Science hubs developed

Ministerial statement

„ Three new multi-institution hubs to increase collaboration in research and science

„ Major investment in science and scientists

„ Fellowships and funding to develop more than 260 future science leaders

„ Budget 2023 positions the New Zealand economy for a low-emissions, high-wage future with a major investment into our science, digital and horticultural technology sectors.

Editorial comment

The Government has announced 3 science hubs will be created covering:

„ climate change and disaster resilience

„ health and pandemic readiness, and

„ technology and innovation.

For the first of these, there is to be a national centre for research on climate, oceans and hazards. Participating bodies include the National Centre for Water and Atmospheric Research, the Institute of Geological and Nuclear Sciences Limited and universities.

The second initiative involves a “health and wellbeing corridor”, part of which will have a new pandemic centre designed to deal with public health emergencies. Information is to be shared between universities and other relevant bodies such as the Institute of Environmental Science and Research and Callaghan Innovation.

For the third hub, a research, technology and innovation park is planned for Gracefield, Lower Hutt, with an emphasis on sharing expert research in advanced manufacturing and materials, energy futures and biotechnology. 8 2023 Budget

Backing up this development is a $55.2 million fund for research fellowships to be undertaken by PhD students who will be New Zealand’s future science leaders.

All 3 science hubs are to be in the Wellington area. The Minister referred to physical space and facilities being provided as part of the programme.

Ministerial statement

“We will be one of the first non-European countries to offer our researchers access to the European Union’s largest-ever research and innovation programme on equal terms with European scientists.”

Editorial comment

The European Union science centre, Horizon Europe, is the EU’s programme for science and innovation. It has funding of €95.5 billion. Climate change is a principal target along with sustainable development. New Zealand researchers will have access to this body of learning, but it is envisaged they will also contribute by partnering their European colleagues.

Budget 2023 provides $37.6 million over 4 years for New Zealand’s association with Horizon Europe.

Economic and fiscal factors

Editorial comment

The Budget papers touch on several economic and fiscal topics. Brief reference may be made to some of the more significant matters.

It is anticipated that the economy will not enter into a recession during 2023. It is noted that it is expected that there will be around $9 billion of cyclone-related rebuild and recovery investment activity over the period to 30 June 2027 (with an additional $1 billion after 2027). The rebuild activity will support demand with a consequent increase in GDP.

The papers note that the estimated cost of the North Island weather events ranges from $9 billion to $14.5 billion for the damage to physical assets. In addition, the loss of output is estimated to be in the range of $400 million to $600 million.

Interest rates are expected to remain elevated. The current official cash rate of 5.25% is expected to remain at that rate for the remainder of 2023 before starting to ease.

The Budget papers observe that the labour market currently is very tight as reflected in the current unemployment rate of 3.4%. Slow economic growth is expected to reduce labour demand over the next 2 years, causing the unemployment rate to rise to 5.3% by late 2024.

The sensitive area of house prices also attracts comment. Higher interest rates and weaker wage growth are expected to lead to a further decline in house prices, which have fallen as at 31 March 2023 by 16.7% from their November 2021 peak. A further decline of 4.6% through to mid-2024 is predicted.

The housing sector is also expected to experience a downturn in investment. Residential investment is expected to fall a further 3.6% over 2023. It is observed that falling house prices and elevated construction costs have reduced residential construction. Any net increase in net migration (forecast at 25,000 per annum) is expected to have a limited impact on residential construction in light of the significant increase in housing supply over 2021 and 2022.

The current account deficit, as the measure of the difference between net income flows arising from the trade in goods and services, and from investments at home and abroad, was at a record 8.9% of GDP for the year to 31 December 2022. The stock of net foreign liabilities reached 50.7% of GDP as at that date.

It is anticipated that the deterioration in the current account deficit will reverse. The recovery in tourism together with the decline in global inflation (particularly in oil and food) leading to lower import values are factors that should ameliorate the deterioration.

The fiscal outlook projects total Crown revenue for the year to 30 June 2023 to total $155.6 billion. Tax revenue contributes $114.6 billion to that total. The tax rate can be broken down to comprising 70% from individuals and corporates with the remaining 30% from GST and other indirect taxes (eg customs duties).

Some $22.6 billion is derived from the sale of goods and services by entities such as stated-owned enterprises. The commodities sold include, in particular, electricity and air travel.

Core Crown tax revenue is forecast to grow steadily. For example, for the period 2023 to 2027, interest revenue is expected to grow by $3.1 billion due to the impact of higher interest rates and the growth in ACC levies. In addition, source deductions (mainly PAYE) are forecast to grow at a rate of $3.9 billion per annum on account of wage growth and fiscal drag. GST is expected to increase by $2 billion for the year to 30 June 2023 with a modest increase of $400 million for corporate and other taxes for the same period.

On the expenditure side, core Crown expenses are expected to remain elevated at $128.2 billion (being 32.5% of GDP) for the year to 30 June 2023. Core Crown finance costs are expected to increase from $2.9 billion for the year to 30 June 2021 to $6.3 billion for the year to 30 June 2023. Benefit expenses such as for New Zealand superannuation are expected to increase by $2.9 billion for the year to 30 June 2023.

In total, expenses are expected to exceed revenue earned by $6.4 billion. At the same time, significant revaluation gains are anticipated. Predicted is a net gain on financial instruments of $5.9 billion, primarily from investment gains achieved by the portfolios held by the ACC and the New Zealand Superannuation fund. A gain of $3.4 billion is also forecast from a revaluation of the NZ ETS liability.

To cover the Crown’s cash deficit, the government will continue with its bond programme. Over the period 2023 to 2027, the bond programme is forecast to raise $142.3 billion.