Government attempts to emerge from pandemic with ‘Budget of Revival’

Wednesday 9 June 2021 | Written by Emmanuel Samoglou | Published in Economy, National

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Government attempts to emerge from pandemic with ‘Budget of Revival’
Prime Minister Mark Brown making his 2021-22 budget speech. 21060843

Describing its revenue forecast for the coming 12 months as conservative, government is predicting a nearly 9 per cent increase in gross domestic product to drive spending in areas such as health, education, and infrastructure.

Government is banking on a tourism revival to help resurrect a wrecked economy that is among the world’s most devastated following the Covid-19 pandemic.

In a speech in Parliament on Tuesday afternoon, Prime Minister Mark Brown provided preliminary details of the 2021/22 Appropriation Bill, which lays out Government’s spending priorities for the coming 12 months along with updated fiscal data.

PM Brown has labelled the spending plan as a “Budget of Revival”, which seeks to lead the recovery of an economy after an estimated 21.6 per cent contraction of gross domestic product (GDP) in fiscal 2020/21.

“This is the budget that will help get our country back on its feet,” the Prime Minister said during his budget speech.

“It is a budget that will help and encourage our business, it is a budget that will encourage innovation among our people, it is a budget that will ignite the spirit of our people to rise up as a nation and to reclaim what we have lost by Covid.”

Government economists are factoring in a steep increase in tourism arrivals leading up to the third quarter of fiscal year 2021/22, contributing to growth in tax revenues, which are projected to hit $107 million – a 32 per cent increase from the previous year.

However more debt will need to be taken on to plug a financial gap as the country waits to re-open to major tourist markets.

The Government predicts a GDP growth rate of 8.8 per cent for the fiscal year, which begins next month and runs through June 30, 2022.

GDP is expected to grow by a further 14.1 per cent in 2022-23, when it is expected the main tourism markets of New Zealand and Australia return to historic levels, with other markets beginning to pick up.

A further 7.3 per cent increase is projected in 2023-24.

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“The estimates provided by our economists are conservative estimates and I am confident that our positioning and the window of opportunity our current travel bubble has provided will see those conservative figures eclipsed,” said Brown.

Full details weren’t released when this story went to press, however preliminary figures indicate spending in key priorities such as health, education, and social welfare isn’t expected to change from what government spent this year.

With revenues slowly recovering to pre-Covid levels, Brown said government will require $55 million dollars of additional debt to plug an estimated $80 million fiscal deficit.

As a result of the additional borrowing, the net debt ratio – which is debt measured against GDP – is expected to climb over the fiscal year to 48.9 per cent from 41.9.

“We expect our total debt to reach at least $250 million by the end of the next financial year,” he said.

Notably, government has phased out Covid-19 financial support from the Economic Response Plan (ERP) to businesses in the budget, however $22.5 million has been set aside to assist the private sector in the event of a border closure.

“Our economy cannot continue to rely on government handouts, we need businesses to recover to the point that they can stand on their own feet,” said Brown.

“The ERP has been a comprehensive response to Covid, and one that the Government and I are justifiably proud of, but that support has come at a steep cost.”

Although the wage subsidy concludes at the end of the month, the PM said government intends to extend the “fees free” scheme that covered the costs of eligible tertiary education courses.

After Brown concluded his speech, Parliament voted to refer the bill to the Public Accounts Committee, which has been tasked to review the budget and report its findings to Parliament when it convenes on June 15.


PHOTO: Supplied. 20032507.

Committee to review budget

“In the name of transparency,” the Appropriation Bill (Budget) was referred to the Public Accounts Committee after it was tabled in Parliament yesterday by Prime Minister Mark Brown, who is also the country’s Finance minister.

Established in 2015, the Public Accounts Committee’s role is to ensure public money is applied for the purposes prescribed by Parliament.

Clerk of Parliament, Tangata Vainerere said: “There is a global trend towards greater openness in government finances. That’s what this is all about. The purpose for this is to promote good governance and fiscal transparency.”

Vainerere said the Committee’s role is to consider the draft estimates and the spending plans in the budget for this financial year and the following three.

He said if there are any areas of concern in the budget the Committee can submit recommendations.

It’s the first time this has happened and Vainerere noted PAC’s involvement was a trial.

The Committee will examine the Bill from today till June 14, before Parliament sits again on June 15. 

Vainerere said the Committee’s role was not to question the underlying policy that informs public spending. “Rather, they investigate whether spending did comply with the intentions and expected standards and also whether value for money was obtained during the fiscal year,” he said.

Vainerere said some people may find it odd that the Committee is discussing a budget that has not been approved by Parliament yet.

But he said, “this will apply next year when the Committee having understood what the Government wanted to spend the money on this year will be better able to conduct its review of the fiscal performances of the Government Ministries and State-owned Enterprises through Audit Office Reviews and the Government’s Annual Financial Statements to Parliament.”

                - Caleb Fotheringham

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