Economics & Markets

Budget 2021: The Numbers

By Michael Gray
Head of Investments NZ New Zealand

New Zealand’s 2021 Budget highlighted an improved near-term financial position for the country and contained increased spending on welfare payments, health, and housing.

Following the trend around the world, the New Zealand Government has chosen to run an expansionary fiscal policy (higher levels of government spending) to underpin better economic growth and higher levels of employment. An improving economy has provided the Government with the opportunity to do this.

Headline spending initiatives

At the headline level, the 2021 Budget results in the operating budget increasing $3.8 billion a year, an additional $15.8 billion over the forecast period.

The Government will also spend an additional $3.9 billion (of the $12 billion set aside for the next four years) on infrastructure next year.

Spending Initiative

Welfare and Families

  • Increased benefits of between $32 and $55 a week. Overall a cost of $3.3 billion over four years and is probably the biggest surprise of the Budget.

Health Budget

  • An additional $200 billion for Pharmac.
  • DHBs receive $2.7 billion over four years.
  • $486 million has been set aside to create a new centralised Health NZ.


  • $380 million of new funding for Maori housing.
  • $3.8 billion Housing Acceleration Fund has been funded from the Covid-19 Response and Recovery Fund.


  • Additional $12 billion over the next 4 years. 
  • In total $57 billion will be spent on infrastructure over the next four years.  In addition, $1.3 billion is funded for Future of Rail Initiatives.


  • Change $300 million to recapitalise the New Zealand Green Investment Finance to support climate change mitigation, with a focus on decarbonising public transport, waste, and plastics.

Vaccine Roll out

  • $1.5 billion.

Scott Base

  • $344 million to rebuild.


  • $200 million to tourism communities.

Ka Ako Healthy School lunch programs

  • $527 million to be funded from the Covid-19 Response and Recovery Fund.

Of note, the Government is funding several initiatives from the Covid-19 Response and Recovery Fund (CRFR). This 'Fund' will retain $5.1 billion “to respond to future resurgences of Covid-19”. 

One of the biggest announcements in the Budget was the proposal to introduce a social insurance scheme, which would provide laid-off workers with a percentage of their salary while they train and find new work.  No level of funding was attached to this announcement.

Key economic assumptions
The Treasury forecasts:

Treasury forecats

Overall, the Budget results in over $100 billion of borrowing for the next five years. Despite the increase in government spending over the next four years, net debt will be $10 billion less than forecast in December 2020, such has been the bounce back in the economy.  Net debt is forecast to peak at 48% of GDP in 2023, compared to the previous forecast of 52.6%. This compares to the seven largest global economies (G7) which have net debt to GDP of over 100%.The Treasury anticipates the budget returning to surplus in 2027. In their budget last week, Australia indicated it would take 10 years to return to budget surplus.

Risk assessment

Access to skilled-labour and the opening of borders to international travellers are key to returning New Zealand’s economy to 'normal'. On this front, the Treasury assumes a partial easing in border restrictions in July 2021 and a significant re-opening of the border from January 2022. Therefore, the timing and degree to which international borders are opened are a risk to the budget surplus and net debt forecasts. Likewise, a slower than anticipated fall in the unemployment rate is also a key risk, given the increase in welfare payments will result in higher government spending. 

The Budget provided few surprises for financial markets. As a result, there were no material impacts on markets following its release. In summary, the budget shows New Zealand in a good position financially, particularly relative to the rest of the world and in a global political climate in which governments around the world will play a bigger part in their domestic economies than has been the case for some years.

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Important notes

This blog post has been prepared to provide general information and does not constitute financial advice in accordance with the Financial Markets Conduct Act 2013. An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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