Budget 2022: Cost-of-living payments added to $6b health budget

KEY POINTS:

• $1 billion for cost-of-living package, giving $350 cash payments to 2.1m New Zealanders

• $11 billion for health in massive system overhaul

• Fuel tax cut extended for two months

• Public transport half-price fares extended for two months, and made permanent for community services cardholders

• Caps raised for first-home grants

• School decile system to be scrapped

Finance Minister Grant Robertson tacked to the centre, bolting an emergency $1 billion cost-of-living package to his $5.9b health-focused Budget, which was already the largest allocation of new budget spending in history.

That money will go towards payments of $350 for more than two million people.

The Budget's relative largesse was on display in almost every portfolio. Health was the big winner, but Robertson addressed inflation-induced cost pressures across the public sector.

The Budget funded everything from the early investigations of the future unemployment insurance scheme, light rail in Auckland, and a new port in Manukau Harbour - to small sums for scraping the hulls of ships for biosecurity reasons, to labelling DVDs, to assisting Vietnam veterans. There's even money for beginning work on new Parliament buildings to ease the pressure on the growing Parliament precinct.

But the cost-of-living crisis was front and centre. From August 1, the Government will offer middle-income earners a one-off $350, handed out in instalments over three months. The payments are targeted at people who earn less than $70,000 and do not receive the winter energy payment. The Government reckons about 2.1 million New Zealanders will qualify.

It's extending the 25 cents a litre fuel tax and road-user charge cut for a further two months, costing $235m. That is being paired with a two-month extension to the half-price public transport scheme at a cost of $132m.

There had been hopes the public transport scheme would become permanent - those hopes appear to be dashed. Instead the Government will make the scheme permanent on a more targeted basis, through a "community connect" scheme, giving permanent half-price public transport to people with a community services card.

Wasting no time, the Government will go to war with the supermarket duopoly tonight, putting the House into urgency to progress legislation blocking supermarket chains from using covenants to block new entrants into the market - a recommendation made by the Commerce Commission's market study.

The package is clearly aimed at the National Party, which had been goading the Government to implement a $1.7b tax cut package to alleviate the cost of living.

National had also been challenging the Government to find savings in existing spending. The Government responded today, publishing about $500m in savings.

Robertson said he would not "consider" reducing public services in light of inflation saying it "will not reduce the prices Kiwis are facing at the pump or in the supermarket, it will only undermine the wellbeing and security of our people".

The billion-dollar price tag for those items comes from the $61.6b Covid-19 fund, which Robertson announced would be wound up. There was $3.2b left in the fund as of April - that money will be spent on the cost-of-living package, leaving $1.2b set aside for Covid-related problems that might crop up in the next year.

The Government hopes the scheme need only be short term. Forecasts released by Treasury on Budget day back that up - but only partly. Inflation is expected to ease in the future, but it won't be until the middle of the decade that it nears anything like normal levels.

CPI inflation is expected to peak at 6.7 per cent this year (it is 6.9 per cent now), but remain elevated at 5.2 per cent next year, and 3.6 per cent the year after. It is only in 2025 that inflation returns to the Reserve Bank's target range of 1-3 per cent. All of those figures are about a percentage point higher than forecast in December.

There is a light spot however - wages are expected to surge by 6 per cent next year, and grow again by a 6.1 per cent the year after and by 5.4 per cent in 2025. This will mean that in future years wages and benefits, which are pegged to wages, will rise higher than inflation.

GDP growth is sluggish over the next half decade - with a GDP per capita recession forecast in 2024. The economy as a whole grows that year - just not as fast as the population.

Health

In December, Robertson said the Budget would be a health budget - and he did not disappoint. In 2019, before the pandemic, New Zealand spent about $18b on the health sector. This has been expanded by more than a quarter. The sector will now spend about $26b a year as of next year.

The new health agency, Health NZ, which replaces DHBs will get $1.8b to wipe the slate of deficits in its first year - and a further $1.3b in year two.

Health Minister Andrew Little said the money "clears the financial deck so Health New Zealand and the Māori Health Authority can have a clean start".

The Budget allocated about $11b over multiple years to the health sector.

Pharmac is the big winner with the biggest-ever increase to the drug-buying agency's medicines budget. It gets $71m extra this year, and $120m next year, taking the annual budget to $1.2b.

Little said Pharmac had assured him it would use the money to "secure as many medicines… as it can" from its investment list published last year. He said the focus would be on cancer medicines.

The Budget would buy 61 new emergency vehicles, including 48 ambulances, and pay for 248 more paramedics and frontline staff. That comes at a cost of $166.1m over four years.

There was also $1.2b in capital investment for rebuilding hospitals in Whangarei, Nelson and Hillmorton.

A further $90.7m over four years would go towards air ambulance services.

Another $102m over four years is to improve community healthcare, and $86m over the same period for GPs in high-needs areas will extend open hours and offer more appointments.

The Māori Health Authority got its first round of funding, receiving $168m for the direct commissioning of health services for Maori.

There will also be $20.1m for Iwi-Māori Partnership Boards, $30m to support Māori and primary community care providers. Associate Minister of Health Peeni Henare said the boards would "assess the health services Māori and whanau need at a local level, and the funding provided to the Māori Health Authority will then be able to pay for the services to meet those needs".

The Government has made good on its 2020 election pledge to increase emergency dental grants from $300 to $1000.

Transgender and intersex health will get a small funding boost. About half a million dollars a year will go to providing more gender transition services, and improving guidelines for gender affirmation procedures. About $700m a year will go to implementing a "rights-based" approach to intersex care.

Education

The education sector was another big winner. Education Minister Chris Hipkins won $777m in capital investment for schools.

Some of that will go to building a further 280 classrooms at more than 40 schools. $105m will go to buy new classrooms and sites for kura and $88m will go to the Christchurch School Rebuild programme, which continues its work after the city's earthquake a decade ago.

The Government will move ahead with its plan to scrap the decile funding system for schools, costing $300m.

Hipkins said this would include $75m per year in additional equity funding for schools with higher levels of socio-economic need.

He said the funding would help the Government "make similar changes for early learning" in the future.

Hipkins said 2.75 per cent increases would cost $231.8m for early learning and $184.4m for schools and kura.

"The funding rate increases across the system make up a significant investment of over $750m, going directly to education providers to support them to meet rising costs," Hipkins said.

Housing

The Government is rolling out a two-pronged housing strategy, loosening criteria for first-home buyers to get government assistance for first-home grants and removing all price criteria to apply for first-home loans.

A billion dollars were allocated to the public housing programme. Some of that will go to extending contracts to motels for transitional housing, the rest will go to the public housing build programme.

It is not clear whether that funding will deliver additional public homes. It appears much could be absorbed by cost pressures in the construction sector.

Housing Minister Megan Woods said the funding "reflects our Government's commitment to meeting the ongoing costs of providing public housing, as we rebuild the state's role in this sector".

"Bringing on the largest boost to public housing since the 1970s does not stop at the capital cost of additional homes; ongoing operational funding for Income Related Rent Subsidies is a key part of sustaining those tenancies," Woods said.

First-home buyers will find it easier to access grants in major cities with price caps in Auckland lifted to $875,000 for existing and new properties, up from $625,000 and $700,000 respectively.

The caps in Wellington have been raised to $750,000 and $925,000 for existing and new properties, up from $550,000 and $650,000 respectively.

Social Development

Social Development Minister Carmel Sepuloni and Prime Minister Jacinda Ardern have amended child support rules to lift an estimated 6000 to 14,000 children out of poverty.

"For decades beneficiary sole parents have been denied money that is rightfully theirs by an outdated rule that has seen the Crown retain their Child Support payments," Ardern said.

The rules will give child support to sole-parent beneficiaries as income.

"It is also estimated it will encourage more parents to pay child support as they know it will go directly to their children," Ardern said.

Sepuloni said the Government estimated around 41,550 sole-parent families will be better off, with a median gain of $24 a week.

The Government's redundancy protection scheme was also a winner, despite final decisions on the scheme not being announced yet. It got $60m for establishment costs.

The justice sector was also given almost $190m for two legal aid initiatives, including $41m to help fund increased demand for legal aid. The rest was allocated to a programme to "make repayments more equitable, by reducing requirements for low-income and vulnerable New Zealanders".

Broadcasting

Broadcasting gets a big boost with $327m over three years for the new public media entity that will replace RNZ and TVNZ.

The funding will come as a significant boost to RNZ, which operates on less than $50m a year - the new funding works out at more than $100m a year. It is not clear if the money is in addition to RNZ's existing funding, in which case it would effectively treble RNZ's budget to about $150m a year.

Health, as expected, was a big winner. Photo / George Heard

What is unknown, however, is the extent to which merging TVNZ's television production costs into the entity will draw on this new resource.

TVNZ operates on considerably more money than RNZ, which it earns from advertising.

The new public media entity will merge the two revenue streams, taking in public funding and advertising, however Broadcasting Minister Kris Faafoi has said "non-commercial" programming will be protected, suggesting it may have to survive on somewhat less money than TVNZ once earned.

Faafoi said the new entity would be switched on in 2023.

Infrastructure

The Government is forging ahead with feasibility studies for the long-awaited shift of Auckland's port.

Northport, which had been mooted as a replacement, will get a feasibility study for a new dry dock. The big winner will be Manukau, where a feasibility study will look at whether it may one day replace Auckland's port.

Auckland Light Rail was given $199m for "detailed planning activities", plus an unknown amount kept secret for commercial reasons. Transport Minister Michael Wood told Parliament on Monday construction would begin next year.

Defence, GCSB and NZSIS

Defence got more than $600m, mainly to improve existing infrastructure and meet cost pressures. Vietnam veterans were given $37.5m for ex-gratia payments for people suffering hypertension or monoclonal gammopathy.

Both the GCSB and NZSIS were given funding boosts. The GCSB got $18.9m to maintain and improve "information security services" from the threat of cyberattacks.