WELLINGTON, May 20 (Reuters) – New Zealand on Thursday significantly lifted welfare benefit rates and promised billions of dollars towards addressing long-term challenges in its 2021 budget, while forecasting a stronger than expected economic recovery from the COVID-19 pandemic.
The budget for the 2021 fiscal year allocated funds towards housing, healthcare, education and infrastructure, while also targeting issues like child poverty, climate change and welfare of the indigenous Maori.
The highlight, however, was a hike in the weekly benefit rates by up to NZ$55 per adult, which the government said was the largest income increase in a generation.
“Not only will this give a sense of dignity and hope to those who receive that boost in income, it will also help reduce inequality and provide ongoing stimulus to the economy,” Prime Minister Jacinda Ardern said in a statement.
The Treasury predicted a budget deficit of NZ$15.127 billion ($10.83 billion) for the fiscal year ending June, narrower than the NZ$21.576 billion forecasted in its half-year fiscal update in December. The deficit peaks at 5.3% of gross domestic product (GDP) in June 2022 before declining to 0.6% of GDP by June 2025.
Net debt was forecast to peak at 48% of GDP in 2023 compared to the 52.6% forecast made in December.
New Zealand’s GDP for 2021 was seen at 2.9% and gradually reaching 4.4% by 2023, thanks to a stunning economic rebound from the impact of COVID-19.
Unemployment is forecast to fall back to 4.2% and an extra 200,000 people will enter employment over the next four years.
Operating allowance for the budget is NZ$3.8 billion per year, with capital allowances for budget 2021 to 2024 increasing to NZ$12 billion.
Hit by the pandemic in 2020, the New Zealand government unleashed a record NZ$50 billion fund in its budget last year, while the central bank released a massive NZ$100 billion quantitative easing programme and cut interest rates.
While these generous monetary and fiscal support helped New Zealand’s $200 billion economy in its fight against COVID-19, it also fuelled a housing crisis and worsened inequality.
Rising inequality is arguably the biggest political challenge facing Ardern’s centre-left government in its second term in office. (Reporting by Praveen Menon)
