Issue 61, Commercial eSpeaking, Winter 2022
2022 Budget
Commentary on the Minister’s main points
The Minister of Finance, the Hon Grant Robertson, presented the government’s Wellbeing Budget to the House on Thursday, 19 May.
With inflation running at a 30-year high at 6.9%, and similar levels of inflation with most of our trading partners, rising interest rates, the stock market in the doldrums, the knock-on effects of the Ukrainian war and the continuing situation with Covid, the government is walking an economic tightrope.
With an eye on the late 2023 general election, did the Budget give short-term relief for New Zealanders or did it take the long-term view for the good of the country? The government has probably put a dollar each way.
Cost of living
To help mitigate inflation and the squeeze on the lower-middle income sectors, the government has established a $1 billion cost of living relief package. This includes a one-off $350/person cost of living payment for the estimated 2.1 million people earning less than $70,000 per annum and who are not eligible for the winter energy payment. This $350 payment will be made in three instalments from 1 August.
The half-price public transport fare regime (introduced to run from 1 April – 30 June) will continue for an additional two months to 31 August, as will the reductions in fuel excise and road user charges. There will be ongoing concessions for Community Services card holders.
The government is attempting to quell some elements of the current supermarket duopoly. On 19 May, it introduced legislation[1] to ban covenants over land as a barrier to supermarkets accessing new sites thus restricting competition. There will shortly be more announcements in response to the Commerce Commission’s recent report on the operation of New Zealand’s supermarkets.
Business
Businesses that had been expecting a significant Budget boost may be disappointed.
The government has, however, announced some support for small and medium-sized enterprises (SMEs) through a $100 million Business Growth Fund. Working alongside the retail banks, the government can buy a minority shareholding in appropriate SMEs. Privately operated and independently managed, the Fund will support SMEs where equity funding may be preferable to debt finance.
The Minister of Finance says, “The Fund would always be a minority investor [in an SME] with a seat on the board, offering guidance and expertise, but always leaving owners in control. [The Fund] will improve SMEs’ access to finance, enabling them to grow, create jobs and increase their contribution to our wider economic development.”
Although the concept is new to this country, similar funds have been successful in countries such as the UK and Australia.
The government has allocated $60 million towards the implementation of its proposed Income Insurance Scheme; it expects the Scheme to be operational in 2024. There is more about the proposal here.
For Kiwis who live in broadband’s ‘worst served’ areas, the government has allocated $60 million to improve broadband infrastructure.
There is $132 million allocated towards industry transformation plans for the construction sector, advanced manufacturing, agri-tech, digital and primary industries.
Health
The health sector is a big winner in this year’s Budget with an allocated $11.1 billion operating budget for the new Health New Zealand entity over the next four years. There is another $1.3 billion earmarked for health capital investments including specific allocations for Whangārei and Nelson hospitals, and the Hillmorton mental health project in Christchurch.
The financial deficits of district health boards will be wiped allowing Health New Zealand to start with a clean slate on 1 July.
Pharmac is to get a major funding boost of an extra $191 million over the next two years.
Climate change
The Emissions Reduction Plan is allocated $2.9 billion from the Energy Response Fund. There is $16 million over four years for community-based renewable energy projects from the Māori and Public Housing Renewable Energy Fund, and $31 million is for a Māori climate action platform.
More highlights
- Māori and Pacific communities have been allocated a $580 million package across health, social and justice sectors
- There are changes to the First Home Grants and First Home Loan regimes that take into account the significant increases in house prices
- The Affordable Housing Fund will receive an additional $221 million
- Public and transitional housing is allocated $1 billion
- A new Ministry for Disabled People will be established – $108 million for establishment and support operations, and
- Further funding has been announced for cultural organisations such as the New Zealand Symphony Orchestra, Royal New Zealand Ballet and the Waitangi National Trust Board.
Although times are tough right now, the government is optimistic that good times will return. Although a $19 billion deficit is expected this year, the government expects a return to surplus in 2025.
The Minister of Finance says, ”Budget 2022 shows the economy is expected to be robust in the near term.
It is expected to strengthen from the second half of this year, with annual growth peaking at 4.2% in the year to June 2023.”
We have only had space to outline some Budget highlights. To read in more detail about the Budget go here.
Proposed Income Insurance Scheme Would be compulsory for most Kiwis.
Every year, more than 100,000 workers in New Zealand are laid off or lose their jobs through no fault of their own.[2] In February, the government proposed a new compulsory insurance scheme for all employees. This would provide most Kiwis with 80% of their regular salary for a minimum of seven months if they lose work through no fault of their own (including a health condition or redundancy).
We look at what the proposed scheme would involve and whether you as an employer should prepare.
Why introduce such a scheme?
Mass and dramatic redundancy of workforces has been experienced in New Zealand during the 2007–09 global financial crisis, the Christchurch earthquakes in 2010–11 and the current Covid pandemic. These events cause significant economic stress on employees and their families while also impacting the broader community as there is decreased consumer spending. The government claims the scheme will also help close the income gap and make income support available to people who cannot work due to non-accident-related health conditions.
What would it entail?
The proposed scheme would provide coverage for total loss of work due to redundancy or health conditions (including disability). It will not cover an employee’s reduced hours, reduction from full-time to part-time hours, or unemployment due to a dismissal or resignation.
How much coverage?
To comply with this scheme, employers would have to give a statutory four weeks’ paid notice of termination to their employee. In circumstances where an employer is unable to make that payment, the scheme would pay it and seek reimbursement from the employer’s liquidator.
Employees would then receive 80% of their usual salary for up to a further six months paid by the government. Payments would be capped at an annualised salary of $130,911. In some circumstances, the support could be increased to 12 months if the recipient is using the time to retrain or undertake medically required rehabilitation.
To continue to receive the coverage, each recipient would need to prove they are continuing to look for new work, are taking part in training/further education, are medically unfit for work or undertaking medical rehabilitation.
Who will be eligible?
To be eligible for the proposed insurance coverage, an employee would need to have contributed to the scheme for at least six months in the immediately preceding 18 months. An exemption is proposed for someone who does not meet the contribution timeframe if they have been on statutory parental leave.
Fixed-term and seasonal workers on short-term contracts would only be eligible to receive coverage until the end of their contracted period, ie: if someone lost their job two months before the contracted end date, the scheme will only cover the two-month period of lost work. However, any fixed-term or casual worker who could show a regular pattern of work with an employer and have a reasonable expectation of ongoing employment will be eligible for full support.
The government is yet to issue a position on how the scheme would treat the self-employed or contractors. It is possible this will be dealt with on a case-by-case basis to determine eligibility and ensure work is not being rejected just to gain access to the scheme.
Paying for it
Nothing comes for free. It is proposed that the Income Insurance Scheme will be administered by ACC and, as such, will be funded in a very similar way by levies. The government estimates that it will require a 1.39% per annum levy from both employers and employees to successfully fund the scheme (resulting in a total levy of 2.78% per annum of the employee’s gross annual salary). The levy would be reviewed after two years and, if insufficient to cover the number of people it is supporting, could be raised.
Do I need to make changes to my business?
If the scheme goes ahead, it could become operational in 2024. Until there is a known date and more detail, however, businesses need not take any specific steps to prepare. In the meantime, you should review your own personal insurance or any insurance you offer to your staff.
[1] Commerce (Grocery Sector Covenants) Amendment Bill.
[2] Employment New Zealand/MBIE.