InvestNow News – 22nd May – Harbour – Large Fiscal Spending Promises
Hamish Pepper – May 15, 2020
- Budget 2020 revealed larger-than-expected potential spending in response to COVID-19
- However, detail was lacking on many spending priorities
- The accompanying larger bond issuance programme may prove difficult for the market to digest, placing upward pressure on government bond yields
As part of its Budget 2020, the Government announced an additional $15.9bn of fiscal stimulus today; taking the total COVID-19 response so far to around $42bn, or 13.5% of Gross Domestic Product (GDP), one of the largest globally. The creation of a $50bn COVID-19 Response and Recovery Fund (CRRF) allows for an additional c.$20bn of spending and, if used in its entirety, the total fiscal stimulus delivered in response to COVID-19 would be $62.1bn, or 20% of GDP.
Government debt is projected to increase from 19% of GDP in 2019, to 53.6% by June 2023. While a high number by New Zealand standards, this is low versus other countries. The OECD average, for example, is around 100%. Ratings agency Standard & Poor’s (S&P) indicated its comfort with the Budget, saying New Zealand’s positive rating outlook is supported by S&P’s expectations that the economy should recover faster than the Budget assumes, and fiscal deficits may not be as large or persistent.
The key areas of additional spending are:
- $4bn business support package, of which $3.2bn relates to a targeted wage subsidy scheme 8-week extension (from 10 June to 1 September), for those who have suffered a 50% reduction in turnover over the 30 days prior to application compared to last year.
- $3bn infrastructure investment, with specific projects still to be determined. The Government noted that it will have a focus on regional infrastructure projects identified through the Provincial Growth Fund and on projects that advance other goals of the Government.
- $1.6bn trades and apprentices’ package to provide opportunities for people to receive trades training.
- $1bn environmental jobs package to provide jobs and support habitat protection, pest control and biodiversity on public lands.