20 May 2021
New Zealand Budget 2021

Will the road to recovery lead to an economy that’s revived or reimagined?

By EY Oceania

Multidisciplinary professional services organization

20 May 2021

Has the government dug too deep into next years’ pockets?

Last year’s budget was all about driving economic stimulus, and while we’ve come out the other side of COVID-19 in decent shape, there are also downsides. Despite our conservative approach to debt, at least in comparison to our Trans-Tasman neighbours, we’re technically more indebted than ever. And, while this doesn’t mean we’re in a fiscal crisis, we could be if we don’t get the gearing right. 

If we stay in second gear, we’re going to eventually burn the economic clutch out. We need a budget that will give us the ability to drive the whole country forward and propel us towards a better and stronger recovery that benefits everyone.

So, what were the good and bad bits of this year’s budget?

We’re in better shape than we thought we would be 12 months ago

The first takeaway from the numbers is that we’re doing alright. From a low of -1.7% GDP growth in 2020, to 2.9% GDP growth in 2021, the government sees the economy continuing its solid growth trajectory and peaking at 4.4% in 2023. However, a concern of this budget is the rapidly escalating debt track, both nominal and as a % of GDP. 

Click the headings below to review the charts

We won’t be back in the black anytime soon. In fact, we’ll be running double digit billion-dollar budget deficits until 2022 before moving close to break even in 2025. A return to surplus isn’t expected until 2026 – if you can see that far into the future.


The good bits

There were positive announcements around social development. Beneficiaries will see their weekly income increase up to $55 per week. The biggest lift in benefits in more than a generation. Increases to benefits can have fast and impactful inflationary impacts on the economy and no doubt this was part of the decision-making process.

One of the bigger ‘ideas’ is a steering committee that will explore the benefits of an unemployment insurance scheme. The scheme would be designed to cushion the impact of job loss, giving workers up to 80% of their income to find the right job, or to retrain. There was no suggestion as to how the scheme will be funded, and the fact we are so early in the exploration process means it’s a good idea, but it’s a long, long way off from becoming a reality.

It came as no surprise there was $1.7bn capital and $2.1b operating put towards the Housing Acceleration Fund. There is also $120m going towards making Kiwi homes warmer, drier and healthier.

The sustainability and climate change rhetoric was ambitious and positive. We knew going in $67m was being put towards decarbonising the public service, and while there were other good announcements, like the clean car standard and the return of the carbon neutral initiative, targets are not a proxy for action. There is a lot of talk about budgets laying groundwork to meet targets, but the next stage is doing something to meet those targets and that’s what we want to see.

Like last year, the government has chosen to leave businesses alone. No new taxes, but then also no tax relief. This is both good and bad – on the one hand it means they can get on with business, but on the other hand it means there is no relief in tough market conditions.

And the bits we weren’t so sure about

No budget can be all encompassing, there will always be parts of society, or sectors in business that miss out. There are a couple of key watch outs in this respect for us.

When analysing the numbers, it appears the government has spent almost 45% of the money it set aside for new spending in Budget 2022 to pay for the initiatives in this budget. Twelve months is a long time in any economic cycle, so we hope the government hasn’t used up too many of the strings in its bow for next year.

The other concern is the rapidly escalating debt track, both nominal and as a percentage of GDP. 

We are doing well compared to Australia, Canada, the UK and the US (based on IMF measures), however there are murmurings of interest rate hikes, so we will be susceptible to these should they eventuate.

We also need to focus more on skills shortages. Yes, the digital skills programme will continue, but given the skills shortages advertised in media headlines every week, $44m seems low. Low unemployment is one of those perverse concerns that economists have, and generally where unemployment is under 5%, which is what the government is aiming for, you start to see skill shortages and competition for workers leading to wage inflation.

The other watch out was that the majority of the numbers were based off an underlying assumption that the border was substantively open by January 31st, 2022. This creates urgency for the vaccination programme to kick up a gear so the border can open.

What’s our take?

Overall, we think the economic outlook is steady and positive. Budget 2021 follows the playbook and represents, as the Minister of Finance says, a balance across many competing objectives. Under no circumstances was it a lolly scramble and the extra spending is impactful and carefully targeted. There is a very narrow range of new initiatives, but they have large budgets, so are more likely to make a difference.

Viewed as a one-year budget its good, and it was encouraging to see more of a sustainability and climate change focus peppered throughout the different announcements – however we need to see action on those initiatives next.

It’s safe to say that this budget lives up to its name of being focused on wellbeing and recovery but the question remains, have they dug too deep into next years’ pockets?



Chris Money, Partner, Strategy and Transactions


Gerri Ward, Director, Climate Change and Sustainability


Paul Dunne, Partner, Tax Policy Leader



It’s safe to say that this budget lives up to its name of being focused on wellbeing and recovery but the question remains, have they dug too deep into next years’ pockets?

About this article

By EY Oceania

Multidisciplinary professional services organization