New Zealand's strength and resilience to global forces are about to be tested again by the combination of a global economic downturn, high inflation here and around the world, and a geopolitical situation dominated by war, trade disputes and ongoing supply chain issues. Budget 2023 will continue our commitment to providing Kiwis with economic security through these times.
This requires a fine balance of policy responses. This Budget Policy Statement confirms what we set out in the Budget earlier this year: that the Government will carefully manage fiscal policy to take pressure off inflation, and return spending to normal levels following the emergency pandemic response.
At the same time, we need to balance this with preparations to support Kiwis through a shallow ‘speed-bump' recession forecast for 2023. As we navigate through this period, our primary focus at the Budget will be on supporting families and households experiencing cost of living pressures.
The Treasury is continuing to forecast the Government will return the books to surplus in 2024/25, marking five years of deficits following the onset of COVID-19, compared to the six years of deficits run by the previous Government after the Global Financial Crisis. In the two years between now and the surplus, deficits are a combined $5.1 billion smaller than forecast back in May.
As a result, real Government consumption is forecast to fall by 8.2 per cent between September 2022 and December 2024. This contraction follows the emergency economic response, with this measure of Government spending set to return to the same level as before COVID-19.
The contraction in our fiscal policy will require tough choices on where to focus the Government's resources. Ministers have been directed to run a reprioritisation process ahead of Budget 2023 to create space for new initiatives within their existing budgets, outside of the cost pressures that will be funded from the $4.5 billion operating allowance, unchanged from Budget 2022.
Over the past six months, more than $3 billion of unused spending mainly set aside for COVID-19 measures has been returned to the central Government accounts. This has created space to fund emerging cost of living priorities like the fuel tax cut and half price public transport, while also keeping a lid on public debt.
We have also been planning ahead for this period while the economy was growing, by setting aside funding to continue investing in priority areas. We have already built into the Budget important contingencies like $1.3 billion for health cost pressures, $0.3 billion for new health initiatives, and $62.7 billion for infrastructure investment over the next five years. A priority for Budget 2023 is to keep supporting key government services like health, education and housing.
New Zealand faces a turbulent economic period with a strong set of economic foundations. A key aspect of this is the six new or upgraded free trade agreements signed since 2017. Despite the worsening global outlook, exports are forecast to bounce 14.3 per cent in the 2022/23 year as tourists return and for growth to average a solid 3.4 per cent a year after that. Budget 2023 will continue investing in our economic plan to create a high-wage, low-emissions economy that provides economic security in good times and bad.
The choices we face at Budget 2023 won't be easy. The Government will continue to use a wellbeing approach to ensure we look after people now, and build a strong foundation for future generations. New Zealand is as well placed as any country to deal with the challenges of 2023, and look towards a strong recovery in the years to come.
HON GRANT ROBERTSON
Minister of Finance
14 December 2022