Budget 2023: Cheaper childcare, free prescriptions and a trust tax hike

Public transport fares, prescription fees and early childhood care were all winners in this year's Budget.

The Government will extend 20 hours of free childcare a week to 2-year-olds

Picking up medicine will be free from July, with the $5 prescription fee scrapped

The trustee tax rate will rise from 33% to 39%, in-line with the top tax rate

$10.7 billion has been poured into infrastructure and $6b for a National Resilience Plan

Inflation is predicted to fall rapidly over the next year, while unemployment to hit 5.3%

The Government has spent up large to tackle rising living costs ahead of the election, with a scrappy, bread-and-butter Budget 2023 throwing up policies for young parents, public transport users, the sick.

Families with 2-year-olds will be up to $133.30 better off a week through 20 hours of free childcare from next March, while the $5 prescription fee at pharmacies will be scrapped in July.

Extending free childcare will cost $1.2 billion from the public purse over four years, Finance Minister Grant Robertson said.

“The backdrop against which we are putting this budget together is anything but simple.”

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* Budget 2023: Cheaper childcare, free prescriptions and a trust tax hike

“Cost of living pressures are being felt across our communities.”

Meanwhile, dropping a $5 prescription charge for medicines at pharmacies is set to save about 3 million people a year money, and in particular 770,000 people aged over 65. It will make most prescriptions in New Zealand free.

Free access to medicines is also hoped to ease pressure on the over-burdened health system by helping people get medicines sooner

The scheme will cost $618.6 million over four years.

David Unwin/Stuff Grant Robertson and Chris Hipkins shake hands after delivering Budget 2023

Permanent, free public transport for under 13s is also being introduced, along with half-price fares for under 25s, community service card and total mobility users.

Overall, "cost pressures" were mentioned 52 times in the outline of new spending, double the number of mentions last year.

"When I became Prime Minister I said I would focus on the bread-and-butter issues Kiwi households are facing," Chris Hipkins said.

"It's tough for families right now."

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However, drivers are still looking down the barrel of higher costs if petrol subsidies finish by the end of June, as is currently planned.

The other group facing a bigger bill will be trustees.

The Government on Thursday announced it would be raising the tax rates on trusts from 33% to 39% from 2024, putting it in line with the top personal income tax rate - although there will be exemptions for some.

While it’s being framed as “aligning” the tax rate or closing a tax loophole, it is an increase which opponents are likely to describe as a tax hike. Robertson said prior to the Budget there wouldn't be any “major” tax changes.

Elsewhere, as much as $322 million will go to early childhood education providers to boost pay for staff to bring them closer in line with kindergarten teachers. Urban bus drivers base wages will also be lifted to $30 an hour, or $28 for regional drivers.

In total, Budget 2023 has new annual spending of $4.8 billion. The Budget is expected to account for 32.5% of New Zealand’s $394 billion economy in the next year. A surplus in now forecast a year later than predicted, 2025-26.

Meanwhile, Treasury has - somewhat surprisingly - forecast inflation will rapidly fall from June and to within its targetted 1% to 3% target band next year.

Net debt is also forecast to peak at 22% of GDP in 2024. It was sitting at about 19%. Robertson set out a debt ceiling of 30% of GDP. Total borrowing has jumped up 10% on last year, at $222.5b.

Stuff Hipkins says he’s delivered on his promise of helping with the cost of living.

Treasury has also changed its tune on house prices, and says they will now keep falling, by another 4.6% for a total declined of 21.3% from its peak.

More than $1b is being poured into health workforce pay rates and boosting nursing staff numbers by 500.

As much as $99m will go towards the coming winter and $118 m will go towards improving patient flow through the hospital.

The boost to primary care will also fund 193 extra frontline clinical staff.

The Government is setting $6m to build infrastructure destroyed by February’s severe weather events.

Robertson said it was “unacceptable” that vital services like telecommunications, power and transport links were knocked out for so long.

“It identified a serious basic infrastructure problem that this investment will help to fix.”

The Crown agency which was the Christchurch rebuild agency is being repurposed to deliver the projects. It will be called Rau Paenga.

The Government has also released an infrastructure investment plan with a $10.7b bill.

An extra 3000 public homes will be built by June 2025, as well as 322 new homes for Maori and 400 relocatable cabins to house people displaced by February’s weather events.