Budget 2021: No surprises but a missed opportunity for growth

3 min readMay 21, 2021
Photo by GR Stocks on Unsplash

By Professor Christoph Schumacher

In a speech delivered just before yesterday’s budget, Finance Minister Grant Robertson acknowledged that the New Zealand economy had its problems, even before COVID-19 hit our shores. Housing affordability, climate change, child well-being and productivity issues were enormous issues the country needed to face up to.

The announcements in the 2021 budget won’t have given many business owners confidence that from their perspective things will be changing any time soon. In fact, they may well be in for more of the same, only with higher levels of debt and ongoing shortages of skilled staff.

The budget’s concentration on increasing welfare payments or as Grant Robertson put it “righting the wrongs from 30 years ago” was undoubtedly necessary. New Zealand has chronic issues with child poverty and homelessness, particularly for the Maori and Pacifica communities, which have mostly been getting worse rather than better.

However, to truly transform the country and improve the wellbeing of all New Zealanders a bold plan was going to be needed to raise productivity and spur higher levels of growth. As Nobel-winning economist Paul Krugman famously said “Productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” Plans to address productivity growth, or rather New Zealand’s alarming lack of it were absent from the budget and it was a missed opportunity.

Speeding up productivity growth

One of the major levers for improving productivity is by increasing the education and skills level of the workforce. Tertiary education was barely mentioned in the budget even though tertiary institutions are hurting badly from the lack of international students. The budget announced a relatively minor 1.2 percent increase in tertiary education tuition and training subsidies and an increase of $25 per week for student support. As the adoption of new technology accelerates across the world, New Zealand risks being left behind if we don’t have a clear plan to upskill and retool our workforce to prepare us for the future of work.

Another major factor in improving productivity performance is improving our use of natural resources. Climate change initiatives were also largely absent from the budget other than $300 million to the Green Investment Finance Ltd for investment in low-emissions technologies and previously announced plans to decarbonise the public service. Presumably we will have to wait for the Climate Change Commission’s final recommendations at the end of 2021 for further developments in this area.

Brain drain to Australia?

By contrast, the recent Australian Federal Budget announced a range of measures to encourage growth which raises the very real prospect that we will see our highly skilled workers lured across the ditch.

Their budget included tax cuts, incentives for business to invest in plant and machinery, and support packages for the most COVID affected industries. Their $1.2 billion Digital Strategy was also billed as “an important driver of employment, wages and productivity growth” enabling small and medium business to adjust to a digitally enabled future.

Overall, what was missing from the 2021 “Recovery Budget” was an integrated plan to grow New Zealand’s economy and to invest in its productivity capacity. While raising welfare payments and minimum wages may be necessary in the short term, long term investments also need to be made in our businesses and our people if we are to create sustainable wellbeing for all New Zealanders into the future.




GDPLive is a world-first real-time GDP forecaster, which uses big data and AI to form estimates of economic activity in NZ. Go to: www.gdplive.net