Editorial: Australian surplus adds a frisson to May Budget

New Zealand Prime Minister Chris Hipkins (right) chatting with Australian Prime Minister Anthony Albanese (centre) and Treasurer Jim Chalmers (left) in Brisbane. Photo / Sarah Marshall, AP

Editorial

EDITORIAL

The stakes were already high for Finance Minister Grant Robertson’s Budget delivery this time next week.

Election-year budgets are a pressure pot where the need to meet voter expectations simmers in the mix with a need for fiscal responsibility. Too much of either leads to a most unsavoury taste.

Today’s announcement of the Food Price Index for April 2023 is expected to continue to reflect the pain at the checkout, after data for the March quarter already revealed a punishing 12.1 per cent increase in food prices year-on-year.

Meanwhile, our economic outlook continues to dim. The OECD projects New Zealand’s real GDP growth to slow to 1.0 per cent in 2023 and 1.2 per cent in 2024. It points out private consumption is likely to weaken with lower employment growth and rising mortgage-servicing costs. Tighter credit conditions and weakening demand are also expected to weigh on business investment. The OECD also tips unemployment to increase, even as headline inflation falls, and there is a risk of house prices falling even further than previously assumed, accentuating the downturn.

Now the heat has been turned up by our transtasman neighbours. Treasurer Jim Chalmers this week delivered the first Budget surplus in 15 years and will pump almost $16 billion into the Australian economy to help alleviate the rising cost of living for households.

There’s $10b in increases to unemployment benefits and other welfare payments, $3.7b in incentives for doctors to provide more free consultations, and $3.2b in one-off energy bill discounts. The Budget also includes a $12b boost to the pay packets of aged care workers, cheaper childcare subsidies, and more rent assistance.

All this, combined with the recently-smoothed pathway to citizenship for New Zealanders, will only heighten interest from our depleted and dissatisfied workforce.

There’s always hope, however. The most recent Budget policy statement, released in December, stated the Government will manage fiscal policy to take pressure off inflation and return spending to normal levels following the pandemic response.

At the same time, a need was recognised to balance those measures with support through a “shallow speed-bump” recession forecast for 2023. “As we navigate through this period, our primary focus at the Budget will be on supporting families and households experiencing cost of living pressures,” the policy stated.

In our case, Treasury has forecast the Government will return the books to surplus in 2024/25, marking five years of deficits following the onset of Covid-19. That would be a good outcome considering the six years of deficits run by the previous government after the Global Financial Crisis.

More positive news is that by the time New Zealand returns to surplus, deficits will be a combined $5.1b smaller than forecast back in May last year.

Better prospects are just over the horizon, and apparently improving as we approach it. Next week’s Budget will need to tell that story while delivering the right measures of targeted assistance with fiscal prudence.

Australia’s remarkable economic turnaround may impact on our labour force, but also shows it can be done.