Wellbeing Budget 2021

Our Recovery

Financial and physical capital: our built and financial assets

Financial and physical capital refers to assets owned by households, companies, and the government. These assets range from cars and databases to financial assets, such as cash and shares. Our built and financial assets generate incomes and influence New Zealanders' standards of living.

The swift and decisive health response from the Government, coupled with significant fiscal support, saved the lives and livelihoods of New Zealanders. Our response supported incomes and allowed economic activity to bounce back, which significantly contributed to the faster than expected economic recovery. GDP fell by 1 percent in the December 2020 quarter, following a 13.9 percent increase in the September 2020 quarter and an 11 percent fall in the June 2020 quarter.[21] Relative to the December 2019 quarter, real production GDP was down 0.9 percent in the December 2020 quarter. This compares very favourably internationally, as countries continue to grapple with the effects of COVID-19 on their economies.

Figure 1 - Real production GDP

Source: The Treasury

Reserve Bank of New Zealand data shows households have improved their financial positions with banks over the period from February 2020 to January 2021 (Figure 2). While household mortgage lending increased, households improved their overall balance sheets by repaying other loans and through increasing their deposits. This data highlights the important role of fiscal policy in stabilising the economy. As households began to increase their savings, government spending was able to offset this effect to cushion the blow to the general economy.

Figure 2 - Change in borrowing and deposits for households and businesses

Source: Reserve Bank of New Zealand data, Treasury analysis
Note: Net position is equal to total deposits minus total loans

More New Zealanders reported that they had enough money to meet their everyday needs in the March 2021 HLFS wellbeing supplement than in December 2020. In total, 70 percent of New Zealanders felt they had enough or more than enough money to meet every day needs in the March 2021 quarter. The proportion of unemployed people who had enough or more than enough money increased to 41 percent from 30 percent in December 2020.

Despite initial predictions of falling house prices due to COVID-19, New Zealand's strong economic recovery saw a continuation of strong housing market activity. Economists expect the housing policy changes announced by the Government in late-March will take time to show through to headline housing market data. The Real Estate Institute of New Zealand's April house price index showed monthly price growth continued to ease (2 percent in April compared to 2.7 percent in March and 3.6 percent in February), while annual growth of 26.8 percent was boosted by lower April 2020 prices and activity due to the nationwide lockdown last year. House sales were down 5.9 percent in April, following a 0.1 percent increase in March and a 20.5 percent increase in February.

The cost and quality of housing continues to be a key issue for New Zealand households. New Zealand households spend on average 26 percent of their disposable income on housing costs, the highest in the OECD.[22] In the March 2021 HFLS wellbeing supplement, 17.0 percent of respondents reported a minor problem with dampness or mould in their house or flat, with 2.4 percent reporting a major problem. Some groups are more likely than others to report major problems with dampness, mould or heating, including Māori, Pacific people, sole parents, and the unemployed.

New Zealand businesses have generally come through the pandemic with stronger balance sheets than expected due to lower borrowing and higher deposits (Figure 2). But the recovery from COVID-19 has varied across sectors, regions, and firm types. In particular, international education and tourism continue to be adversely affected by border closures, and COVID-19 has also resulted in disruptions to supply chains which are expected to continue.

Increased investment in research and development (R&D) by firms may support future productivity gains. In 2020, businesses in New Zealand spent $2.7 billion on R&D, up from $2.4 billion in 2019.[23] Business expectations of future R&D spending have remained relatively steady since 2010, with 41 percent of businesses in 2020 reporting that they planned to increase their R&D expenditure in the next financial year. But business expenditure on R&D in New Zealand is low compared to other small advanced economies (Figure 3).

Figure 3 - Business expenditure on R&D as a percentage of GDP in small advanced economies, 2017

Source: OECD Main Science and Technology Indicators https://doi.org/10.1787/data-00182-en
Note: the definition differs for Israel and the data for Denmark is provisional.


  • [21]https://www.stats.govt.nz/information-releases/gross-domestic-product-december-2020-quarter
  • [22]http://www.oecdbetterlifeindex.org/countries/new-zealand/
  • [23]https://www.stats.govt.nz/news/business-r-and-d-spend-to-continue-in-spite-of-covid-19
Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now


Back to Top