Budget 2021

Budget Policy Statement

Budget allowances

Budget 2021 will be delivered against the backdrop of a global economy that faces significant risks as COVID-19 continues to surge around the world. The Government will balance careful Budget management with prioritising investments that meet the wellbeing objectives and the overarching policy goals set out in the Speech from the Throne.

The Government has set the new operating allowances at $2.625 billion per year across the next four Budgets. This is an increase of $0.225 billion per year from the allowances presented in the Pre‑election Economic and Fiscal Update (PREFU), and is made possible by the extra revenue generated by the new top 39% tax rate on income earned above $180,000. This affects the top 2% of New Zealand earners. The 2021 allowance provides a total of $10.5 billion to be allocated across the four-year forecast period. The Government will carefully prioritise spending to those people and areas that need it the most as we balance the need to continue supporting New Zealanders and the economy through the COVID-19 rebuild, against the need to maintain New Zealand's relatively strong fiscal position.

The multi-year capital allowance has been set at $7.8 billion across the four-year forecast period. The multi-year capital allowance was introduced at Budget 2019, moving away from a single-year allowance to allow for a longer-term investment approach for capital spending. These allowances have already been incorporated into the Treasury's fiscal forecasts in the Half Year Update in December.

The Government will use these allowances to support the COVID-19 response and recovery, and maintain investment in essential public services to improve New Zealanders' wellbeing. The allowances are subject to change, as economic and fiscal forecasts are updated for both the New Zealand economy and the global economy.

Table 2 - Budget allowances before pre-commitments

$ billions Budget
Operating allowances (per year) 2.625 2.625 2.625 2.625
Multi-year capital allowance ←                             7.8                           →               

Source: The Treasury

In Budget 2020, the Government established the $50 billion COVID-19 Response and Recovery Fund (CRRF). This fund is managed separately from the Budget allowances. Programmes and projects that are part of the fund are being progressively rolled out. In addition, as at 1 February 2021, $10.2 billion of the CRRF remains unallocated. The remaining balance of the CRRF is set aside for the health and economic response, in particular in case of a further COVID-19 resurgence.

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