Budget 2020: Budget at a glance

The world has changed dramatically in the six months since the Government released its Half Year Economic and Fiscal Update (HYEFU). Economic growth is now expected to decline 4.6% in the year to June 2020 compared with expectations of growth of 2.2% previously. The Treasury expects GDP to decline by a whopping 23.5% over the June quarter, before recovering somewhat as activity increases in subsequent months.

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Budget 2020 had a focus on the workforce and supporting employment. The Government announced an additional $3.2 billion to extend the wage subsidy support package (although this will require businesses to prove a 50% decline in revenue). This is expected to help keep unemployment to a peak of just under 10% in the September 2020 quarter. In addition, $1.6 billion has been dedicated to help support trades and apprentices and $1.1 billion of support for environmental jobs.

The Treasury acknowledged the highly uncertain nature of its forecasts and assumptions on Government expenditure and revenue given the current environment. Key assumptions in today’s Budget included that New Zealand’s borders remain closed to international visitors until the end of March 2021 – three months earlier than previously forecast in the Treasury’s economic scenarios. The underlying implication is that this would rely on a vaccine being developed and distributed by this time, which is looking tenuous at this stage.

In addition, the current situation is changing daily and the Treasury’s economic forecasts (which were finalised on 17 April) are already somewhat out of date given the pace of change and move to Level 2 on 14 May. For example, the forecasts don’t consider a Trans-Tasman border arrangement which would provide a significant boost to local tourism and some upside to economic growth.

To fund all of this spending, the Government has again hiked its forecast bond issuance to a total of $60 billion for the June 2021 year. Crown debt is expected to increase from 19.3% of GDP currently, up to a peak of 53.6% by 2023. This would far surpass the level of 40% debt-to-GDP seen in 2013 in the wake of the global financial crisis (GFC) and the Canterbury earthquakes.