So, what's our view?
To be fair to the Government, having fresh new ideas for how to spend $50bn dollars when they have just been blind-sided by a once in 100 year pandemic that has shut borders, decimated health systems and created states of emergency around the world, was always going to be tough. The focus of today’s budget was all about raising cash (or increasing debt), to keep the economy ticking over in the short to medium term and a "plan to have a plan" over the long term.
At a time when businesses are praying for a surge in sales, we need to act with caution. For New Zealand to return to a budget surplus by 2028, which the Government has boldly set as the target, its forecasted GDP growth will peak at 8.6 per cent. As a nation we haven’t come anywhere near that for years. We know from history that economies bounce back well after downturns, but this number seems ambitious at best. If we can achieve that it will be an incredible come back, however eventually, the $50bn will need to be repaid. If the economy does not perform to forecast, the Government will need to reconfigure the tax settings to recoup its spending. So, while there was not much announced in the tax space today, we can expect to see tax reforms soon and these will only create greater headwinds for our recovering economy. Businesses should be cautious about the country’s long-term fiscal position as we fight our way out.