Budget 2023: Regional Economic Development cheat sheet

I attended Budget 2023 with the sole focus of trying to establish what was in it for regional economic development.

The Budget is always a bewildering array of documents – outlining the state of every revenue, spending, debt, and asset line item across central government. It’s easy to get confused with all the noise, and there are plenty of people way smarter than me who will dissect niches that I won’t get into today.

Centralisation rather than building regional capacity concerns me

As I scanned through the Budget documents, I was immediately concerned. In previous budgets, there has been a regional economic development media release that outlined any initiative directly related to regional development. This time round, there was no such document. Aside from the frustration that I would indeed need to trawl through everything, it was a signal to me that government is seeking to reassert its centralised position again. This is kind of ironic, given a key plea from me (read on to the end of this blog) is that the regional economic development sector puts forward a collective voice to central government that it should make a long-term commitment to supporting local economic development capacity.

With that in mind, let’s have a look at a sample of some of the policies I sniffed out which are worth noting for economic developers in our regions. For the curious, there are many more initiatives in the full Budget documents, but these are a starter for ten!

Remember, given that it is an election year, Budget 2023 is basically like a costed-out version of early thinking in the current Labour-led government’s election manifesto. We will still need to balance this against what the National Party whips up to satisfy voters, and then see where the dust settles between our two major parties and the smaller players crucial for forming coalitions.

Policies to lift workforce participation

Given the tight labour market across New Zealand, it was no surprise to see many policies focussed on getting more people to work. Putting any skills policies to one side, a couple of policies which will seek to encourage the underutilised workforce into jobs pegged my interest. These policies are:

  • Extending 20-hour ECE subsidies to two-year-olds has been dressed up by government as a child wellbeing measure, but make no mistakes this is a policy designed to enable parents back into work. The policy is backed up by a $340 million spending package to lift ECE teacher salaries to parity with kindergarten teachers, which will help ensure the sector has capacity to meet increased demand. I would anticipate that the policy encourages a lift in workforce participation by women in particular. We have already seen over recent months that female workforce participation is rising much more strongly than for males, so this will further support that trend.
  • Half price public transport for under 25s has fallen under environmental policy, but really it is just as much about supporting youth NEETs (not in employment, education, and training) to get involved. Even though NEETs have fallen recently, youth represent a large cohort of people with relatively low levels of participation in the workforce so anything to encourage them directly into work or on a pathway towards employment is very helpful.

Building more resilient infrastructure

The National Infrastructure Plan was released today which is designed to demonstrate how New Zealand will move towards closing its infrastructure gaps. I will leave it to infrastructure specialists to unpack the Plan, but for me there were also a couple of other initiatives which regions should take note of related to infrastructure and construction more generally. These are:

  • National Resilience Plan – In addition to the long-term $71 billion National Infrastructure Plan, $6 billion has been set aside over the next five years for investments to build strong and resilient infrastructure. Initially the focus is on cyclone repairs, but then there will be a broader regional focus. Regions with compelling business cases for resilient infrastructure already ‘on the shelf’ would be wise to begin raising the profiles of these with current and aspiring political figures, in efforts to position themselves as ‘shovel ready’. There is also $100 million of infrastructure delivery funding, which doesn’t require co-investment, available from a new entity called Rau Paenga.
  • Heating, insulation, and efficient lighting subsidies ($400 million). Although these aren’t infrastructure related, these will undoubtedly provide stimulus to some parts of the construction sector affected by waning residential demand. However, what is probably more exciting about this policy is that at the margins it might be enough to encourage some landlords, who have opted to circumvent Healthy Homes regulations by switching their rentals to holiday accommodation (eg. via Airbnb), to invest in insulation and put their properties back in the rental pool. This would be particularly helpful for helping alleviate worker accommodation shortages in places such as Queenstown, Mackenzie, and other visitor hotspots.

Industry transformations and investment in R&D

Economic Development is as much about getting the building blocks right, as it is encouraging transformations regarding what we do. With that in mind, there are a few key takeouts:

  • New Science and Innovation Hubs ($400 million). We know from research that countries with higher levels of R&D, generally have much better productivity growth, so this initiative makes sense as a way of addressing New Zealand’s woeful productivity record. The Innovation Hubs focusses will be on health and wellbeing; oceans, climate and hazards; and advanced manufacturing, biotech, and energy futures. I can’t argue with these at face value, although I would probably have included one or two others, but my biggest concern is that the hubs will all be located in Wellington Region rather than spreading the spoils. The government has already named the Wellington-based entities to be the hubs – but surely even some parts of these hubs would be better placed in a regional environment with a sound competitive advantage. Placing a part of a major innovation hub in a region aligned to a regional strength could also achieve some game changing economic development results in an area through the injection of high paying jobs and adding value to local industries.
  • 20% rebate for game-development. This is a policy aimed squarely at competing with Australia. It will have the biggest impacts on game development in Auckland, Wellington and to a lesser extent Christchurch, as well as the rapidly expanding gaming sector in Dunedin through the city’s Centre of Digital Excellence (CODE).

These has also been funding within the Budget earmarked to help progress some of the actions on the wish lists of Industry Transformation Plans (ITPs) related to horticulture, digital, and tourism. More funding is needed, as most ITP actions are yet to be funded, but at least these new initiatives potentially have relatively large regional footprints. The ITP actions funded in more detail are:

  • Horticulture. A $29.9 million fund focussed on agritech has been created. Such funding makes sense, as there are quick wins to be had in agritech adoption to boost productivity and minimise the effects of seasonal labour shortages. The regions most affected by this funding will be places like Central Otago, Tasman, Marlborough, Tairawhiti, Hawke’s Bay, and Bay of Plenty. Aside from other traditionally horticulturally focussed regions, there will also be other places looking for compelling ways to lift their horticulture footprints as they grapple with potential land use changes in response to emissions policies, water management regulations, and evolving consumer tastes and preferences.
  • Digital. There is $26.6 million to support addressing digital skills gaps and lift women’s participation in tech. Such an investment makes sense, given that digital enablement is obviously a cornerstone pillar within many regional workforce and economic development strategies. The devil will be in the detail, however, and $26.6 million won’t go far spread across the country.
  • Tourism. Of all the things in the tourism ITP, only $18.2 million has been given in the Budget to create an accreditation system for tourism employers. This seems like one hell of a lot of money to essentially assign gold stars to businesses that meet employment best practice. Don’t get me wrong, I see massive value in making sure our tourism and hospitality workers are treated well and that businesses have an effective way of demonstrating to potential employees they are a good place to work. But I am concerned that more tourism ITP initiatives could have been funded within a similar funding envelope. There are also organisations, such as MahiQL, down in Queenstown Lakes, doing great work with meagre budgets, who could add huge value in the jewel of New Zealand’s tourism crown with a small fraction of this funding. When the accreditation system is designed, it will need to consider small tourism operators in particular, to ensure that becoming accredited isn’t a bureaucratic logjam for time poor working proprietors.

Regional economic development must speak up

Given the absence of a structured media release of regional economic development policy initiatives in today’s Budget, I feel that the ball is back in the court of economic development professionals to make sure their voice is heard.

If today’s Budget didn’t hit the spot for economic development in your region, then speak up. Being an election year, we are in one of those unique periods where political figures are malleable to putting stuff in election manifestos.

The effects of pre-election promises can be game changing from a regional economic development perspective. Just think, one of the biggest regional economic development plays in recent years, the $3 billion Provincial Growth Fund came out of New Zealand First pre-election promises to give more money back to regional development. As another example, in Dunedin, the $10 million seed investment into kickstarting a gaming and digital ecosystem through the establishment of CODE was a Labour Party election manifesto promise.

As a profession, we must coherently send messages back into central government regarding what the regions really need and want to support their regional economic development ambitions over the upcoming election cycle.

For me, after having seen central government spend so many years on building up its own regional economic development capacity through Kānoa and the Regional Skills Leadership Groups (RSLGs), I would like to see some money set aside for supporting, on-the-ground, local economic development capacity.

Local government budgets are currently so squeezed by rising costs that they are cutting back on economic development funding to prioritise delivering core services such as roads and waste.

Local economic development cutbacks are short-sighted, and to guard against them it would be helpful if central government, with its much longer-term view, could step up and at least co-fund some local economic development capacity. We know that economic development initiatives bear fruits over horizons that are much longer than the current transient inflationary pressures which local councils are short sightly focussing on to appease ratepayers.