Omicron and our big Budget

Next Thursday, Finance Minister Grant Robertson will reveal Budget 2022 and it will be a whopper. He has already declared this Budget will be a significant oneoff $6 billion boost to new spending to fund the s health system overhaul and meet its climate change goals.

But much has changed since Robertson outlined the broad sketch for this Budget last December.

In the 2021 Half Year Economic and Fiscal Update delivered on December 15, he voiced confidence and cautious optimism that inflation would be temporary. “While the Treasury is forecasting a decline in GDP in the September quarter, the outlook is positive with a forecast bounce back in the December quarter of 3.7 per cent.

“Inflation is forecast to peak in the March quarter next year then fall across the rest of 2022 towards the Reserve Bank’s 2 per cent midpoint over the rest of the forecast period.”

That confidence took a knock next day. The Ministry of Health said on December 16 it had found our first Omicron case. “The case arrived in Auckland from Germany via Dubai on December 10 and flew to an MIQ in Christchurch on an aircraft chartered for international arrivals.”

As we now know, Omicron was a whole new creature compared with Delta and gained rapid access to our communities.

Adding to Omicron’s damage is the Russian invasion of Ukraine. It has led to Europe’s largest refugee crisis since World War II, with more than 5.8 million people leaving the country and a quarter of the population displaced.

With an already turbulent backdrop of global inflationary pressures amid rising food and energy prices and pandemicdisrupted supply chains, the war has elevated supply and demand tensions, damaged consumer sentiment, and now threatens global economic growth.

The IMF’s global growth forecasts have been downgraded for the second time this year, with the global crisis lender projecting worldwide growth of 3.6 per cent in both 2022 and 2023, a drop of 0.8 and 0.2 percentage points, respectively, from its January forecast.

Next week’s Budget will inevitably reflect the changed circumstances, including the vastly revised expectations around inflation.

Robertson has said the Climate Emergency Response will be funded with money gathered via the emissions trading scheme.

Few will believe the vast sums to go into the new Health NZ will do little more than keep the health system standing for now. At least $700 million will be soaked up immediately by district health board deficits.

This Budget will be a whopper but any more hands out for added assistance may be left hanging on tired arms.