Wellbeing Budget 2022

A Secure Future

Financial and physical capital

This aspect of wealth refers to: tangible, human-made assets like buildings and machinery; knowledge-based property assets like research and development, arts and literature; and financial assets minus liabilities like currency and loans and equity.

Despite Omicron's widespread community transmission, the economy has proven broadly resilient to its impacts, especially when compared with international peers. GDP remains above pre-pandemic levels and household incomes and wealth continue to rise. Both the price of and demand for New Zealand's exports remain high, and the reopening of the border is expected to help ease labour market constraints and boost tourist sector incomes.

While the economy has fared better than expected, significant challenges persist. New Zealand's housing remains among the least affordable in the OECD, with renters spending greater shares of their incomes on housing on average which adds to cost of living pressures. Further, the housing stock they do rent is more likely to be crowded, unstable, and unhealthy. COVID-19 has deepened these inequities and driven shifts in economic activity that have disproportionately affected some groups. Many central business district services and hospitality, event, tourism, and educational businesses have been severely affected. While in some cases a bounce-back is likely as conditions normalise, in others the shift might be permanent and will require firms and workers to adapt.

Further, many of the macroeconomic trends identified in December's BPS have persisted, with disrupted global supply chains, a tight labour market, and rising interest rates continuing to put pressure on New Zealand's economy. The Russian invasion of Ukraine adds further uncertainty to the global economic outlook: while the direct impacts are likely modest for New Zealand, the indirect effects are substantial, for example higher petrol prices add to inflation and exacerbate cost-of-living pressures.

New Zealand households have developed a stronger financial buffer in recent years as the average household savings rate has increased. Between 2016 and 2019 household saving as a percentage of net disposable income hovered close to 0 percent before rising to a high of 14.9 percent in June 2020. It has remained positive since, falling to 1 percent in June 2021 and back up to 7.5 percent in September 2021. While higher spending due to changes to the COVID-19 Protection Framework led household saving to decline from $4.5 billion to $2.5 billion in the December quarter, a 2 percent increase in disposable income kept saving levels high.

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