“While the Government wants to focus on a few specific spending initiatives, the overall picture of inflationary spending, and its effect on inflation and interest rates, is the story most relevant to all New Zealanders,” says ACT Leader David Seymour.
“As the banks and ratings agencies point out what Treasury missed, Grant Robertson’s Budget has divided New Zealand into two tribes. Those with children who get benefits plus inflation and higher interest rates, and those who just get inflation and higher interest rates. Unfortunately the benefits will be outweighed even for those who get them, let alone those who don’t.
“If you have a two year old, a child that takes a lot of public transport, or fill a lot of prescriptions, the question is whether the benefits of this budget will outweigh the inflation it will bring. If you are over 25 and don’t have kids or more than a few prescriptions per year, it’s inflation and higher interest rates for you.
“The Government is now planning to borrow $10 billion more than forecast by the Half-Year Update in December, just six months ago. That cannot help but be inflationary, meaning higher interest rates for longer. It shouldn’t need to be said, but there is no free lunch in economics.
“The same Treasury that said inflation this year would be 1.8 per cent at the 2021 budget, and 5.2 per cent at the 2022 budget now says inflation will halve next year despite $10 billion of spending in just two years that it did not forecast six months ago. The financial sector does not believe that, with the BNZ saying “The budget is the straw that broke the camel’s back in terms of our view on the official cash rate.”
"Standard and Poors, who set New Zealand’s Sovereign Credit Rating, have said “The Budget revises up the projected central government cash deficit for fiscal 2023-2024 to 6.5 per cent of GDP.” In addition to a record Balance of Payments deficit of $34 billion this year, that spells trouble.
“Banks had forecast a peak Official Cash Rate of 5.25. ANZ and Westpac had already forecast an OCR peak of 5.5 and 6.0, respectively. They were trying to soften their customers up for higher mortgage rates before this budget shock.
"For a family with a half million dollar mortgage, mortgage rates being 0.5 per cent higher for two years costs $5,000, or $50 per week.
"If inflation remains one per cent higher that otherwise for the next two years, then a household with two children spending $400 per week on groceries will face an additional $400 of costs over two years thanks to grocery costs alone.
"Even if there were four in the family and they all maxed out their prescription fees (which are capped at 20 scripts per person), they would still be $4,600 worse off over two years after all the extra mortgage and inflationary costs.
"A family with a two year old receiving 20 hours free at $133.28 per week for forty weeks of the year would be $72 worse off after paying $5,000 more on their mortgage and $400 more on groceries.
"A family with two under thirteens that would usually take public transport worth $50 a week would be $200 worse off over the forecast period after paying $5,000 more on their mortgage, and $400 more on their groceries over two years, given the inflation and interest rate rises this Budget will bring.
“If you hit the trifecta of kids who using public transport, heavy prescription use, and happen to have a child who’s two or getting there, this budget might leave you out ahead.
"The reality is that New Zealanders overwhelmingly do not live where public transport is practical, don’t have a two year old right now, and take few prescriptions per year. For the vast majority of Kiwis it’s just inflation all the way."