New Zealand will post a $NZ7 billion ($A6.6b) deficit and spend another year in the red as it pays for the costs of Cyclone Gabrielle and major Auckland flooding.
However, Finance Minister Grant Robertson was upbeat New Zealand would avoid recession this year and soon put its inflationary nightmare in the rear vision mirror, with the headline CPI rate returning to three per cent by September 2024.
Releasing his sixth budget on Thursday, Mr Robertson found space for infrastructure and cost of living relief, which has $NZ1.2 billion ($A1.1b) of childcare support as a centrepiece.
A rebate available to three to five-year-olds will be expanded to two-year-olds, saving parents up to $NZ133.20 ($A128.30) a week.
A $NZ5 ($A4.70) co-payment for almost all prescribed medications will be scrapped, meaning all common medicines will be free.
In another win for families, public transport will be free for under 13s and half-price for 13 to 24-year-olds.
“It signals our priority to ease cost of living pressures, while also delivering policies that will support people to be in the workforce,” Mr Robertson said.
There is more spending in the budget – advertised in advance by Prime Minister Chris Hipkins as a “no frills” affair – than anticipated.
The budget creates a new $NZ6 billion ($A5.6b) National Resilience Plan to fund the rebuild from Auckland floods and Gabrielle, which Mr Robertson called the “second most costly natural disaster New Zealand has ever faced”.
In all, the finance minister says $NZ71b (A67b) worth of infrastructure spending – on schools, hospitals, public housing, road and rail – will be spent in the next five years.
However, Mr Robertson was adamant the budget would not fuel inflation.
“We’ve carefully calibrated our responses to help people, but not make that main problem worse.”
Treasury believes the storms produced $NZ9-14.5 billion ($A8.5-13.6b) worth of physical damage, and will cost New Zealand $NZ1 billion ($A940m) in lost exports.
Repairing and replacing damaged or destroyed homes will cost almost $NZ2 billion ($A1.9b) alone.
Conversely, increased spending in the wake of the storms is what may tip New Zealand out of the economic mire.
Gross domestic product fell by 0.6 per cent in the last quarter of 2022, and another contraction would see New Zealand enter recession.
That is no longer forecast, with Treasury forecasting tiny growth in each quarter of 2023, totalling just over one per cent for the year.
In a surprise move, the government has also included a tax hike for high-wealth individuals who use earn more than $NZ180,000 ($A169,000) a year in trusts.
It has brought the top trustee tax rate of 33 per cent in line with the top income tax rate of 39 per cent, a move which will earn the government $NZ1.1 billion ($A1b) over four years.
Revenue Minister David Parker said the change was in response to the recent high wealth individual research.
The government promised not to implement any changes from that research before the October 14 election: the tweak kicks in for April next year.
The headline deficit of $NZ7 billion ($A6.6b) is 1.8 per cent of GDP, with a return to surplus kicked out to 2025/26.
It is the second straight year Mr Robertson has pushed out a return to the black, meaning New Zealand will post six years of deficits following COVID-19.
Australian Associated Press