Speech to BNZ Breakfast - Budget Policy Statement


Kia ora. First, can I start by thanking the BNZ for hosting us this morning. This is the third time I have spoken about the Budget Policy Statement at an event organised by the BNZ.

The interest shown by the BNZ (and indeed other financial institutions) in our Wellbeing Approach is welcome and an encouraging sign in terms of the way we view success in our economy, and the importance of taking into account a wide range of indicators as we measure our progress.

I will come to some of the detail of the Budget Policy Statement shortly, but I want to make some introductory remarks about where we find ourselves in New Zealand today from an economic perspective. 

However, first I want to say something about one of the big issues of our time – the cover image of the BPS. Traditionally it was felt sufficient to have some words and the government crest on Budget documents, but in keeping with the move to our Wellbeing Budget we wanted something different. 

There has been considerable debate over the past three years as to the images we use, including the use of stock images. I can say with absolute confidence that there is no issue with this year’s image – because I took the photo. It is of Waikawau Bay on the Coromandel Peninsula where I was very fortunate to spend some time over the break. I had never visited before, but like so many New Zealanders I took the opportunity to do something new.  

Time and again this summer I have heard New Zealanders express their gratitude that “we have had a summer”. New Zealanders feel fortunate. With a global pandemic raging around the world there is the strong sense that we’d rather be here in New Zealand than anywhere else in the world right now.

We have to remember that this did not happen by accident. We are fortunate, but not lucky in my view. We had a plan, we stuck to it, and the hard work and sacrifice of New Zealanders made it happen.

Of course, we can’t risk complacency when it comes to our privileged position regarding COVID. But this does help keep at the forefront of our minds just what is at stake as we enter 2021. There’s a lot to protect:

  • A health response that has meant the fewest deaths per capita in the Western world, according to analysis by Johns Hopkins University. But remembering that 25 New Zealanders have died from this insidious virus.
  • An economic recovery that has been one of the strongest in the world as countries continue to battle new waves of COVID-19.
  • An unemployment rate that is falling, and has – so far – refused to go over five-and-a-half percent, despite the world facing its greatest economic shock in 100 years.
  • The ability for New Zealanders to attend concerts, sporting events, eat and drink in cafes and bars – and all while being able to travel around our magnificent country and experience our own backyard.
  • And being able to visit our relatives and friends here in New Zealand, particularly those who are vulnerable in care homes or hospitals – something that many families around the world are unable to do.

None of this takes away what we have all collectively experienced over the past year. 2020 was tough – no doubt about it – and many New Zealanders have had their lives turned upside down. But 2020 was also a year where New Zealand, and New Zealanders, showed our true spirit.

It’s that spirit which will underpin our recovery. As we take stock of the position our economy and people are in and we enter this next stage of dealing with COVID-19, it’s against this backdrop that today I’m announcing the priorities for Budget 2021.

Background and Context

A year ago this month I delivered a speech – ironically at the Pullman Hotel in Auckland – titled “New Zealand economy in strong position to respond to Coronavirus.”

The night before, the World Health Organisation had reported that – for the first time – there had more cases of coronavirus reported outside China than inside on the previous day.

It was unclear in February last year – all over the world – just how the coronavirus situation would play out. We took a decision to plan for all eventualities.

Advice we were receiving from Health and Treasury officials about the potential impact on the economy was based around three scenarios:

  • a temporary global demand shock
  • a longer lasting shock to the domestic economy, as the global impact fed through to the economy for a period of time, and where there were coronavirus cases in New Zealand, and,
  • a global downturn if the worst case played out around the world, and we had a global pandemic.

It’s fair to say that the third scenario was certainly not the central expectation. Not here in New Zealand, nor elsewhere around the world.

But we made sure we were planning for all three scenarios. I even said in the speech that: “In such circumstances [of a global pandemic], it may be necessary to consider immediate fiscal stimulus to support the economy as a whole and businesses and individuals through this period.”

This was 350 days ago. 

At the time, the Treasury had begun to re-run its economic forecasts ahead of the upcoming Budget in May, mapping out under the different scenarios what impact COVID might have on the economy, businesses and jobs.

As you all know, by April, as the COVID pandemic worsened around the world and concerns grew about exports and the impact of COVID on the domestic economy, scenarios from the Treasury showed that unemployment could rise into the teens or 20-percents, representing more than 350,000 people out of work.

By then, we were already working to a simple plan for the economy – to deliver cashflow and confidence. We had already put in place the Wage Subsidy scheme which eventually grew to support nearly 1.8 million jobs, allowing New Zealanders to stay in work.

We had an air freight subsidy scheme underway to ensure our exporters could keep going, and we had kept our national airline in business.

At the Budget in May, as we extended the Wage Subsidy and created the $50 billion COVID Response and Recovery Fund, the Treasury’s central scenario was for unemployment to have hit 10% by now – about 270,000 people out of work.

Here, today, as we enter 2021, New Zealand’s unemployment rate has just ticked down from 5.3% to 4.9% at the end of 2020. The number of unemployed people fell by 10,000 to 141,000.

Even more jobs were created, as people answered the calls for more workers and entered the labour force – with employment up by 17,000 over the quarter.

The average unemployment rate across the OECD is currently 6.9%. Many of our trading partners have experienced unemployment rates above 10% already.

That’s not to say there is not more work to do. There is. A number of sectors and regions are particularly affected, and are likely to see further job losses over the coming months.

Now it is more important than ever that we double down on our investments to get people into work and train our local workforce to fill skills gaps and get ready for the economic opportunities from moving towards a carbon-neutral and more sustainable economy.

Other data adds to the solid foundations for the recovery in New Zealand to date:

  • Average hourly wages are up by more than 4% compared to a year ago.
  • Retail sales bounced back in the second half of 2020 as consumer confidence rose as the economy opened up quickly.
  • Global dairy prices have started the year strongly and are up 13% on a year ago – Fonterra has lifted its 2020/21 milk price forecast to a range of $6.90 to $7.50 (up from $6.70 to $7.30).
  • And GDP in the September quarter was stronger than expected – economic activity is higher than it was pre-COVID. BNZ’s economists have pointed out that only three other advanced economies can lay claim to this as the world continues to grapple with the impact of COVID-19 (China, Taiwan and Ireland).
  • Even the business confidence opinion surveys are improving.

With COVID-19, we know not to take anything for granted. The world is still very much grappling with the pandemic and this year has many challenges to come. But our economy has rebounded far better than expected and we are in a strong position to handle what comes at us.

Wellbeing Outlook

As with the previous Budget Policy Statements I have released, we have included a Wellbeing Outlook in the Budget Policy Statement. This year it focuses on how COVID-19 has affected New Zealanders’ wellbeing.

New Zealanders have generally maintained their personal wellbeing through COVID.

Stats NZ’s decision to include wellbeing questions in their quarterly employment surveys through 2020 means they’ve tracked people’s individual wellbeing through lockdown and the recovery, across areas like health, anxiety, loneliness, financial wellbeing, and life satisfaction.

Reported levels of life satisfaction remained high through 2020. In fact, average life satisfaction was higher in the June and September quarters (covering lockdown and the recovery), than it was in 2018.

So as we stand here today, we are privileged in New Zealand to be entering 2021 in a relatively strong position as this global pandemic continues to wreak havoc around the world.

This position is not the result of luck. It is the result of having a clear plan for dealing with COVID and the economic recovery.

We were confident that the best economic response was a strong public health response.

This is, to me, the essence of a wellbeing approach. Not just looking at the financial bottom line but taking a longer-term view that prioritised our wellbeing as people and communities.

Economic and Fiscal Position

The economic and social data backs our decision – as a country – to take a wellbeing approach to our response to COVID-19.

Our strong fiscal position heading into COVID-19 has supported that approach. It allowed us to move quickly and with scale to protect lives and livelihoods, and invest in the recovery by backing business.

We were able to make the investments required to protect New Zealanders’ lives and livelihoods because of our careful economic management and low debt heading into COVID-19.

The investments to protect jobs through the Wage Subsidy, invest in infrastructure and make sure essential services like our health system had appropriate funding to respond to the pandemic did require immediate use of more debt.

The acceptance across the Parliamentary divide during the election campaign that these levels of debt were required for the ongoing response to COVID was an acknowledgement that our response has been the right thing to do.

My focus continues to be on getting the balance right – investing in strong public services while keeping a lid on that debt. We are in a strong position in New Zealand – with our debt remaining lower than countries like Australia, the UK and the US on comparable measures.

Our balanced and careful approach is flowing through to improved projections for the Government’s books.

The latest Crown accounts show the deficit in the first five months of this financial year was $1.9 billion smaller – or 30% better – than expected by the Treasury as recently as December.

New projections out from the Treasury today show continued improvement in our fiscal position over time.

Projections at the time of the Pre-election update in September showed net debt falling from a peak of about 56% of GDP in 2024 to 48% of GDP in 2034.

New projections using Treasury’s Fiscal Strategy model today show net debt now at 36.5% of GDP in 2034/35. That represents about $60 billion less debt at the end of the projection period than at the pre-election update.

Importantly, incorporated into the new projections are increases in the capital allowances over this time as well – totalling an extra $7 billion by 2033/34. This is the money earmarked for infrastructure investment (and not including NZTA projects which are funded separately through FED and RUC).

Budget 2021 will include a strong focus on making sure spending continues to be carefully prioritised and targeted at the areas and people that require it the most.

The Budget spending allowances for Budget 2021 in today’s BPS are the same as announced at the Half Year Economic and Fiscal Update. We have reserved the right to change them depending on the state of forecasts for the global and New Zealand economies when we finalise the Budget. 

The significant resources we have put into the recovery and rebuild will be supplemented by further investment over coming Budgets, but quite clearly we need to strike a balance with rebuilding and maintaining a strong fiscal position.

This includes rigorously assessing all of the spending that was provided for in the COVID Response and Recovery Fund. As the economy has rebounded stronger-than-expected, we are taking the opportunity to assess if money can be better targeted or reprioritised where it has not already been used.

Budget 2021 priorities

The Budget Policy Statement released today sets out how we will carefully prioritise and target spending to where it is needed most in Budget 2021.

The Government’s overarching objectives for this term were set out in the Speech from the Throne:

  • Continuing to keep New Zealand safe from COVID-19
  • Accelerating the recovery and rebuild from the impacts of COVID-19, and
  • Laying the foundations for the future, including addressing key issues such as our climate change response, housing affordability and child poverty.

Budget 2021 will play a critical role in all three of these objectives. The Budget gives us a chance to take stock of how New Zealand and New Zealanders have come through COVID-19, and act on the opportunities available to us through our strong financial position, as we build back better.

Specific Budget 2021 investments will fall under four high-level priorities:

  • continuing the COVID-19 response
  • delivering priority and time-sensitive manifesto commitments
  • supporting core public services through managing critical cost pressures, and
  • continuing to deliver on existing investments.

The important aspect of the process is how we prioritise which investments to make under those priorities. As part of the changes we have made to the Public Finance Act, the Budget Policy Statement must now set out the Wellbeing Objectives that will guide the decisions we make about what to fund through the Budget.

The Wellbeing Objectives continue the evidence-based approach we’ve taken under the Wellbeing Budget process. This year’s objectives take into account recent wellbeing and economic data to update the Budget 2020 and 2019 priorities:

The Wellbeing Objectives for Budget 2021 are:

  • Just Transition – Supporting the transition to a climate-resilient, sustainable and low-emissions economy while building back from COVID-19
  • Future of Work – Enabling all New Zealanders and New Zealand businesses to benefit from new technologies and lift productivity and wages through innovation, and support into employment those most affected by COVID-19, including women and young people
  • Māori and Pacific – Lifting Māori and Pacific incomes, skills and opportunities, and combatting the impacts of COVID-19
  • Child Wellbeing – Reducing child poverty and improving child wellbeing, and
  • Physical and Mental Wellbeing – Supporting improved health outcomes for all New Zealanders and keeping COVID-19 out of our communities.


Several challenges cut across the Wellbeing Objectives - such as climate change, housing and child wellbeing.

In the time I have remaining, I’m going to focus on one of those areas – housing.

Across the Wellbeing Objectives, Budget 2021 will have a clear focus on housing.

Housing outcomes can be influenced across a range of the Budget 2021 Wellbeing Objectives:

  • The sustainability of our housing stock will contribute to our Just Transition and climate change goals;
  • Māori and Pacific communities currently have lower rates of home ownership and will benefit from more affordable housing;
  • And, improving children’s wellbeing will be greatly influenced by improving access to warm, safe, dry and affordable housing, as will physical and mental wellbeing.

There is a crisis when it comes to the housing situation right now in New Zealand.

In a sign of how economic forecasts have swung wildly during COVID, mid-way through last year, economists were lock-step in predicting that house prices were going to fall 5%-10% over the next year due to the COVID-19 downturn.

We’ve seen the how the effects of rising demand for property by speculators and investors has blown those mid-year projections for prices to fall, out of the water.

In actual fact, between June 2020 and December, the nationwide median house price rose by 17%, and sat 19% higher than at December 2019. REINZ’s house price index was up 17% from a year ago – 9% in the final three months of the year.

Rents, in comparison, have remained relatively stable. Stats NZ’s two monthly measures for rental property prices – incorporating bonds lodged for rentals – were up 1.5% and 3.1% annually in December.

As we foreshadowed in January, the Government will announce a rolling series of measures to build on what we did last term to address the crisis in housing.

The first of those will be on the demand side measures which will come in late February. We all know that building more houses, particularly affordable houses, is critical. But we also can do more to manage demand, particularly from those who are speculating.

New Zealanders are seeing family members being crowded out of the opportunity to purchase a home of their own by speculators and investors. We want to tilt the balance more towards first home buyers, while also incentivising more investment in the construction of homes.

As I said late last year, we have received advice from both Treasury and the Reserve Bank on our existing measures to manage demand and discourage speculation, and how they can be enhanced or changed. Proposals will shortly go before Cabinet.

As the Prime Minister has outlined, we will also make more announcements on the supply side as Budget 2021 is finalised. These will build on the Government’s housing programme that has seen us build more houses than any Government since the 1970s.

Anyone who tries to tell you that there is a single silver bullet for addressing the housing crisis is not facing reality (or is speaking from the safety of Opposition).

What we do know is that now is the time for bold action. The market has moved quickly and rapidly in a way that is not sustainable. We have to confront some tough decisions, and we will do that.


2021 will be an important year for New Zealand. It’s been called the Year of the Vaccine, Year of the Recovery. Both of these are essential to giving us the ability to not only open our country up again, but also address the long-term challenges that pre-date COVID 19.

We will continue to face significant risks.

This pandemic will continue to rage around the world. It will continue to affect global trade and New Zealand’s exports. It will continue to mutate.

For us in New Zealand, it does mean that unemployment is likely to continue to bump around. Industries like tourism and international education will continue to be affected by border settings.

But 2021 is also Year of the Ox in the Chinese calendar – denoting hard work, positivity and honesty.

When I was writing that speech a year ago – against the backdrop of uncertainty around the world about how the coronavirus would impact the global economy, I attempted to convey some critical points about my confidence in the resilience of our people and our economy.

The first was that “we have the capacity and ability to do what it takes” as a country to deal with whatever COVID-19 would throw at us. We proved that.

The next was to remind people “that these scenarios are all temporary. The effects of this virus will pass.” We are not quite there yet, but there is light at the end of the tunnel.

And I stole the last one from a good friend of mine. That: “we are all in this together.”

In New Zealand, we have stuck together. And now we’re in position to take that mantra and tackle the next big challenges ahead of us.