New Zealand Budget highlights ‘Rebuilding Together’

The New Zealand Government announced the establishment of its COVID-19 Response and Recovery Fund in its 2020-21 Budget.

The New Zealand government has unveiled a budget for 2020-21 that has as its theme ‘Rebuilding Together’. Its central announcement is the establishment of a NZ$50 billion COVID-19 Response and Recovery Fund (CRRF) that is intended to support the economy and hasten the recovery.

Below is a summary of the major announcements from the Budget and the CRRF on 14 May 2020.

COVID-19 Response and Recovery Fund

The New Zealand Government announced the establishment of its CRRF in its 2020-21 Budget.

Of the NZ$50 billion fund, NZ$13.9 billion has already been allocated, including the extension of the Wage Subsidy Scheme and the Loss Carry Back provisions. Another NZ$15.9 billion in spending from the Fund was announced at the same time as the Budget (including free apprenticeships for certain trades and extra funding for New Zealand and Enterprise (NZTE)), leaving NZ$20.2 billion unallocated.

Further information on how the remaining proportion will be allocated will be announced in the coming weeks.

According to New Zealand’s Finance Minister, the Hon Grant Robertson, the CRRF “is designed to not only support the immediate response but also provide support, as necessary, over the longer term to rebuild our economy and society.”

The CRRF spending must focus on at least of one of the following three criteria:

  • fighting COVID-19 and cushioning the blow
  • continuing to support households and businesses and preparing to kickstart the economy in the medium term
  • taking the opportunity to reset New Zealand’s economy, address longstanding challenges and chart a course to return to a more sustainable fiscal position.

Wage Subsidy Extension

A Wage Subsidy Extension payment will be available to support employers who are still significantly impacted by COVID-19 after the Wage Subsidy ends. It will be available from 10 June 2020 until 1 September 2020.

Eligible employers will need to reapply through Work and Income once their current 12-week subsidy has come to an end.

The Wage Subsidy Extension will be open to the same types of employers currently eligible for the Subsidy. For the Wage Subsidy Extension, an employer must have suffered, or expect to suffer, revenue loss of at least 50 per cent for the 30-day period prior to the application date versus the nearest comparable period in 2019.

The weekly rates will be the same as under the current Wage Subsidy (NZ$585.80 gross for full-time employees and NZ$350.00 gross for part-time employees), and the Extension will provide an 8-week payment per named employee.

It will be paid to the employer as a lump sum. It must be used to pay employees’ wages and receiving it does not change existing employment law obligations.

Announcements relevant to business in New Zealand

  • The New Zealand Trade and Enterprise (NZTE) will receive an additional NZ$216 million to assist it to expand the scope and intensity of support it provides to exporting firms. 
  • The government is proposing to establish a short-term temporary loan scheme for R&D-intensive businesses to complement the existing R&D Tax Incentive. It expects most R&D performing businesses will be able to access loans up to the equivalent of 50 per cent of a business’s annual R&D expenditure, capped at NZ$100,000. 
  • The government intends to allow for greater deductibility of feasibility and other non-deductible expenditure. This will enable businesses to claim tax deductions for unsuccessful or abandoned assets. This includes deductions that fall under the minimum threshold for small-to-medium enterprises.
  • The government will expand eligibility to the Wage Subsidy Scheme to include pre-revenue R&D start-up firms that are recognised by Callaghan Innovation. 
  • A NZ$10 million fund is to be established to provide small businesses with incentives and grants to encourage e-commerce, train more digital advisers and provide information and support for SMEs wanting to incorporate e-commerce into their business models.
  • NZ$6.5 million is earmarked to help develop the Māori economy in sectors such as forestry and food where there are already strong iwi businesses. 
  • The establishment of a NZ$400 million Tourism Sector Recovery Plan to support the first stages of an action plan agreed with the industry. This will include a transitions program to support businesses to plan for the next steps, a fund to ensure key tourism assets survive, a domestic tourism marketing campaign and a public/private taskforce to shape the future of the industry.

Extra funding for government agencies

  • Treasury is to receive a NZ$10.3 million increase in funding over the next four years to ensure it is adequately resourced to provide key economic advice in response to COVID-19.
  • Business.govt.nz will receive NZ$2.3 million to enable it to work with 200 partners to deliver tailored recovery guidance and advice to small businesses.
  • NZ$11.4 million will be spent to support the agritech sector, including funding the development of robotics in horticulture and helping commercialise innovative technologies.
  • The Financial Markets Authority (FMA) will receive NZ$5.2 million in additional funding for the implementation of the supervision of a new financial advice regime.
  • The FMA will also receive an additional NZ$12 million over the next four years into its Litigation Fund to enable it to maintain a credible deterrence to misconduct in financial services and enable it to meet the increasing demands expected to arise from the larger licensed adviser sector.
  • The Ministry of Business, Innovation and Employment will receive funding for the upgrade of its finance management information system to ensure it can implement e-Invoicing and faster invoice payment times.
  • The Commerce Commission will receive an additional NZ$42 million over the next four years to allow it to focus on the potential impacts of COVID-19 on competition in markets, consumers and regulated industries. 
  • The Serious Fraud Office will receive additional funding of around NZ$10 million over the next four years to meet demand stemming from increasingly complex financial crime investigations, together with building organisational resilience.

Other relevant announcements

  • The government has said it will build 8000 new public or transitional homes over the next four to five years at a cost of around NZ$5 billion.
  • The Government launched a Trade and Apprenticeships Training Package which will include free apprenticeships and training in targeted critical industries, support for employers to retain and keep training their apprentices and funding for additional tertiary education enrolments.
  • The government is providing additional funding of NZ$3.9 billion over the next four years to district health boards (DHBs) to maintain DHB services, such as hospital care, mental health support, primary health care and support for older people.
  • The establishment of an initial NZ$3 billion contingency fund for additional infrastructure investment. The government will make the decision on which projects should be funded from this contingency in the coming weeks and months.
  • The establishment of a Māori COVID-19 Recovery Package totaling NZ$485 million. It includes a range of measures to support Whānau through the recovery period.
  • The New Zealand Screen Production Grant – International will get a NZ$146 million boost to meet growing demand for international screen production in New Zealand.
  • The Strategic Science Investment Fund Platforms funding for Crown research institutes will get a NZ$60 million boost over the next four years to retain scientific expertise and capability in New Zealand.
  • The Building Financial Capability services will receive an additional NZ$9.7 million over the next four years to assist vulnerable people in improving their financial capability.

Snapshot of New Zealand’s economy

In the Budget papers, the government is forecasting that New Zealand’s real GDP will decline from 2.8 per cent growth in the year ending June 2019 to a 4.6 per cent contraction in the year ending June 2020.

This includes an expected decline in GDP of over 20 per cent in the June 2020 quarter. In 2021, the Government forecasts the economy to shrink a further 1.0 per cent, before growing 8.6 per cent in 2022.

Unemployment is forecast to increase significantly, peaking at 9.8 per cent in the September 2020 quarter. The Government forecasts the unemployment rate to fall to 7.6 per cent in 2021.

COVID-19 has resulted in a significant increase in government spending. Core Crown expenses are expected to rise from NZ$87.0 billion in 2019 to NZ$114.0 billion in 2020.

Meanwhile, COVID-19 is also expected to hit government revenue hard, with Core Crown revenue forecast to fall from NZ$93.5 billion in 2019, to NZ$89.5 billion in 2020 and NZ$87.0 billion in 2021.

This increase in spending and decrease in revenue will flow through to a large increase in the government’s deficit. The total operating balance before gains and losses (OBEGAL) is forecast to change from a surplus of NZ$7.4 billion in 2019 to deficit of NZ$28.3 billion in 2020 (9.6 per cent of GDP) and a forecast deficit of NZ$29.6 billion in 2021 (10.1 per cent of GDP).

The budget papers state “The increase in government spending reflects our response to the health and economic impact of COVID-19.”

Debt is also forecast to increase significantly. Net Core Crown debt is forecast to rise from 19.0 per cent of GDP in 2019 to 30.2 per cent of GDP in 2020 and 44.0 per cent of GDP in 2021.

The budget papers state “our debt levels will continue to remain prudent and will continue to remain well below the average for other advanced countries.”

The government has assumed that the COVID-19 alert level restrictions have the following constraint on economic activity:

  • Level 1 – 5 to 10 per cent
  • Level 2 – 10 to 15 per cent
  • Level 3 – 25 per cent
  • Level 4 – 40 per cent

Net annual migration to New Zealand is expected to fall from around 50,000 over the second half of 2019 to just 4000 by March 2021.

Exports from New Zealand are forecast to fall 8.7 per cent in 2020 and 16.1 per cent in 2021.

It should be noted that these economic forecasts were completed on 17 April, before the Budget was finalised and the additional spending in the CRRF was announced; therefore the forecasts may be somewhat pessimistic.


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