Finance Minister Grant Robertson will deliver Budget 2022 on Thursday. Here are four things to look out for:
1. Will the Government commit to new, perhaps temporary, policies to ease the pain of inflation?
Robertson is under political pressure to use the Budget to address the "cost-of-living crisis".
It is of course the Reserve Bank's (RBNZ) job to keep inflation in check, and some of the factors pushing prices up are out of the Government's control – i.e. higher oil prices due to the war in Ukraine and supply chain hold-ups caused by Covid-19. Immigration and other policy settings also impact inflation.
Nonetheless, households with squeezed budgets will be looking for some reprieve.
All eyes will be on whether the Government extends its temporary fuel tax cut beyond three months and continues to halve public transport fares.
The Government chose not to include these policies in its Emissions Reduction Plan released on Monday, suggesting extensions are either off the cards, or will be sold as ways of soothing the pain of inflation via the Budget.
Robertson may also look at providing low-income households with more support via the welfare system. However, with welfare the focus of last year's Budget, bets aren't on there being major new boosts this year.
Economists stress any support should be targeted to avoid exacerbating inflation. The RBNZ, which is furiously tightening monetary policy, has also called for targeted spending.
2. By how much will the Government increase new operational expenditure once spending on health reforms is stripped out?
Robertson has signalled a large portion of the $6 billion increase in operational expenditure pencilled in for Budget 2022 will go towards reforming the health system.
Given this expansion is around twice as large as usual increases in operational expenditure, it will be important to examine exactly how much of the "one-off" hike is in fact going to a major "one-off" long-term investment in health.
Spending on health reforms may also include writing off District Health Board debt.
The other major Budget 2022 focus – addressing climate change – is mostly being paid for using revenue generated from the Emissions Trading Scheme.
Robertson on Monday announced $2.8b will be put towards reducing carbon emissions over four years.
This spending will come over and above the Government's operational and capital allowances.
3. How much more debt will the Treasury issue to help the RBNZ unwind its quantitative easing programme?
During 2020 and 2021, the RBNZ created money to buy $53b of New Zealand Government Bonds (debt), which the Treasury issued to pay for Covid-related expenses.
It did so to put downward pressure on interest rates to boost inflation and employment in line with its monetary policy mandate.
But now that the economy is overheating, the RBNZ has changed tack and is trying to increase the cost and decrease the supply of money in the economy.
Accordingly, it's trying to get rid of the government bonds it bought in 2020 and 2021.
Rather than sell the government bonds back to the banks it bought them from, the RBNZ is required (by the finance minister) to sell them back to the Treasury.
It has committed to selling $5b of bonds per year, starting from July.
The Treasury will now need to borrow more to help fund these buybacks.
Bond investors will be interested in just how much more the Treasury will need to borrow.
Of course, the Treasury will factor in the Government's spending plans as usual. But the impact of funding those bond buybacks will be novel for New Zealand.
The Treasury, when it last published its bond issuance programme in December, forecast issuing a total of $64b of bonds between 2022/23 and 2025/26.
Economists expect it will increase this forecast issuance programme by $25-30b over the four-year period.
To put these figures in context, pre-Covid, the Treasury expected to issue only $8b of government bonds in the year to June 2023.
4. By how much does the Treasury see house prices falling?
The Treasury's economic forecasts, released alongside the Budget, are always of interest.
Economists see the Treasury downgrading its economic outlook from its last update released in December.
The Russian invasion of Ukraine has since created uncertainty on the geopolitical front and hiked fuel costs. Central banks have committed to tightening monetary conditions relatively aggressively, and Covid-19 is still disrupting supply chains.
Inflation is expected to support the Government's tax take. But it is expected to take until 2025 (a year later than previously forecast) for the books to return to surplus.
House prices falling back from astronomic levels will also affect the economic outlook. The country's housing stock was valued at $1.76 trillion at the end of 2021, according to the RBNZ's latest available data – five times the value of New Zealand's gross domestic product.
The Treasury, in December, forecast prices falling by only 0.2 per cent in the year to June 2023, before remaining relatively flat thereafter.
However, the Treasury is likely to downgrade these forecasts.
The RBNZ in February forecast annual declines in eight consecutive quarters from December this year, with drops peaking at 5.4 per cent. Westpac economists earlier this month forecast prices falling by 15 per cent from now until the end of 2023.