New Zealand pledges to cut spending, says Prime Minister Chris Hipkins

Flash floods hit Auckland, the country’s largest city, in January, and Hurricane Gabriel swept the North Island in February, leaving a trail of destruction in its wake.

The government will not introduce major new taxes in this year’s budget, Hipkins said, and the cost of the reforms will be covered largely by operational and capital budget allocations.

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

“For its part, the government is committed to reducing its share of its spending aimed at curbing demand in the economy,” Hipkins said in a speech to the Federation of Employers and Manufacturers.

New Zealand is already facing historic high inflation and the central bank has already expressed concern that any increase in government spending could exacerbate the inflation problem.

The Treasury estimates that inflation in the March and June quarters is expected to be about 0.4% higher due to weather events and that farm and crop production is expected to decline by $400-600 million from New Zealand during the first half of the year.

Hipkins said his goal is to reduce public spending to about 30% of GDP.

Primary government spending equals 35% of GDP in the year ending June 2022 and is expected to decline to 32.8% of GDP in the current fiscal year.

“It will be a traditional no-frills budget focused on funding the things that matter most to New Zealanders, such as subsidizing living costs and rebuilding after a hurricane,” said Mr Hipkins.

He added that infrastructure will be at the core of the budget, as the country not only has to do post-hurricane reconstruction, but also have new hospitals and schools.

($1 = 1.6343 New Zealand dollars)