1. Grant's Budget belt big enough -- just
The new Government has unveiled a Budget outlook that fits its big health, education, transport and welfare spending plans within its self-imposed restrictions to reduce debt and keep running surpluses.
As it promised in the election, it is using money saved from National's cancelled tax cuts to pay for catch-up increases in health and education spending, and for a boost in the families package.
But the fit is tight, leaving little room for new pay equity deals or much wage inflation catch-ups from nurses, teachers and police officers. The capital allowances detailed in the plan also leave little room for much new spending on expensive rail or housing infrastructure.
The new Government is forecasting surpluses will grow to $6.5 billion by 2021, which is actually slightly above the $6.4 billion forecast before the election under the previous Government. It is forecast to rise to $8.5 billion by the end of 2021/22. Surpluses are smaller in the first three years, which also means the debt track falls at a slower rate than the previous Government.
Net debt is forecast to fall under 20 percent of GDP by 2021/22. Both of those forecasts were in line with the new Government’s Budget responsibility rules to keep running surpluses over the cycle reduce net debt to 20 percent within five years of taking office.
However, the Half Yearly Economic and Fiscal Update (HYEFU) shows the new Government has little room to deal with infrastructure deficits or unexpected lumps of new spending.
The HYEFU showed the Government had just $6.6 billion of headroom for extra operating spending over the next four years, once spending already agreed in coalition deals was included.
The capital allowances are also meagre, with just $8.9 billion of headroom over the next four years after accounting for the $1b per year Provincial Growth Fund.
This tightness is the reason why Finance Minister Grant Robertson, in the lockup for the HYEFU, talked up the prospects of bringing in private capital to help with urban infrastructure.
Elsewhere, the HYEFU revealed Treasury had slightly reduced its growth forecast for the next year, but increased it in the years beyond. It also increased its interest rate track by 25 basis points by the fourth year and reduced its unemployment rate to four percent.
Here's the full HYEFU package on the Treasury website.
2. Opt out for winter payments
The Government has added an opt-out clause to the new Winter Energy Payment that will be available to superannuitants and beneficiaries from July next year.
The payment will run for 13 weeks from July 2018, and in future years will start on 1 May and be payable for 22 weeks. Once it is fully implemented, everyone receiving New Zealand Superannuation, Veteran's Pension or a main benefit will receive $450, if single. Couples and single people with dependent children will get $700.
Approximately 1 million people will be eligible for the payment, including around 710,000 on New Zealand Super or Veteran's Pension and 275,000 receiving a main benefit. Social Development Minister Carmel Sepuloni said that over the next four years, $1.81 billion would be spent on the WEP.
The Opposition has criticised the payment as being poorly targeted, asking why it should be paid to people who choose to spend the colder months on the Gold Coast or enjoying a European summer.
As well as adding "an opt-out option for people who do not need the assistance", the Government has announced (as part of the Half Year Economic and Fiscal Update) that eligibility will be conditional on people being "largely resident in New Zealand over the winter months".
"Anyone absent from the country for more than four weeks will not receive the WEP unless they return home during the eligibility period," said Sepuloni in a media statement.
At the HYEFU press conference, Finance Minister Grant Robertson said the Government had not considered adding a means test for the payment as they wanted it to be "as easy to implement as possible".
"Targeting benefits always includes a cost within that, and we wanted this payment to be one that was easily obtainable."
Energy and Resources Minister Megan Woods said around 1,600 New Zealanders die each year due to cold housing and "thousands more end up in hospital".
Pacific Peoples Minister Aupito William Sio said damp and cold housing was a contributing factor to higher rates of hospitalisation for infectious diseases, and 43 percent of Pacific families reported problems with cold housing.
3. Pressures building in learning support
The Government is anticipating a rise in costs for providing services for children with autism and other special needs, as well school students with English as a second language.
In the Half Yearly Economic and Fiscal Update, Treasury noted that "there are a number of cost pressures building in the supply of learning support services."
This includes increased costs for the Ongoing Resourcing Scheme (ORS) which provides contestable funding for children with moderate and severe disabilities. Parents, schools and disabled rights organisations have been pressuring the Government over what they say is increasing difficulty in meeting the assessment requirements for ORS funding.
Treasury says increased costs are also expected for Early Intervention and Sensory Learning, which helps children with autism and other special needs, and for providing aides and other services for the increasing number of children who do not speak English as their first language.
"To the extent that these pressures cannot be managed within agency baselines, additional funding is likely to be required," Treasury said.
Following last year's aged care pay equity agreement, attention has been focused on the pay rates of teacher aides and other school support staff, raising the likelihood that the Government will also face increased costs from a pay equity deal in the education sector.
4. Families package detailed in HYEFU
The Government's flagship families package will be introduced essentially as planned, with a few tweaks.
Announced by former Labour leader Andrew Little before the election, the range of measures is largely targeted at families and beneficaries.
The Government estimated the package would reduce the number of children in poverty by 71,000 in its first full year, rising to 88,000 by 2021. This was 39,000 more than the previous Government's package. This would represent a 48 percent reduction in child poverty. The measure used is 50 percent of the median equivalised income before housing costs.
It will replace the planned tax cuts introduced by the previous Government, which were broader and expected to lower taxes across the board.
The package includes a range of changes including boosting Working For Families, introducing a payment for families with new babies and a universal winter energy payment for beneficiaries and superannuitants.
Changes to Working For Families will be introduced as planned with the eldest-child rate rising to $5878 from $5303 and the abatement threshold increased to $42,700. The abatement rate will rise to 25 percent as planned under the previous Government.
New payment increases of $20.31 a week will also be introduced for the Orphan's Benefit, the Unsupported Child's Benefit and the Foster Care Allowance.
A Winter Energy Payment of $450 a year for single people and $700 for couples and singles with dependent children will come into affect on 1 July 2018. It will be available for those receiving a main benefit, New Zealand Superannuation or a Veteran's Pension.
The Government has introduced rules removing the payment for those who spend more than four weeks during winter overseas and will allow those who don't need the payment to opt out. There will be no means testing for the payment for superannuitants, however.
A Best Start payment of $60 a week will also become available from 1 July for families with new babies.
Babies born after the introduction date, or those born before but with a due date after 1 July, will be eligible for the cash in the first year. Lower income families will continue to receive the payment in the second and third year.
The Independent Earners tax credit of $10 a week that was scrapped by the previous Government will be reintroduced, giving up to $520 a year back to those earning between $24,000 and $28,000.
The previously announced extension to paid parental leave is also part of the package, while changes to the accommodation supplement and the accommodation benefit will be retained.
In the next five years the total cost of the Families Package is estimated at $5.53 billion. Scrapping the planned tax cuts is expected to save $8.36b over the same period.
We'll have more detail and reaction in tomorrow morning's email.