Cost Of Living

$1.2 billion to expand early childhood education and get more Kiwis back to work

The cost of living is the number one issue facing New Zealanders. Inflation remains high at 6.7% for the year to March, while the OCR stands at 5.25%. For businesses, this means reduced consumer spending power. This, combined with the increasing costs of doing business, is significantly impacting business’ top lines.  

What measures has the Government brought in to reduce the cost of living at this year’s Budget?  
 

Budget overview – policy highlights

Budget 2023 is supposed to be making things a little easier for New Zealanders as they battle a cost-of-living crisis. Childcare has seen significant investment, with $1.2 billion announced to expand the 20-hour early childhood education support, helping get more Kiwis back to work. $403 million has been announced to reduce power bills by making Kiwi homes more energy efficient. In addition, the Government has announced support with health costs by removing prescription charges for medicines, and a permanent reduction in the cost of transport for many New Zealanders.  
 

Confirmed new policy areas 

• $1.2 billion to expand the 20-hour early childhood education for three-to-five year olds to cover two-year olds 

• $327 million operating to fund free public transport for children under 13 and permanent half price fares for under 25s 

• $403 million operating to the Warmer Kiwi Homes Programme to fund approximately 100,000 new heating and insulation installations, 7,500 hot-water heat pumps and 5 million LED bulbs 

• $20 million operating to fund a matching KiwiSaver employer contribution to paid parental leave recipients  

• $619 million operating to remove the $5 co-payment for prescriptions 

• $323 million for continued delivery of free lunches in schools  

Business impacts and considerations  

Kimberley Symon, BDO Advisory Partner and BDO Wellbeing & Business Performance Index Lead Partner, says: 

“Strong financial management means looking at your financial results and forecasts as a whole, rather than driving decision making based on one or two measures. I’ve seen examples where business owners have focused just on their gross margin for example, and have been making their decisions solely based on maximising that metric. However, taking this path can lead to a less than desirable net profit outcome – not to mention cash flow. Comparing both gross and net margin, sales, expenditure, pipeline, working capital and cash flow to budgets and prior year results will build a much more accurate picture of how your business is performing, as well as indicating which levers you can pull to make your business more resilient to economic shocks.” 

Quick tips & questions 

Tips for businesses suffering from rising inflation and cost of living pressures: 

• Report on cash flow – daily if you have to 

• Understand your financials and look at them as a whole – review your profit, gross margin, expenses, cash flow and sales together 

• Regularly review pricing and margins 

• Make friends with your bank – this will help ensure you have a trade finance facility that works for your business. You will have a stronger relationship with your bank if you can showcase detailed forecasts and up-to-date cash flow reports.  

More information and help available 

During an economic downturn, strong financial management practices are essential. Regularly reviewing your cash flow, pricing and margins will provide a much stronger view of your business and what levers you can pull to stay afloat and plan for the future. Your local BDO team are always on hand with professional business advice and accounting solutions to help you stay on top of your business finances. Reach out to your local office today to find out how we can help.  

The April 2023 BDO Wellbeing & Business Performance Index report found that business financial pressures and external economic factors are the top issues facing New Zealand business leaders today. View the report and video content to find practical tips for how to alleviate these and other challenges, helping you maintain both your business performance and wellbeing. This also includes a Business Resilience Guide within the main report.