Budget policy laid out
Willis promises tax reductions despite late return to surplus
The Government has announced it will set itself a smaller Budget allowance than the previous Government did, with no new borrowing, but will reveal the exact amount in the Budget.
The Treasury is expecting growth to be $42.8 billion lower in the coming years than was estimated in the HalfYear Update (HYEFU) in December, with core tax revenue tracking about $4b lower by the 2027/28 year compared to that estimate.
The HYEFU had also estimated a 2026/27 return to an operating balance before gains and losses (OBEGAL) surplus, but that $4b lower revenue figure pushed the $3.4b surplus estimated for the 2027/28 year down to a $600m deficit instead.
Changes to spending in the Budget would affect the final figures, but Willis acknowledged that “on these particular forecasts, achieving a surplus in 2026/27 is almost certainly not achievable, a surplus in 2027/28 is still achievable but not a given”.
Finance Minister Nicola Willis said her Budget Policy Statement, released yesterday, put the Government on a more sustainable track while delivering “urgently needed tax relief to hard working New Zealanders”.
The statement sets out the Government’s priorities for the Budget due out in May, including: tax reductions, enduring savings across govt departments and agencies, improved public services with new spending on priority areas in health, education and law and order, tight control over spending, with limited new policy commitments and cost pressures unable to be funded through reprioritisations, and long-term sustainable infrastructure investments.
Willis said real GDP showed the economy was performing worse than was advertised in recent years.
“Across the whole forecast period . . . Treasury has downgraded its expectations of the level of GDP,” she said. “This downward revision is because of revisions to past data and weak GDP results last year show the economy was performing worse in the past few years than was apparent at the time.
“Real GDP is forecast to grow in the future but it comes off a lower base, and the lower real GDP forecast flows into a lower forecast for tax revenue.”
However, she said tax cuts would be funded entirely through reprioritised funding, savings, and new revenue, which “means we won’t have to borrow extra to provide tax relief and we won’t be adding to inflationary pressures”.
She said it was the most responsible thing the Government could do for low- and middle-income New Zealanders, who had seen no decrease to the tax they paid since 2010.
“Our first Budget will deliver,” she said, confirming the tax cuts would be “the centrepiece of my Budget”.
“The coalition Government will deliver tax reduction responsibly and affordably. Tax reduction will be funded within the new operating allowance for Budget 2024, and that allowance will be lower than the one indicated in the half-year updates.
“That means we will not be borrowing extra to pay for tax reductions, and tax reductions won’t add to inflationary pressures.”
She “completely” rejected the suggestion she was prioritising tax cuts over being fiscally prudent.
“The Budget Policy Statement I’ve just presented you is actually a more prudent and more responsible approach than that which was presented at the half-year update, which reflected the last Government’s priorities.”
She said it was charting a “responsible path back to debt reduction and balanced books”.
Delaying the final operating allowance to the Budget in May is a shift from previous governments which have set out what the allowance is before that Budget.
Willis said it would however be lower than the allowance set out in HYEFU — effectively putting an upper limit on the allowance, which is itself an upper limit.
“The previous finance minister would publish an operating allowance in the updates and then he would completely break it in the Budget; well, we’re a different kind of government,” she said.
She also warned “we won’t fix in one Budget problems that have been created in six,” signalling a slower pathway to economic prosperity.
On debt the Government was, she said, returning to net core Crown debt as the default measure of debt because “it puts the level of New Zealand’s debt and the Government’s debt objectives in a clearer historical context”.
Treasury had advised her the previous Government’s net core Crown debt ceiling of 50 per cent of GDP could be considered prudent, but said she did not want debt to be nudging up towards that limit.
“That is risky, you can see . . . the previous Government’s ceiling quickly morphed into a target.”
The Budget Policy Statement also set out the Government’s intention to reduce core Crown expenditure “towards 30 per cent of GDP” in the long term. The forecast in HYEFU was for 33.4 per cent of GDP.
Willis denied her approach was similar to Ruth Richardson’s so-called mother of all budgets.
“I’m a daughter of history, this is 2024, I’m Nicola Willis and I’m a bit sick of being compared to every female finance minister that’s ever been out there.
“I’m in a government that has a really clear view of what’s important right now. Our coalition wants to ensure that we keep our commitment to working people with tax relief, that we are putting targeted effective funding into frontline services, and that we’re charting a path back to sustainable finances.”
Across the whole forecast period . . .
Treasury has downgraded its expectations of the level of GDP.
Nicola Willis