New Zealand committed to cutting spending, PM Hipkins says

12:04 am Thursday, April 27th, 2023

By Lucy Craymer

WELLINGTON (Reuters) – The New Zealand government is committed to reducing spending even though severe weather events earlier this year caused asset damage of roughly NZ$9 billion ($5.51 billion) to NZ$14.5 billion, Prime Minister Chris Hipkins said on Thursday.

Flash floods hit Auckland, the country’s largest city, in January and Cyclone Gabrielle tore through the North Island in February leaving a trail of destruction.

Hipkins said the government would not introduce any major new taxes in this year’s budget and that the cost of repairs would largely be met by budget operating and capital allowances.

In in a separate report released on Thursday, the Treasury estimated that roughly half of the damage caused was to public infrastructure while both households and businesses suffered more than NZ$2 billion in damage.

“For our part, the government is committed to reducing our proportion of spending to dampen demand in the economy,” Hipkins said in a speech to the Employers and Manufacturers Association.

New Zealand is already dealing with historically high inflation and the central bank has previously raised concerns that any boost in government spending could add to the inflation problem.

Treasury estimates inflation over the March and June quarters is likely to be around 0.4% higher as a result of the weather events and that output from farms and crops is expected to be down by between NZ$400 million to NZ$600 million in the first half of the year.

Hipkins said his aim is to get government spending down to around the low thirties as a percentage of GDP.

The government’s core expenses were equivalent to 35% of GDP in the year ended June 2022 and were forecast to fall to 32.8% of GDP in the current financial year.

“This will be an orthodox, no-frills Budget focused on funding the things most important to New Zealanders like support with the cost of living and cyclone recovery,” Hipkins said.

He said infrastructure will be a major focus of the budget with the country not only needing to rebuild following the cyclone but also in need of new hospitals and schools.

($1 = 1.6343 New Zealand dollars)

(Reporting by Lucy Craymer; Editing by Alasdair Pal, Shri Navaratnam & Simon Cameron-Moore)