Budget 2022: What is it and should you bother?

Source: 1News

On Thursday, the Government will reveal its spending plans for the next financial year.

Budget Day and the Budget process may appear strange - overly showy, even - to a casual observer. Numbers galore, pundits and economists with plenty of reckons, speech after speech and a bunch of jargon.

So, what's the point of it all?

Should I care about the Budget?

Auckland University economics lecturer Dr Debasis Bandyopadhyay says it's important to care when "almost every aspect of our life is affected by how much the Government spends". This includes the likes of housing, education, health, transport, infrastructure and the climate.

"If the Government stops funding infrastructure, for example, we would have a traffic jam… if the Government doesn't spend enough on health, we might have a long queue getting treatment in hospitals."

Since 2017, Labour has been using a 'wellbeing' approach to its Budgets which looks beyond metrics like GDP and incorporates outcomes like health, the environment, and income. So, when the Government makes spending decisions on behalf of Kiwis, Bandyopadhyay says it's important to verify if it's actually working.

ACT deputy leader Brooke van Velden says ultimately, people should care "because you're paying for it".

"Every dollar that the Government spends comes from you, the taxpayer, and we need to make sure that they're spending it wisely because it will cost you in the long run."

What is the Budget and how does it compare to, say, a household's budget?

Putting it simply, the Budget states where and how much the Government wants to spend for the financial year, which begins on July 1.

"It's the one chance in the year to take a big stocktake of where we're up to in terms of revenue coming in and expenses going out," says Finance Minister Grant Robertson.

Van Velden says governments have to keep in mind their incomes and expenses; they have their priorities, but money needs to come from somewhere, just like any household budget.

There are some key differences in the Government's Budget, though, compared to one a person might put together to keep track of daily expenses. Bandyopadhyay explains that one distinction is that the Government (made up of ministers and Government agencies) needs to get approval from Parliament (MPs in the House) before it gets to spend what it says it will.

It gets this permission by passing what's known as an 'Appropriation Bill' - a comprehensive set of proposals that sets aside money for specific purposes.

To pass the bill, Parliament begins scrutinising where money has been allocated after the Budget is presented on Budget Day. Ministers appear before various select committees for questioning, and then those committees report back to the wider Parliament for further debate. The process wraps up by about August or September each year.

But, because expenses don't stop in the intervening months between Budget Day and the Appropriation Bill being passed, Parliament has to pass what's known as an 'Imprest Supply Bill' to allow the Government to keep paying for things.

Throughout the year, Parliament also examines the previous year's Budget to see what's been spent or not and assesses the performance of Government entities.

How does the Government decide where money will go?

Robertson says the Budget process begins around August to September the calendar year before. An overall strategy for the Budget is developed and priorities are set. That's declared in the Budget Policy Statement.

"Then we sit down with each of the ministers and the departments and they make proposals. There's always more proposals than there is money."

Decisions are usually made from January to April.

Bandyopadhyay says after receiving proposals from ministers, Treasury makes its assessments and then creates a detailed plan.

That proposal also goes to the Prime Minister and Associate Finance Minister. The ministers then present their Budget package to Cabinet for sign-off.

"Then the Finance Minister will give it to the Parliament for approval," Bandyopadhyay says.

On Budget Day, the proposed appropriations and the timeline over which the Government wants to roll out that spending is revealed. They're grouped into 'votes', or general areas of spending.

'Vote Health', for example, includes health-related spending by the Ministry of Health. In 2021's Budget some of those funds went towards the likes of DHBs, pharmaceuticals and immunisation.

How much is the Government allowed to spend, and who decides this?

Robertson says the Government works with Treasury to figure out how much money is available based on their projections of earnings.

"It's always a forecast, so we have to go back each year and take a look at how we've done the previous year.

"Based on how much debt we're prepared to carry as a country and how much money we want to save… we can decide how much we need to spend."

If the Government needs additional money as the financial year goes on, it can seek Parliament's permission through further bills.

Where does the money come from?

Robertson says the main sources of money for Government spending come from taxation, such as from individuals or companies, the investments it holds on behalf of New Zealanders and companies the Crown owns or partly owns.

The Government can also choose to borrow money, guided by the Public Finance Act that puts limits on how it can borrow and use public money. Treasury figures out how much may need to be borrowed based on what it is the Government says it wants to spend and its revenue.

As for who the Government is borrowing from, it can come from overseas, fund managers, insurers, banks, or through bonds.

More recently, amid Covid-19, some funds come from the Reserve Bank's quantitative easing programme - essentially, creating money and injecting it into the economy.

So, ultimately, you.

What if I don't like where the Government is putting money?

"Ministers always care about public opinion," Bandyopadhyay says.

"That is the key part of democracy. We have to be watchful and we have to talk to our Member of Parliament who represents us. That person has to raise objections in Parliament."

People should also raise issues, speak up, participate and generate debate, he adds.

Opposition parties also propose alternatives so people can get a preview of what things may be like if they were in power instead.

Van Velden says part of the job of Opposition parties is to ask where money has gone and make sure spending isn't "wasteful" to keep the Government accountable.