Pre-budget speech to BNZ business breakfastFinance
Good morning, and thank you to the BNZ for hosting this pre-Budget speech.
Before I go any further this morning I want to acknowledge what Aucklanders, and others around this region have just been through again in the past couple of days.
The latest rain and flooding has just compounded the pain of what this region was still cleaning up from in the wake of Cyclone Gabrielle and the Anniversary Weekend Floods, and added stress to what has already been a very difficult time.
And then we have also had the tragic death of Whangerei Boys High School pupil Karnin Ahorangi Petera. Our thoughts are with his family and friends.
Following on from the deaths during the Auckland floods and Cyclone Gabrielle it is a stark and tragic reminder of the impact climate change and resulting severe weather events can have.
The severe weather events are a significant part of the backdrop to Budget 2023. Along with a deteriorating global economy and high inflation driving cost of living pressures for so many New Zealanders, they have made for a set of difficult decisions and trade-offs.
This is my sixth Budget, and they don’t get any easier!
In this context Budget 2023 will have four themes. They are:
- supporting New Zealanders with the cost of living,
- delivering the services New Zealanders rely on,
- recovery and resilience, including economic resilience and
- fiscal sustainability.
Yesterday I spoke about fiscal sustainability and today I want to talk about the recovery and resilience theme.
It is this theme that generates the greatest questions about the future of New Zealand’s economy. How do we handle what the world and the weather and the ground beneath us throws at us with increasing frequency and intensity? How do we support businesses to be even more resilient, productive and innovative?
Due to the significant scale of the recent events New Zealand has faced, we have had to go considerably further than just the traditional Emergency Response framework to step up with greater support for businesses, communities and local government.
We’ve been able to do that because of the resilience of New Zealand’s economy, and the strength of the Government’s balance sheet.
As a result we are able to both step up to support New Zealanders through what we are facing in the here-and-now, while also being able to plan ahead to build stronger foundations.
The past five-and-a-half years have brought some amazing progress for New Zealand, despite all the challenges.
We have supported low and middle income families and brought 77,000 children out of poverty.
Wages have risen on average more than inflation.
We have record-low unemployment meaning more people than ever are engaged in work.
We’ve secured new trade deals so that our programme of FTAs covers nearly three-quarters of New Zealand’s exports, up from less than half six years ago.
None of that takes away from the very challenging time being experienced for many New Zealanders, households and businesses. But it shows what we can do with our Wellbeing Approach and careful management of the books.
I take very seriously my role as the steward of New Zealand’s public finances. To me, this job is to ensure the Government is always in a position where we can provide adequate levels of services like healthcare, education and housing.
That we are in a position where we can invest in the infrastructure our economy and communities need to grow and prosper. That we can continuously support the most vulnerable in our society, which the Government has a moral obligation to do.
It also means ensuring the Government can always step up in times of need – that there is a buffer or capacity available to deal with the unexpected without having to drastically cut into the services that New Zealanders rely on in their everyday lives.
In recent years various crises that have as you know, come to our shores have required us step up to and respond.
I think back to the early days of COVID-19 and the decisions we had to make when faced with forecasts that the pandemic would kill thousands and bring the greatest global economic downturn since the Great Depression.
It’s no use preparing for a rainy day if, when that day comes, you aren’t prepared to put the umbrella up.
We used the strength and resilience we had built into the Government’s balance sheet to ensure New Zealand had the lowest excess mortality rate in the world, and provide confidence and cashflow to businesses affected by lockdowns and travel restrictions.
We’ve come out of the emergency COVID response with our economy more than 6 percent larger than before the pandemic in real terms. Unemployment is near record-lows.
New Zealand is once again one of the most desirable places in the world for skilled people to come to for work, according to the OECD – and we are seeing this confirmed by record work visa numbers.
New Zealand also comes out of the pandemic with some of the lowest public debt in the world. Our net debt sits at around 19 percent of GDP, well below the 30 percent ceiling that we indicated when we set the fiscal rules last year.
It continues to compare well to the countries we often compare ourselves to, such as Australia at 36 percent, the United Kingdom at 95 percent and the United States at 96 percent.
As I said it’s a tough time for many people, but we are as well positioned as we can be to deal with it.
In Budget 2023 we are investing to support recovery and resilience to deal with the here and now, and the long term.
The Budget will provide further support towards the response to the Auckland Anniversary Weekend floods, and the clean-up and recovery from Cyclone Gabrielle – building on the $889 million of support already allocated to date.
That support has gone to businesses, growers and farmers. It is supporting local councils, Iwi and communities to clean up. It’s providing temporary housing and accommodation. We have also invested significantly in infrastructure rebuilds, including roads and rail.
Earlier this week, Transport Minister Michael Wood announced Waka Kotahi’s decision to rebuild the crucial section of SH25A to the Coromandel.
As of the beginning of May, more than $80 million of the $250 million emergency works funding announced following Cyclone Gabrielle had been spent, with more ready to go – around 60% of spend so far has been on local roads not owned by the Government, and around 40% on state highways.
Estimates from Treasury have put the cost of asset damage alone from the floods and Cyclone at between $9 billion and $14.5 billion.
Half of this cost estimate relates to ‘public infrastructure’ – assets owned by central and local government such as roads and rail, bridges and stopbanks. Infrastructure like schools – which often act as community hubs and civil defence centres in times of crisis – also took a battering, along with health facilities.
We’ll have more to say about our ongoing response on Sunday as we continue the ‘rolling maul’ of response and recovery support funded by the Government, with a focus on public infrastructure.
This won’t be the end of the government stepping up to help impacted communities.
We are working with Regional Recovery Agencies as they develop their regional recovery plans.
We’re also working with banks and insurance companies to ensure they remain part of the response and solutions to the issues private businesses are facing.
And we are assessing how we can further support severely impacted sectors, such as the horticulture industry to rebuild.
This will take a little more time, but we recognise the urgency in giving certainty of the government’s commitment. I can say for sure we are in this for long haul as a partner.
I do need to make something else clear. Central Government alone cannot take on all of the costs that are faced in this recovery and rebuild.
We have been taking on the majority of the initial response costs, because it is the right and necessary thing to do. And our resilient position has allowed us to do so.
As we have shown during previous crises, it was important that we put support in place quickly to provide cashflow and confidence in the immediate aftermath of this natural disaster.
As we move to the rebuild phase and consider the future of severely affected land following the floods, hard calls are going to have to be made, by central government, local government, commercial businesses and local communities, banks and insurance companies.
It will require a partnership – for making decisions, and how we finance these decisions.
Last month, the Prime Minister announced that we would pay the Government’s share of response and recovery costs through the Government’s annual allowances we set ourselves each year to control spending.
This has required prioritisation and tough decisions during the Budget 2023 process. Yesterday I outlined how the Government had identified $4 billion worth of savings and reprioritisations over the next four years which would be available to go towards more pressing priorities.
This will help us build back stronger and more resilient infrastructure to support regions affected by the cyclone, and the sectors which operate in them.
Budget 2023 will also invest so that we can plan ahead. To be more secure in the face of whatever the world might throw at us next, while growing a higher-wage, low-emissions economy. This will include skills, research and innovation, and infrastructure.
Infrastructure investment will be critical both to the rebuild from recent extreme weather events, and to our future economic growth and security. We will build on the tens of billions of dollars we have invested in recent years.
New Zealand has an extraordinary infrastructure deficit. Treasury’s Investment Statement last year estimated the cost of addressing the deficit and stopping it getting worse at $210 billion over the next thirty years.
Decades of failing to maintain and enhance our infrastructure has been exacerbated by failing to plan and build for population growth.
On top of that we are acutely aware that the infrastructure that we do invest in needs to be resilient to the ever more obvious impacts of climate change.
There is no point building back from the weather events of recent years in just the same way when we know we will be experiencing more of them in the future.
Build back better is not an empty slogan when it comes to the way we have to develop our infrastructure. It is an integral and critical approach.
We have achieved significant progress with our National Adaption Plan and work is underway on adaptation legislation. Work has also begun to develop principles and frameworks for how we might confront and decide land use changes due to rising sea levels and flooding risks.
In response to the Auckland Anniversary Floods and Cyclone Gabrielle that policy work on managed retreat and resilience has moved very quickly to become about practical implementation.
We are in the middle of it as we speak. Yesterday, I set out how we were progressing land-use decisions in the most affected regions following the recent flooding, including timelines for making decisions and engaging with communities on next steps.
I want to acknowledge for many affected communities that they are desperate for certainty on the next steps. We are working as fast as we can with Councils and insurers to get the data thoroughly checked to make sure the next steps are also the right steps.
It is also our job to plan ahead and build future resilience into our national infrastructure network to protect and grow our economy.
It is crucial that we continue to lift investment around the country to close the infrastructure deficit New Zealand has built up over decades.
I believe it is also crucial that New Zealanders are given certainty that their Government has the ability to make these investments.
This requires strong and resilient finances.
Now is not the time to be putting that resilience at risk by undermining the Government’s fiscal position with unfunded inflationary tax cuts, which would take money away from the Government’s ability to step up and support communities by planning ahead.
I can tell you today that on Budget Day the Government will be taking further steps to fund investment in the infrastructure rebuild following the cyclone and floods, and, importantly, looking towards future national resilience projects to provide greater protection to communities around the country from the increased risks they face.
I won’t say much more about this funding today, other to say that this will be a down-payment on making sure our nationally strategic infrastructure is strong and resilient.
It is a concrete commitment that we won’t just kick the can down the road when it comes to creating the building blocks for a stronger more resilient economy, and a more connected and inclusive society.
So while we will build back better, stronger and smarter from Gabrielle, our job is to step up and make sure we’re building stronger and smarter resilience into other parts of the country which are at risk from the greater number of weather events and natural disasters.
To give just one example, in addition to the funding we are able to contribute from the Budget allowances to strategic infrastructure and the Cyclone rebuild, Transport Minister Michael Wood has been working with Waka Kotahi on a programme of regional resilience investments for our transport network.
This is what they call the invisible component of our transport network, like culverts, slip protection, and water pumps.
This work will be funded separately from the annual road maintenance budgets due to its importance, to give confidence to our regions that funding is there and ready to be deployed. It will be ongoing work identifying and prioritising these projects, with an initial set of projects to be announced through the Budget.
These investments to build our economic resilience are an example of the Wellbeing Approach in action. We have a moral obligation to every New Zealander and every region to protect and strengthen their infrastructure – physical and social. This is the intergenerational focus that is at the core of our wellbeing work.
There is an obligation to plan ahead, and to plan for resilience.
We can do that because we have one of the strongest and most resilient public balance sheets in the world.
That is why a key focus of Budget 2023 will be fiscal sustainability to ensure we can invest in a resilient economy and continue to support the recovery from the recent extreme weather.
We have cut our cloth, and prioritised spending through a series of tough decisions.
And we have to balance that against the other two themes that I mentioned at the start of my speech, easing the pressure of the cost of living and funding our core services.
There are trade-offs, and we have deferred projects that we meant a lot to many people. But that is the right thing to do in today’s climate.
We will support New Zealanders in the here-and-now against what is being thrown at us from a volatile world and extreme weather, while also making sure we are investing in a better tomorrow.
That, is what I believe a responsible government must do, and that is what you will see in Budget 2023.