Capital expenditure by the public sector

IBISWorld forecasts capital expenditure by the public sector to rise by 0.6% in 2024-25, to $16.3 billion. While the total value of public capital expenditure is expected to rise in 2024-25, this represents a slowdown in growth compared to 2023-24 and the overall growth rate over the past five years. The Central Government's (Te Kawanatanga o Aotearoa) Budget 2024 policy statement states the need for fiscal discipline with respect to capital expenditure. It recognises that while there's a necessity for investment in New Zealand, careful prioritisation is vital to ensure optimal value, given existing capacity and fiscal limitations. As New Zealand's public debt as a percentage of GDP has more than doubled to 44.0% since the start of the pandemic, the government is looking to slow down capital expenditure growth rates in 2024-25 to tackle this issue.

Capital expenditure by the public sector generally rises over the long term, largely in line with growth in population and GDP. Additionally, governments tend to increase public expenditure during economic downturns to stimulate growth. For example, public capital expenditure rose sharply throughout the pandemic-induced recession and recovery. The drawing back of pandemic-related assistance pushed down capital expenditure in 2022-23. In 2023-24, public capital expenditure rebounded on the back of large increases in funding to rail projects and the Housing Acceleration Fund. Several capital investments in hospitals, roads and education facilities have also supported growth in capital expenditure by the public sector over the past five years. Overall, IBISWorld forecasts capital expenditure by the public sector to increase at a compound annual rate of 1.8% over the five years through 2024-25.