Budget 2019: New schools spearhead $41.1 billion capital programme

The government has put education front and centre of a $41.1 billion capital spending programme over the next five years, with plans to build and upgrade schools to accommodate the nation's growing population.

The 2019 Budget has allocated $5b of capital spending for education over the five-year horizon eclipsing heavy spends in the usual suspects of defence and transport.

That replaces the government's Kiwibuild housing programme, which has failed to fire and was last year's cornerstone of capital investment.

The first wave of education spending includes a $286.8 million allocation for three new schools, four new expansions, and extra classrooms to cater to almost 6,000 students, and Education Minister Chris Hipkins has another $913.3m to plan for growth over the next decade.

"This is the largest ever investment in school property by a New Zealand government," Hipkins said.

"This programme will give certainty to schools, communities and the construction sector. It will streamline procurement processes, giving taxpayers more value for money."

The government has been at pains to say it's had to direct a lot of investment into bringing ageing and obsolete infrastructure up to scratch, and Finance Minister Grant Robertson today raised the Crown's four-year capital allowance by $1.7b to $14.8b.

"These investments will provide certainty to businesses, particularly in the construction sector, that we are investing in and stimulating the economy," he said.

Of that $14.8b, it's allocated $10.4b and has another $4.4b to allocate over the next three years.

The government's fiscal strategy said its investment will support near-term economic growth in the face of global headwinds. The fiscal impulse is expected to be 1.1 per cent for the current financial year, about half the 2.2 per cent predicted in the half-year update. From 2020, government spending is seen having a contractionary effect.

This year's budget is the first where a multi-year allowance has been used for capital investments, and when combined with the new Infrastructure Commission, aims to bring greater certainty to the construction sector.

The building industry has been struggling with tight margins, despite a boom, leading to the collapse of several firms such as Arrow International and Ebert Construction. Even Fletcher Building's vertical business was faced by $1b of losses.

The ANZ Business Outlook yesterday showed firms had scaled back their intentions for new residential investment, and indicated there were more construction firms that expected to shed jobs than hire new staff.

The Treasury expects residential investment to pick up after modest spending over the past two years, due to strong population growth. While the Treasury noted constraints in the sector, it predicts new policies and urban development reform will spur on spending.

The government has earmarked $4.7b of capital spending on defence and $4.2b for the New Zealand Transport Agency. District health boards will get $2.6b to upgrade dilapidated hospitals and health has $300m set aside in the first two years of the horizon.

Kiwirail gets an extra $1b to upgrade rolling stock and tracks and replace the interisland ferries. That takes its projected capital spending to $1.7b.

The increased capital spending will exceed the Crown's forecast cash flow for the next four years, and it will fund the balance by lifting the borrowing programme at a time when global interest rates remain near record lows.

That's seen pushing up nominal net debt, which is forecast to peak at $69.9b, or 19.9 per cent of GDP, in the 2021/22 year, before falling to $68.5b, or 18.7 per cent the following year.