Pre-budget speech to Rabobank breakfast


I want to thank Rabobank for hosting us this morning, and all of you for making it along for an early start.

Yesterday, New Zealand opened its borders again to tourists and business visitors from around 60 visa waiver countries as we continue our reconnection with the world.

The resumption of tourism, and the recent trade missions led by the Prime Minister to Singapore and Japan show we are open for business.

We are in a strong position to plan for New Zealand’s future in a post-COVID world. I want that future to be one where we provide economic security to all New Zealanders, while delivering higher wage jobs that support a low emissions economy. 

Today, I want to outline how Budget 2022 will contribute to that goal, and in particular how we are going to rebuild and maintain a strong fiscal position, while tackling the major challenges facing our economy and society.

The context in which we are doing this was unimaginable just two years ago. COVID has changed everything, and while we have come through strongly, alongside this success there have been significant costs. For many businesses, sectors of our economy, and on individuals particularly when it comes to mental health.

This is not unique to New Zealand of course. The effects of the pandemic – the anxiety and the uncertainty – are something that the World Health Organisation has recognised as being a global phenomenon.

I want to acknowledge particularly given Rabobank’s role, and the representation in this room, the work and dedication of our farmers and growers, who have kept the exports moving and the income arriving during the pandemic.

The merchandise trade figures out last week show just how strongly goods exports have grown during the pandemic. In the year to March 2022, our goods exports were up by more than 8% compared to March 2020. In the past year alone, both milk powder and meat exports are up by more than 15%.

The partnerships created between business and government to help make this happen were invaluable – particularly the air connectivity scheme that we funded to keep our exports flying out as global airfreight was about to dry up during the world-wide lockdowns.

But, if the pressures of a global pandemic weren’t enough, the world is now faced with a global inflation spike as a result of ongoing supply chain disruptions and the war in Ukraine.

Recently the US has recorded inflation of 8.5%, Canada 6.7%, Germany 7.3% and the UK 6.2% with recent forecasts that it will rise towards 8%. The very latest OECD average was inflation of 7.7% across the OECD in March, putting New Zealand about middle of the pack.

Even if the inflation spike is expected to be temporary, this doesn’t take away from the significant impact it is having on households and businesses.

That’s why we moved quickly to cut fuel excise and halve the price of public transport to support New Zealanders feeling pain at the pump.

This is on top of changes to increase income support for low and middle income families from 1 April, and then from Sunday just gone, the resumption of the Winter Energy Payment to help those on income support and our superannuitants to meet the costs of heating their homes during winter.

This is all part of our plan to move away from the broad-based economic support which was needed during COVID and towards more targeted support to help manage Government costs and avoid exacerbating inflation.

We are also focused on addressing the constraints and forces that are fuelling inflation, including through our Immigration Rebalance, supermarket competition reform and reducing our reliance on volatile commodities like oil.

NZ economic context

In the face of the challenges that we have it is comforting to know that New Zealand has done well during COVID compared to the rest of the world.

Our economy has come through the COVID shock better than almost anywhere else:

  • We have received two Triple-A credit ratings from the two leading agencies, something few countries in the world are able to say.
  • GDP is up 5.6% from a year ago, and our economic activity is higher than it was before COVID-19.
  • Unemployment is at a record low of 3.2% against expectations when COVID hit that it could rise as high as 10%
  • Wages have outpaced inflation up until this recent inflation spike, and are forecast to do so again for every year after 2022, meaning households are better off under Labour, and
  • Our debt is set to peak at about half of Australia’s, around a third of that in the UK and around a fifth of the US, measured consistently as a percentage of GDP.

This has not happened by accident. It happened because we realised in New Zealand that a strong health response to COVID-19 was the best economic response.

It happened because we were prepared to step in with more than $20 billion of direct support for business and workers through the Wage Subsidy and Resurgence Support to protect lives and livelihoods.

Our calculated and considered economic policies during COVID worked for New Zealand and New Zealanders. We are now in a strong position as we look at what investment is required to grow the economy further as we plan for what the ‘new normal’ looks like in a world where COVID is under control and as inflation rates return back down towards more normal levels.

I am not underestimating what a challenging period of time we are in for in the New Zealand or global economy. But our success means being able to provide economic security in a volatile world, and close the infrastructure gap as we plan for the future.

And that’s where Budget 22 represents a key marker in our response to and recovery from COVID-19. Today I will outline our fiscal policy approach for the Budget and in a speech next week I will talk further about how the Budget will promote our economic security and overall wellbeing.

New debt measure

I mentioned a moment ago our comparatively strong debt position. This chart is the IMF’s most recent net debt forecasts in a measurement which is consistent across countries.

Peak figure highlighted General Government Net Debt (% of GDP)
Country 2021 2022 2023 2024 2025 2026 2027
New Zealand 15.0 20.0 21.3 21.1 19.9 18.0 16.4
Australia 35.7 37.5 40.7 41.3 40.7 39.4 37.9
United Kingdom 84.3 76.1 71.3 68.0 64.8 61.9 59.2
United States 101.3 95.8 94.9 96.1 99.2 102.4 105.6
Canada 33.2 32.1 31.6 31.3 30.8 29.1 27.6

These are their very latest forecasts released during April – and so it incorporates all of the IMF’s analysis of COVID spending and investments announced to date around the world.

You can see the strength of our position. Our net debt is forecast, using the IMF measure, to peak at just over 21% of GDP next year, and then fall over coming years down to 16%.

I use the IMF’s comparisons because it provides a more consistent framework for making cross-country comparisons. New Zealand has been an outlier in international circles in terms of how we measure our net debt. Compared to this slide, our main net debt measure reads at 35.2% of GDP in the latest Crown accounts to the end of February, with the HYEFU forecasting it to peak at 40.1%.

I can announce today that we have accepted the Treasury recommendation that New Zealand starts using a headline debt measure that is more comprehensive and will move New Zealand much closer to the international norm, to help compare our fiscal sustainability against others around the world.

The measure will better reflect the sustainability of our Government finances. This means that it will include a wider range of our assets (in particular the NZ Super Fund) but also our liabilities, including debt held by other Crown entities such as Kainga Ora or Waka Kotahi that have previously not been covered by the Core Crown Net Debt figure.

The new measure gives a headline net debt figure about 20 percentage points lower than the current one.

The Budget documentation will continue to publish the old measure, for transparency and the ability to make historical comparisons.

Budget 2022 – Multi-Year Funding

This will be the fourth Budget we have put together using the Wellbeing Approach. Essentially this recognises there are many aspects that make for a successful economy and society.

We need strong finances and sustainable growth as much as we need healthy and educated people, clean air to breathe and water to drink, and strong communities where we look after each other.

Our economic security and future are determined as much by our health and mental health, the skills and education that people have, and the housing that we live in.

To get to that position we need to do things differently as a government.  We need to break down silos between departments. We need to look further ahead to how our decisions affect future generations, and to make sure we address the big complex challenges that lie ahead.

Over my time as Minister of Finance I have been aware that the way we put a Budget together can have a huge influence on whether we are moving towards our goals. 

One of the early changes we made was to move from an annual capital allowance to a multi-year capital allowance.

When I became Minister, annual allowances meant that a single large capital purchase could wipe out much of the allowance in a given year as public accounting rules require the full cost to be booked when a decision is made, rather than when the expenditure actually occurs.

By moving to a rolling four-year allowance we have given ourselves much needed room to better plan our investments, and give certainty to those who we work with to deliver them.

In Budget 2022 we will be making further changes to modernise our Budget processes to support a longer-term, more joined-up approach that is essential to delivering improved wellbeing.

I have already indicated that there will be two major areas of focus for new spending in the Budget: health and climate change. In both cases we will be moving to multi-year funding allocations to better control costs by allowing for longer-term planning.

Health Funding

Our reforms of the Health system are designed to end the unfair postcode lottery and inequities of the DHB model that I know has been acutely felt in rural areas. 

The current health system is incredibly inefficient. Over the past two decades, DHBs have learned to run annual deficit after annual deficit because they know the annual Budget process allows them to do this.

We are putting an end to that. Budget 22 introduces – initially – a two-year funding allocation as we get our new streamlined health system up and running.

Once that is fully in place, Health will be placed on a three-year budget, so they can plan for what services New Zealanders will need and then put their heads down and get on with the job of delivering services instead of delivering deficits.

Climate Funding

We’re also making an important update to our Budgeting process to ensure we have the ability to make the significant investments we need to tackle the complex multi-generational issue of climate change.

That’s why we have set up a dedicated funding stream for our climate change investments, by recycling the proceeds from the Emissions Trading Scheme into a Climate Emergency Response Fund. It will operate as a four-year rolling fund that will allow us to kick off the major programmes required to meet the emissions budgets set by the Climate Commission.

This works very much like the National Land Transport Fund works to fund our transport projects, where fuel excise and road-user charges are protected to be used only for investment in transport.

It provides the confidence that we can plan ahead with certainty and it means our climate investments don’t add to debt.

Longer-term planning to manage costs and improve outcomes

The other change we are making in terms of the structure of the Budget is the piloting of longer-term funding for two clusters of departments, in the Justice and Natural Resources areas.

We have undertaken an expenditure review for the departments covered by each cluster. The funding that has been allocated is connected to key goals jointly set by the groups of Ministers and departments that will receive this funding.

Not only is this breaking down silos, but the clusters are funded for three years, meaning they do not have to come back for funding for programmes each year.

Departments and agencies have the certainty of funding so they can plan ahead: lock in longer-term contracts to have greater certainty on costs; hire the experts they need, and put in place plans to be able to manage cost fluctuations.

I apologise if this is all sounds a bit pointy headed. But it is important. We have to plan better if we are going to deliver better outcomes. We need to give more certainty and direction if we are going to meet the challenges ahead and maintain fiscal discipline. These Public Finance reforms are a critical underpinning of our future success as a country.

Fiscal Rules

The other significant shift that you will see in Budget 2022 is the return of fiscal rules to guide our Budget.

Many of you will remember when Labour came in to office in 2017, we committed to a set of fiscal rules, called the Budget Responsibility Rules.

They included running OBEGAL surpluses, while reducing debt to below 20% of GDP. On the debt side, we achieved that in our very first Budget, and we ran two surpluses in the two years before COVID hit.

COVID-19 obviously changed all that. Just as the previous National Government ran deficits and increased net debt following the Global Financial Crisis and Canterbury Earthquakes, we have done the same to protect New Zealanders from the effects of COVID-19.

Add in the impact of the War in Ukraine, and the ongoing supply chain disruption as a result of continued COVID responses around the world, and we are faced with running five years of deficits compared to National’s six. The first surplus since the 2018/19 year is expected in 2024/25.

The keen-eyed among you will realise that this is a year later than we set out in December.

We are not alone in toning down some of our expectations as a result of the war and ongoing supply chain issues. The IMF has said global growth will average 3.5% over 2022, down from the 4.4% it had previously forecast in January.

All that said, achieving a surplus within the next three fiscal years – at a quicker rate than National did after the Global Financial Crisis – is something I am proud to be able to do as Minister of Finance.

It’s important that we return to surplus in a measured and balanced way that supports New Zealanders through COVID and its on-going impacts. But it’s also important that we do return to surplus, because that gives is the best ability to address that key challenge of closing New Zealand’s infrastructure gap. The path for returning to surplus also puts downward pressure on inflation.

Over the past few months, I have been working with the Treasury to chart a course to a more sustainable and secure fiscal position. In its advice to me, the Treasury focussed on being able to achieve three objectives:

  1. Over time, being able to finance current spending from current revenues
  2. Being able to borrow to finance high-quality intergenerational capital investments, and
  3. Retaining the capacity to borrow to support economic stability in the event of large economic shocks by ensuring debt levels remain prudent


The new fiscal rules will ensure we are controlling spending, keeping a lid on debt and able to make important investments in infrastructure.

The first new fiscal rule I am announcing today is a commitment that, once we reach our OBEGAL surplus as planned in 2024/25, we will maintain that within a low range 0% of GDP to 2% of GDP over time.

The range is based on advice from the Treasury and is the same as the forecast ahead of the 2017 election under the previous Government’s spending plans for the coming years.

The surplus rule will also be the primary rule that controls our spending decisions and require value for money.

The surplus means current spending is paid for from current revenues. It means the current generation is paying for its own consumption, taking pressure off inflation, and putting the country in a better position to invest in infrastructure for future generations.

It means day-to-day Government spending is not adding to the net debt we have as a country. It allows us to control and reduce debt – with Treasury’s analysis showing that the position of the surplus or deficit is the main driver of changes in net debt.

It’s equally important we don’t run these surpluses too large in such a way as to undermine the necessary investments that we make to run essential public services.

The surplus rule will give us the flexibility to dip temporarily into a technical deficit from time-to-time for very specific reasons.

This includes when we have to book up-front expenses at the start of an infrastructure project or where a major government programme is required or to fund major infrastructure projects that will be delivered by entities other than central government.

The surplus target will be measured over time as opposed to year-on-year. Again this is as sensible approach that means a surprising fiscal shock one year – like asset revaluations, or if a major trading partner experiences a short recession – doesn’t crowd out other important spending on areas like Health, particularly if the shock is going to reverse out again.

For the purposes of the Public Finance Act the Government has to set its long term objectives for ten years, so in the Budget documents the surplus target will be measured over this time period, with annual reporting each year continuing.


That brings me to the second fiscal rule I’m announcing today.

Based on advice from the Treasury, we will introduce a net debt ceiling for the Government that will ensure New Zealand maintains some of the lowest Government debt in the world, while having room to respond to the types of shocks we typically experience every decade and being able to make the vital infrastructure investments that are needed to support our economy.

Under the old measure of net debt, the Treasury has recommended the ceiling be 50% of GDP. When we translate that to the new measure that cap is 30% of GDP.

The Treasury considers that this is a prudent level of debt, particularly when combined with the OBEGAL surplus rule. In developing advice, the Treasury has followed an approach set out by the International Monetary Fund on sustainable debt levels.

This includes an estimate of what would be a sustainable limit or peak in the event of a one in one hundred year shock that would see debt spiking significantly higher than the ceiling. For the purposes of our fiscal rules we are comfortable that ceiling of 30% (or 50% on the old measure) takes this into account and gets the balance of discipline and room to invest right.

So where would a 30% ceiling place us in the world if it were fully used?

I want to take you back to the IMF chart I showed earlier.

The 30% ceiling is that one that is more internationally comparable, because it means our debt is measured in a similar way to the likes of Australia.

The IMF forecasts show we are setting our ceiling at a lower level than debt readings that Australia is expected to produce. And our actual net debt position will be about half of Australia’s.

The debt ceiling is not a target, and we are tracking well and truly under it. In light of current inflationary pressures and capacity constraints we will not be increasing the planned multi-year capital allowance in Budget 2022.

This will also give time to ensure that in future Budgets we are making investments in the most effective and efficient way possible, in line with the Infrastructure Strategy.

It does mark a shift in position for Treasury to recommend such a change. They have noted that a low point target has been set well below a fiscally sustainable level.

These targets can lead to decisions to not fund critical infrastructure in a timely manner. It is timely to move away from that.

As the Infrastructure Commission made clear in its strategy released yesterday, New Zealand has a gaping infrastructure deficit. One estimate fed into that report is that New Zealand is sitting on an infrastructure deficit of $104 billion.

Every one of us knows what that looks and feels like in real life. It’s the hours of productivity lost stuck in Auckland’s traffic. It’s the burst water pipes here in the capital. It’s the run down hospitals in the provinces.

For decades as a country we have failed to make the investments that we need to drive productivity and improve wellbeing.

New Zealand’s population grew from three million to four million across 30 years from 1973 until 2003. We then grew from 4 million to 5 million in just on half of that time. But we did not build the houses or the public transport networks or public services we needed to match up with that.

I am not prepared for our country to be on the back foot any longer when it comes to infrastructure. Our investments using the fiscal headroom created by this fiscal rule will need to be high quality, well thought through and have a clear and direct benefit to our productivity and wellbeing.

There is a critical balance that we can grasp. We can keep a lid on debt while finally making progress on our infrastructure challenges.


There is no doubt that COVID has been tough the world over. And there will be difficult times for many New Zealanders for a while as we continue to respond to this global pandemic and deal with the rising cost of living.

But New Zealanders have worked hard and put us in a strong position to deal with that.  I’m excited about the opportunities New Zealand has created for itself off the back of our world-leading COVID response.

It is now time to move back to a position where we have clear fiscal rules. As a person who came to my political consciousness in the 1980s I know the damage that can be done when we lose the balance of our fiscal position.

The impact falls most heavily on those who can least afford it. Equally knee-jerk, short-term responses can mean we fail to invest in what our country needs.

Our fiscal approach means we can plan for the future. Rip off the band aid-approach to infrastructure and invest properly to future-proof for future generations. To help them battle climate change. To help them be more productive. To make it quicker and safer to move around our great country and get our goods to market.

This will be a pivotal change as we move towards a high-wage, low-emissions economy that provides economic security in good times and bad.