Budget 2020

Budget Policy Statement

Investing in New Zealand

The Government is investing an additional $12 billion in building a more productive, sustainable and inclusive economy

We believe that the conditions are right for further capital investment in New Zealand. New Zealand is facing an infrastructure deficit which has built up over the past decade. Years of failing to invest in our public services has meant that essential investment has not taken place, has been deferred or has been neglected. This led to an inevitable reduction in public service capacity and quality.

With debt low and borrowing costs at record lows, now is the right time to invest to future-proof the economy. Our new investment will take capital spending in New Zealand to the highest level in over 20 years, with capital investment of nearly $50 billion planned over the next five years. This investment is forecast to significantly increase real GDP over the next five years, with further impacts on economic activity beyond that period, as the money allocated today continues to support economic growth.

This increase in Government investment will provide further support for the New Zealand economy in the face of slowing international growth and stronger global headwinds. The capital investment will provide a combination of shorter-term spending to support economic activity over the next two years, as well as medium- and long-term investments that will provide business with a pipeline of Government demand into the future. This investment should deliver certainty to New Zealanders that the Government is determined to tackle the infrastructure deficit.

Figure 1 - 10-year New Zealand Government Bond Yields (Secondary Market)

Figure 1 - 10-year New Zealand Government Bond Yields (Secondary Market)

Sources: Reserve Bank of New Zealand, Reuters

The Government's strong fiscal management has ensured that debt has returned to levels last seen nearly a decade ago. This provides space for us to invest further, while still maintaining a strong fiscal position. Interest rates are at historically low levels and the cost of Government borrowing has fallen substantially. This has resulted in the cost of servicing the Government's debt being $107 million lower in 2018/19 than in 2016/17. Borrowing costs for the core Crown have fallen from 1.3 per cent of GDP in 2016/17 to 1.1 per cent of GDP in 2018/19.[2] Figure 1 shows that the ten-year New Zealand Government Bond rate is currently less than half what it was in late 2017.

Figure 2 - Net capital spending

Figure 2 - Net capital spending

Source: The Treasury

The $12 billion of additional investment will support the shifts identified in the Government's Economic Plan for a more productive, sustainable and inclusive economy. A majority of this capital investment will consist of expenditure in areas such as health, education, justice, transport, regional investment opportunities and carbon reduction. The Government will announce further details about these spending plans over the coming months.

Notes

  • [2] Based on the interest on financial liabilities as a percentage of nominal GDP, as reported in the Half Year Economic and Fiscal Update (Half Year Update).
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