Budget 2018: Provincial funding to benefit local retailers

by Marketview

May saw the 2018 Budget announced, the first for this Labour led government. We took a look at what this may mean for both the supply and demand side of consumer spending, as targeted funding pumps new money into the regions.

In Budget 2018 the government put aside $1 billion dollars for a new Provincial Growth fund. The Provincial Growth Fund has a broad mandate to generate economic development in six core provinces; Northland, Bay of Plenty, East Coast, Hawke’s Bay, Manawatu-Wanganui and the West Coast. The projects targeted for funding are focused around three key areas; forestry, tourism and transportation.

The type of fund is exemplary of Labour’s promised expansionary fiscal policy, designed to utilise increased government spending to grow the economy. In theory, the higher government spending will result in new jobs and higher incomes in the targeted regions, in turn resulting in increased consumer spending. The government then collects part of the growth back in goods and services, payroll and company taxes, completing the circle.

High streets in many of the provinces have struggled as local populations have declined due to urbanisation and the growth of online competition. Regions have been trying to build ‘clusters’ in order to counteract the advantages big cities have from agglomeration (the positive effect of having lots of people working together on similar industries in the same place). While the aforementioned Provincial Growth Fund will help to grow these clusters and bring higher incomes into the regions, it will have no direct impact on local retail itself. Instead, retailers are likely to benefit from the threefold effect of higher incomes, more people and more jobs.

These effects are most likely to be felt in the timber towns of the Northland Region like Whangarei, Kaikohe and Kaitaia, where current residents are likely to see their discretionary incomes rise, alongside their spending on discretionary categories such as department stores, clothing, footwear, furniture and travel agents. Additional tourist capacity also has the potential to increase the amount spent at accommodation providers and on hospitality.

Regional development initiatives like the Provincial Growth Fund can have significant positive social and economic benefits for the areas that they are targeted toward, so long as the funds are distributed fairly and transparently. The Fund has potential to provide stimulus for migration to the regions and higher wages for existing residents, which in turn flow through to local businesses. The retailers who will likely most significantly benefit from this growth are those which are strategically located near areas of high development, new transport infrastructure and face low competition.

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