Budget 2021 proved a non-event for the NZ financial sector with no tax tinkering, savings incentives or surprise regulatory fee increases.
KiwiSaver, for example, is mentioned exactly zero times in the 121-page ‘Wellbeing budget’ handed down by a flush Grant Robertson last week.
In doling out an extra $3.8 billion in operating expenditure and $3.9 billion in capital spending this year, the Finance Minister said the budget “strikes a careful balance between continuing to support and stimulate the economy during this period, while looking towards the need to keep a lid on the necessary debt we have taken on during COVID-19 to protect lives and livelihoods”.
Overall, the government’s call to splash cash now on lower-income earners while paring back long-term debt was met with cautious approval in financial commentary.
For example, Michael Gray, the recently appointed AMP Capital NZ interim head of investments, said the budget reflected “an improved near-term financial position” for NZ.
“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,” Gray says in the AMP Capital analysis. “An improving economy has provided the Government with the opportunity to do this.”
Meanwhile, broking house Jarden notes the likely extra spending implied by increased benefit payments could push inflation higher and for longer than Treasury forecasts.
“Therefore, at the margin, the Budget could lead to higher interest rates and a higher New Zealand dollar than otherwise would have been the case,” Jarden says. “This is something the RBNZ will likely be watching closely over coming months as it considers its next monetary policy moves.”
Similarly, the Financial Services Council (FSC) responded to the budget in big-picture terms rather than industry-specific detail.
In a statement, FSC chief, Richard Klipin, said: “We are heartened by the stronger than expected economic outlook signalled and a return to surplus in 2027. The Government’s priorities around wellbeing outcomes for New Zealanders are closely aligned with the FSC’s.”
Perhaps the only budget surprise with potential impact on the financial services industry came with government plan to create a social insurance scheme for sacked workers – along the lines of the Accident Compensation Commission (ACC).
“This work is clearly still at a very early concept stage and we look forward to working with the Government, Business New Zealand and the Council of Trade Unions to get a better understanding of what they are wanting to achieve in this area and the role that private insurance providers can play in that,” Klipin says.
As AMP Capital’s Gray notes, however: “No level of funding was attached to this announcement.”
Elsewhere, the NZ Superannuation Fund (NZS) received a minor boost in budget 2021 with the government tipping in extra over the current and previous fiscal years. Treasury slightly scaled-back required government NZS contributions last year compared to modeling equations.
“However, due to the importance of investing now to help future generations with the cost of NZS, the Government will continue its planned contribution for 2020/21 and 2021/22,” the budget paper says.
The policy shift will double the NZS contribution this year from the formulaic $1.2 billion to $2.4 billion before reverting to model in subsequent periods.
“From 2022/23, the Government will return to the contributions legislated in the New Zealand Superannuation and Retirement Income Act 2001,” the budget says. “Over the next five years, the Government’s contribution to the NZS Fund is forecast to be $9.4 billion in total.”
By 2025 the NZS fund is expected to hit $75.5 billion.
And the budget financial details also reveal the relative economic optimism will see the government KiwiSaver contributions (the member tax credit payments) rise “by $35 million to $973 million for 2021/22 due to an increase in the total number of contributing members”.
“It also reflects income growth, which increases contributions from members who were previously contributing less than the threshold for the maximum KiwiSaver tax credit entitlement,” the budget financial document says.
Total employer payments into KiwiSaver (now a budget item for the Inland Revenue Department which directs the flows) are also expected to jump “by $590 million to $7,540 million for 2021/22 due to growth in the number of contributing members and income growth of those members”.
Another side-bar item will see the government spending $5 million over the next two years to “collect information on the level of tax paid by high-wealth individuals and their related entities”.
“This information will be used to develop basic research to understand the overall distribution of income and wealth,” the budget says.