Treasury has revealed the state of the Government's books today, as Kiwis continue to grapple with the rising costs of living and the Finance Minister looks ahead to any election sweeteners he might be able to offer next year.
Treasury's Half Year Economic and Fiscal Update (HYEFU) shows the Government's accounts are on track to be back in surplus by 2024. For the wider economy, though, there's still a bit of pain to come.
What does it mean for you?
The big announcements
Discounted public transport fares and cheaper petrol will stick around for a few months longer, with the full costs of both kicking back in for most people in April 2023.
Half-price public transport fares, which were extended to January 31 at Budget 2022, are now extended until the end of March.
The discounted fares will remain permanent for Community Service Card holders, people eligible for the total Mobility Scheme and tertiary students from April.
The petrol excise discount will remain at 25 cents per litre until the end of February. In March, it will be at 12.5 cents, before coming off completely.
The extension will cost an extra $116 million.
The Road User Charges discount will end on January 31 next year.
For homeowners and homebuyers
Since the beginning of the year, one- and two-year fixed-term mortgage rates have increased by about 2 percentage points - that's an extra $800 every month households on $500,000 mortgages need to find.
Treasury is forecasting that house prices won't recover until 2025. It will take a further year until values return to what they were at their 2021 peak.
In the meantime, house prices are predicted to fall by a further 15% between September 2022 and December 2024.
Some mixed news for homeowners - while household incomes are growing strongly and are broadly keeping pace with inflation, the pressure will start to build as high interest rates push house prices down and mortgages roll over, according to Treasury.
Inflation and unemployment
Unemployment will hit a high of 5.5% in 2024 before dropping slowly between 2025 and 2027, Treasury's forecast says. That's tens of thousands more people without work.
Treasury believes inflation is "near its peak" at around 7% - in part thanks to increases already made to the Official Cash Rate, it says.
Its forecasts show it won't be until the end of 2024 when the annual CPI inflation figure returns to between 1 and 3% - the Reserve Bank's target. Until then, it's expecting annual CPI inflation to be about 6.4% in 2023.
Concurrently, hourly wages are estimated to increase by 6.8% in 2023.
Is a recession on the way?
A shallow one, says Treasury. It is anticipating the economy contracting by 0.8% across three quarters in 2023 before a slow and gradual recovery in 2024.
Adrian Orr told MPs the power was in the hands of the people to help stifle inflation. (Source: 1News)
It comes amid a recent admission from Reserve Bank Governor Adrian Orr that the central bank is engineering a recession to try and reduce demand.
What's the government going to do about it?
Finance Minister Grant Robertson is pledging to "continue our balanced approach in Budget 2023" and support families experiencing cost of living pressures.
“Tough choices, however, will be required on the pathway back to surplus."
He's asked agencies to examine where they could move money around while promising to maintain services.
His focus areas for Budget 2023 will include targeting investment in health, education and housing, as well as infrastructure investment and "unleash[ing]" business innovation.
Robertson has $1.8 billion left in operational funds - money for the day-to-day functions of the Government - for new initiatives in Budget 2023. That's because he's already made spending commitments of about $2.7 billion.
The Government's capital allowance - money for investing in things like schools and hospitals - has been increased by $9.1 billion to $12 billion for Budgets 2023 to 2026.
Read the full HYEFU document on Treasury's website and the Government's intentions for Budget 2023 in its Budget Policy Statement.
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