Continuous Disclosure: How inflationary will the Budget be?

Waipipi wind farm, South Taranaki. Photo/ Brett Phibbs

There is never a convenient time to bite the bullet and make the necessary investment in reducing our carbon footprint.

But one might wonder whether it's particularly unfortunate timing, the Government is in a position to commit to a plan for how New Zealand will make the transition when inflation is at a three-decade high.

Won't pumping billions of dollars into the economy to mitigate the climate change problem, exacerbate the inflation problem?

Not necessarily, believes Deloitte chief economist Zoe Wallis, noting it depends on how quickly change is made and what else it crowds out.

Speaking on NZ Herald's Continuous Disclosure podcast, Wallis said that making the transition in line with the Government's Emissions Reduction Plan, released on Monday, will be a "slow burn".

"Similar to major infrastructure projects we've seen… it's not going to happen overnight," Wallis said.

"None of this is really going to get off the ground in the next year. So, by the time a lot of these programmes really come underway, it might be that we're actually a lot less concerned about inflation and more concerned about growth.

"It's probably more a question around, what will the growth impetus be?"

The Government's Emissions Reduction Plan outlines how New Zealand will meet its emissions budgets, set in legislation.

It comes on the back of recommendations made by the Climate Change Commission and is expected to see the Government allocate an initial $2.9 billion over four years towards various initiatives that affect all parts of the economy, including the energy, transport, and agricultural sectors.

This funding, derived from Emissions Trading Scheme revenue, sits outside of the Government's regular capital and operational expenditure allowances - the latter of which is expected to be expanded by a whopper $6b at Thursday's Budget.

The additional expenditure is largely expected to go towards paying for upcoming health reforms.

Asked whether governments should push on with long-term spending plans regardless of the macroeconomic environment, or be agile and curate spending plans in response to this environment, Wallis said, a bit of both.

She noted it might be difficult for the Government to sell health reforms and climate initiatives to constituents grappling with higher living costs. But believed the Government shouldn't back away from reform programmes due to inflation.

Furthermore, Wallis said, "You are looking at solid growth at the moment, but perhaps there are some clouds on the horizon.

"Things are slowing down in China, global growth has been revised down, you've got the Reserve Bank doing quite a rapid tightening job in terms of monetary policy, which is already having a flow-on effect to households. You're looking at consumer confidence at one of the lowest levels you've seen since the GFC [Global Financial Crisis] basically.

"So, in that regard, I don't think it's required that the Government really reins back in on spending at this point in time.

"I think having a systematic plan for spending over the next few years is prudent."

Continuous Disclosure is available on IHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every second Wednesday.

You can find more New Zealand Herald podcasts at nzherald.co.nz/podcasts or on IHeartRadio.