestos, and investing in new facilities.
- $200m goes to "decarbonise" New Zealand’s buildings (this could include phasing out coal burners in schools and hospitals, insulation or double glazing).
- $400m, already announced, goes to schools to fix old buildings.

Fiscal outlook summary

- A deficit of $0.9 billion (0.3 per cent of GDP) is forecast for 2019/20
- Economy is expected to grow at 2.5 per cent over four years
- Unemployment rate forecast to sit at 4.2 per cent
- Wages forecast at 3.5 per cent

Infrastructure

Four billion dollars is going towards the Government’s multi-year capital allowance, on top of the current $4.4 billion allocated at Budget 2019.

Mr Robertson said in November the infrastructure announcement would bring certainty to the construction industry – a message he reiterated today.

He said the package would “provide further support to boost the New Zealand economy in the face of slowing international growth and stronger global headwinds”.

“It will give certainty to the construction industry and will create more job opportunities for Kiwis.”

Forecasts of the Half Year Economic and Fiscal Update

New Zealand’s annual surplus was forecast to rise to 1.5 per cent of GDP from the years 2020/21 to 2023/24 – which is $12 billion of forecast total surplus over that period.

It estimated the economy to grow 2.5 per cent over four years and unemployment to stay at 4.2 per cent.

The 2018 HYEFU forecast the unemployment rate to stay at 4 per cent, after it dropped to 3.9 per cent in September 2018 quarter.
Wage growth averaged 3.5 per cent, an increase of 0.2 per cent from last year.

Deficit

A deficit of $0.9 billion (0.3 per cent of GDP) is now forecast for 2019/20, with growth only forecast at a “softer” 2.2 per cent - the Government placing the blame on “global headwinds like the US-China trade war and Brexit uncertainty”.

It comes after surpluses of $5.5 billion and $7.3 billion over the last two years, with the forecast deficit “owing to increased investment at recent Budgets and temporary effects of the global headwinds”, the budget policy statement said.

“It is something that is easily manageable,” Mr Robertson said. “A small deficit in the current year is not surprising.”

Treasury forecast a surplus of 1.5 per cent of GDP from the 2020/21 year.

Fiscal outlook

Net debt is forecast at 21.5 per cent of GDP in 2021/22, up from last year’s forecast of 19 per cent of GDP in 2021/22.

It comes after the Budget Responsibility Rules of keeping debt below 20 per cent were loosened to between 15-25 per cent.

Mr Robertson said it would be “ludicrously stubborn” to not respond to infrastructure needs, low debt and the low interest rates of borrowing.

“We have the room to do this,” he said.

Budget priorities

The priorities for next year’s Budget were almost exactly the same as for Budget 2019 – which include shifting to a low-emission economy, moving to a digitalised nation, reducing child poverty, lifting incomes and opportunities for Māori and Pacific people, and focusing on improving the mental wellbeing.

“These priorities focus on long-term challenges and opportunities,” Mr Robertson said. “They cannot be resolved in one budget.”

Budget 2020 is set to have an operating allowance of $3 billion, Budget 2021 and 2022 set to have $2.4 billion and 2023 set to have $2.6 billion.

He said mental health investment was “a start, but by no means the end of the line there”.

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