The Government responds to the financial pain of the ‘squeezed middle’ with a $1 billion Budget cost-of-living package, writes political editor Jo Moir

The Government has reacted to the cost-of-living crisis with a $1 billion package that will target the squeezed middle.

It will extend by a further two months the discount on the price of petrol and road user charges, and half price public transport.

For community service cardholders, half price public transport will be permanent from September 1.

The reductions at the pump and on public transport were first announced in March in response to skyrocketing global inflation triggered in large part by the war in Ukraine.

The inflation spike is forecast to subside in the second half of the year, but to support more New Zealanders during this period the Government has also announced a cost-of-living targeted payment.

This works out at about $27 per week for an estimated 2.1 million Kiwis aged 18-and-over who earn below $70,000 per annum, based on last year’s tax data, who don’t already qualify for the Winter Energy Payment.

The temporary $350 payment will be delivered across three monthly payments from August 1.

Combined with the Winter Energy Payment it will mean 81 per cent of the population aged 18 and over will receive a cost-of-living top-up.

The other two components of the cost-of-living relief package are an extra 26,500 insulation and heating retrofits to help lower power bills for households, and urgent legislation to tackle high food bills by stopping supermarkets from blocking competitors from accessing land.

Finance Minister Grant Robertson had billed this year’s Budget as one focused on climate change and health but with an operating allowance of $6 billion, public pressure has been building for some months to offer some relief in people’s back pockets.

This year’s Budget moves away from the Covid crisis budgets of the past two years and Robertson says it’s designed to strike a balance between providing relief for those who need it most while investing in long-term transformation.

The price tag on health

The landmark health reforms announced by the Government last year are due to kick in on July 1 and this Budget balance was always going to be largely eaten up by the costs of those significant changes.

Over the next four years $11.1 billion has been allocated to the new entities that will replace the 20 district health boards that cease to exist in July.

In the first year, $1.8b will be allocated to health, followed by an additional $1.3b in year two taking it to $3.1b. That budget will continue over the next two years.

The first-year of funding will clear the remaining financial debt of around $550m after the DHBs ran annual deficits of $3.5b since 2009.

Robertson said those deficits were a “reality of life under DHBs’’ and he’s confident the way Health NZ has been structured will not run into the same problems.

Health Minister Andrew Little said the budgets over the next four years were designed to keep pace with population growth and the cost of delivering services.

Also in the health budget is $1.3b in capital funding for investment and redevelopment of Nelson, Whangarei and Hillmorton hospitals.

The Māori Health Authority, which has drawn strong criticism from the Opposition, has been allocated $168m for its commissioning budget over four years, starting with $33m in the first year.

Robertson and associate health minister Peeni Henare pushed back on the suggestion Māori might see the allocation as breadcrumbs.

“For our whānau, this means the Māori Health Authority will be able to fund services that best suit our people and the services they are asking for. It means Māori will now be treated by the right people, in the right way,’’ Henare said.

Robertson told media in the Budget lock-up that the significant funding was about building capacity and services over time and that it would take several Budgets to see a shift in equitable health outcomes.

Climate change is the other big long-term challenge being addressed through Budget 2022, though the announcements and funding of that plan was covered off on Monday with the Emissions Reduction Plan.

A total of $2.9 billion was allocated from the Climate Emergency Response Fund to support initiatives including shifting low-income households to low-emission vehicle alternatives, further decarbonisation measures and innovation and research in the agriculture sector.

The big picture 

From an economic outlook perspective New Zealand has for the most part proven resilient to disruption from Covid-19.

Strong labour demand in the near term is forecast to reduce the unemployment rate to 3 percent.

New Zealand’s border restrictions have eased earlier than assumed in the Half Year Update, which has resulted in a faster forecast recovery in international visitor spending that Treasury anticipates will help narrow the current account deficit more quickly.

A return to surplus is expected in the 2024/25 Budget year.

While most of Thursday’s Budget was consumed by health and cost-of-living relief, some other manifesto commitments and new spends were announced.

At the 2020 election the Labour Party committed to increasing dental grants for low-income families from $300 to $1000.

That has been fulfilled in this year’s Budget.

As revealed by Newsroom Pro on Thursday morning, $300m is being provided to implement the new equity index that will replace the archaic school decile funding system.

That investment includes $75m per year in additional equity funding for schools with higher levels of socio-economic need.

To support the creation and operation of the new public media entity, that will merge RNZ and TVNZ, $327m has been allocated over three years from 2023.

Pharmac has also received a significant boost to its medicines budget of $191m over two years, while GPs in high-needs areas will receive $86m of new funding over four years to improve opening hours and appointments.

The other big health boost is for new road ambulances and up to 248 more paramedics and frontline staff to be recruited, at a total cost of $166m over four years.

Jo Moir is Newsroom's political editor.

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