New Zealand’s Labour government has offered billions in help for families with young children, as prime minister Chris Hipkins revealed his election-year budget during a cost of living crisis.
The government is rolling out free public transport for children, free prescription medicines, and expanded free childcare for toddlers as part of a package that will cost more than NZ$2.5bn as many New Zealanders struggle with soaring food prices, high levels of inflation, and significantly increased mortgage payments.
“It’s tough for families right now,” Hipkins said in a statement on Thursday. “I said I would focus on bread-and-butter issues … Today’s budget does that by providing cost of living relief across key expenses families face – childcare, healthcare, transport and power bills.”
Children under 13 will be able to ride public transport for free, with half-price fares for all those under 25, at a cost of $327m. The vast majority of prescription medicines will become free. While public funding covers most of the cost of medicines in New Zealand, a $5 co-pay is usually required from patients for each prescription. Removing the co-pay will cost $619m over four years. Children under two will now be eligible for 20 hours of state-funded childcare a week, at a cost of $1.2bn, where previously it was only available for three and four-year-olds.
The government will expand funding for insulating and heating houses, funding 100,000 more retrofits of homes at a cost of $403m. A free school lunch that covers 25% of students across the country will be extended until the end of next year.
For those on low incomes without children, however, there were few new initiatives, beyond the free prescriptions and potential to access discounted heating or bus fares.
Housing pressures remain acute in New Zealand, with more than 29,000 people on waiting lists for public housing and 3,000 households in emergency accommodation such as motels or hostels. The budget includes a commitment to building another 3,000 public homes by mid-2025, on top of 4,500 under construction. The additional public housing will be funded with $3.1bn capital expenditure and $465m in operating expenditure.
With annual inflation at 6.7%, many New Zealanders are struggling to meet day-to-day costs. Government data released in April showed New Zealand’s food prices were up 12.1% year on year, with fruit and vegetables up 22% and grocery items up 14%. With the Reserve Bank repeatedly pushing up the official cash rate to combat inflation, some homeowners’ mortgage interest repayments have more than doubled.
In January and February, the country was hit by a series of costly, devastating extreme weather events – floods in Auckland that killed four, followed by the destruction of Cyclone Gabrielle, which killed 11 and inflicted enormous damage on the country’s infrastructure.
Finance minister Grant Robertson said in parliament on Thursday that it was “hard to remember a time in New Zealand history when there have been so many challenges to our economy, environmental and social systems in such a short period of time”.
In the lead-up to budget day, Hipkins had tempered expectations: promising a “no frills” budget, adherence to fiscal responsibility rules and cutting or downsizing a number of government programmes in an attempt to avoid potentially inflationary government spending. Those commitments limited prospects for any large-scale welfare or housing reforms, leaving the government instead offering a series of sweeteners aimed at immediate relief for families under pressure.
Robertson said cost of living pressures were being felt across New Zealand, and alleviating them was the “first priority”, but “we simply cannot go on with the high levels of spending that we’ve seen in previous budgets, because it is fiscally unsustainable”. The budget was designed to address cost pressures “in a targeted and responsible way … that will not exacerbate inflation”.
Robertson also announced $6bn for a national resilience plan, which will initially be spent on clean-up and recovery from Cyclone Gabrielle and January’s floods. Attention would then turn to increasing the “resilience” of New Zealand’s infrastructure to cope with increasing climate-related weather disasters.
Political response to the budget priorities has been mixed. On the left, political parties took aim at the government for not going far enough to support poor and low-income New Zealanders. Green party co-leader Marama Davidson welcomed the childcare, prescription and public transport changes, but said the budget “falls short of what’s needed”.
“By ruling out tax changes, the government tied its own hands,” she said. “The budget could have gone further with a bold plan to make sure everyone has what they need to get by, and to face up to the climate crisis with the scale and urgency we need,” she said. The Māori party called it a “budget for the rich” that was “clearly choosing to prioritise the wellbeing of the rich over the wellbeing of the poor by ignoring the big elephant in the room; wealth tax.”
National party leader Christopher Luxon called it a “blowout budget”, saying the government was fuelling inflation with high spending, and should cut taxes.
Despite inflationary pressures, the country’s economy was “in a strong position”, Robertson said, with inflation forecast to fall to 1-3% by 2024. The economy is due to grow 3.2% in the year to June 2023, according to new Treasury figures. Unemployment, currently at 3.4%, is forecast to peak at 5.3% next year. The Treasury was forecasting that the country would avoid recession, as the flooding and cyclone rebuilds boosted economic activity. Net debt was forecast to peak at 22% of GDP in 2024.