Finance Minister Nicola Willis has been forced back to the drawing board after fresh forecasts suggested her party’s fiscal plan would leave New Zealand in deficit for another four years.
The 2024 Budget Policy Statement, released on Wednesday, threw up more questions than it did answers with a number of key details conspicuously absent.
Usually, a policy statement would set out the operating allowance for the coming budget and also a non-binding indication of future allowances.
Willis’ statement wouldn’t even commit to an exact figure for Budget 2024, only saying that it would be less than the $3.5 billion planned by the ousted Labour Government.
Simply extending Labour’s time-limited funding would exceed that operating allowance as two-thirds of it had already been pre-committed, she said.
National’s fiscal plan had suggested trimming the allowances to bolster the small surpluses that had been forecast for the 2026/27 and 2027/28 fiscal years prior to the election.
However, Willis said operating allowances for these future budgets will not be signalled until the Fiscal Strategy Report is published alongside Budget 2024 in May.
Deficit, deficit, deficit, deficit
If Willis stuck to the original spending plan, it is likely that the Crown accounts would still be in deficit in the 2027/28 fiscal year — according to preliminary Treasury forecasts.
The Budget Policy Statement included some information about the Treasury's current understanding of the economy, which has evolved significantly since December.
When the analysts finalised forecasts for the half-year economic and fiscal update, they had not yet seen the weak GDP data for the September quarter and Statistics NZ’s historical revisions.
Additionally, they have revised their inflation forecast downwards. While that was welcome news, it also means lower nominal GDP growth which flows through to tax revenue.
The new forecast shows the nominal economy in June 2028 could be $42.8 billion smaller than previously thought, and cumulative tax revenue could have been $13.9 billion lower.
This would more than wipe out the $2.9 billion and $1.8 billion surpluses forecast for Budget’s 2026 and 2027 in National’s fiscal plan.
That said, the Treasury did not provide fiscal forecasts in the Budget Policy Statement due to not yet having Government spending decisions and other information.
A structural increase in spending under Labour meant that the Government would be running a deficit even if the economy was operating at its full capacity, Willis said.
This was not sustainable but also could not be fixed in one single budget.
“International evidence is that reducing deficits is best done over the course of several years and should be focused on structural reforms to expenditure and revenue settings”.
The Coalition Government plans to bring core Crown expenses back to 30% of GDP over the long-term. This year spending was forecast to be 33.3%.
Despite deficits stretching across the unofficial forecast, the Coalition Government still plans to include tax cuts in the May Budget.
It was one of the policy priorities outlined in the statement alongside public spending cuts, shifting remaining spending to higher-value areas, and investing in infrastructure.
The exact shape of those tax cuts and how they will be funded is still to be determined.
Same debt, different measure
Willis also announced the Government would revert back to using a 2009 definition of net core Crown debt as its headline indicator.
In 2022, Labour shifted to an internationally comparable net debt measure which included investment assets held by the New Zealand Super Fund.
The new Government said it was concerned that including these financial assets made net debt too volatile to serve as a long-term fiscal indicator.
While Willis and her colleagues will swap back to focusing on the old measure, they will kept the equivalent debt ceiling as Labour was using.
The 30% of GDP net debt limit translates into a 50% net core Crown debt limit, although the Coalition Government aspires to stay between 20% and 40% in the long term.
“While the Government accepts that 50% of GDP can be considered the upper bound of prudence on debt sustainability grounds … it should not be a target,” Willis said.
Net core Crown debt was forecast to peak at 44% of GDP in 2024 and decline thereafter in Treasury’s pre-election update, which was based on the Labour Government's fiscal plans.
49 Comments
No alternative now but to get the government out of many activities.
ie: Seymour's stop notices.
I see so much government advertising, well meant and if somebody thinks those are good causes I would not disagree. But we should not spend a cent of taxpayer money on those.
This is true, previous post WW2 governments borrowed/spent far more but put that money into infrastructure, house building etc although the national and Labour governments of the 70's & 80's did sell off assets and pulled the rug on the superfund on top of that borrowing.
This is what will happen and the government will support it to encourage the "wealth effect". More of the same.
More people coming, more pressure on housing, more people leaving, birth rate falling further, no taxes on assets and money keeps flowing up. It's plain to see.
Our economy is powered almost entirely by net credit creation. It works like this:
- Banks create brand new money and lend it to people to buy houses
- The house buyer hands the newly created money to to the seller
- The seller spends the new money into the economy (or saves it)
As long as the inflow of mortgage cash into the economy stays higher than the outflow (debt repayments), then our economy grows.
Our economy is the housing market - everything else is window dressing.
Banks balance sheet hasn’t grown really at all since sept 2022 (don’t have feb numbers yet, expecting a little up), so if this is to continue, or shrink, we can expect plans for a surplus to be delayed. At least until the trade deficit narrows enough. And here we are.
Exactly. I left it until I was 30, moved to Bondi and once I saw how much more I could save each month I realised I was a mug for staying in NZ for so long.I have an online business now and am back but I'd still be there if I needed to work for someone else.
Young people aren't obligated to pay for universal super that they most likely won't ever get. And NZ is doing very little to keep them here when there are plenty of people to replace them from overseas that are happy to put up with the situation here.
Just remember who put us here. It’s not the guys that have been in the hot seat for the last three months either. It’s the last lot. Things are going to get very tough for many people. Mostly not the people on here. Traditional Labour supporters lives have been sabotaged by the last government. This is going to be very evident in the next year. Many middle management jobs will go, many low/medium paid jobs are going to be off shored or replaced with automation. It’s sad, but that is the only way out of the hole that’s been dug here.
No it isn’t the current lot, but the current lot seem to believe that plunging the country into a worse recession than necessary in the name of transferring even MORE wealth to landlords at the expense of jobs is the right way to go, as opposed to more sensible approaches already suggested such as land tax, CGT and reshuffling of the tax brackets. Apparently it is easier to favour the few and instead of the many, by sticking to the status quo. Housing is no longer the game or the answer.
You can’t keep any economy based on funny money going by taxing those with assets more and feeding it to the spenders in an already inflationary environment. That will make the problem worse. Rebalancing is needed, the deadwood needs to be cut. That is what they are doing. It needs to happen.
Precisely. The key word is rebalancing. The middle is getting squeezed and the middle is supposed to be a place where people can live comfortably but not in excess. As the more of the lower middle get their purchasing power stripped over time via inflation and prices increasing across the board, it becomes very clear that the tax system is out of date, and it has been far too easy historically to make unproductive profit from housing. Many who have made money form property will not want any changes, but they will adapt and find other means of generating wealth via investment elsewhere.
Bollocks.
The last lot and this lot play in the same Kindergarten.
These are global trends, inexorable and physics-driven. Only the small-minded truncate their scope as far as a Term each way - try thinking wider/longer.
Actually, I could have truncated that last sentence....
What's wild is that Luxon publicly opposed free prescriptions and free public transport for young people as not being targeted enough. About prescriptions he said something like "oh, why should I get funded for them?". The irony being the current government is currently presiding over a sort of grotesque targeted support payment (interest deductibility being reinstated) aimed at the wealthiest in society.
I can tell you now that interest deductability being re-instated has caused me to hold rents for the next year, should this not be reinstalled, they would have risen, a lot of tenants will be happy that rents will stabilize. Just to be clear, it won't make a difference to my profit, however, tenants will have more in their pocket being saved from extra rent costs. Hopefully you can understand this as I get a bit sick of how this policy benefits landlords, it's the tenants that win.
That's great that it's working for you personally, but anecdotal evidence doesn't go very far. Using my own anecdotal evidence I have seen and know I will continue to see rents rise at the same rate because a lot of landlords a. raise rents yearly regardless of their actual expenses and b. use high interest rates as an excuse to raise rents further even if they aren't being affected by them.
It's also the special treatment that landlords are getting that rub people the wrong way. Sure the policy can help landlords (and sometimes flow to renters, in theory) but what about owner occupiers?
Hilarious. Crocodile tears.
We subsidise landlords in the billions each year with taxpayer money for rental yields, prices, and hard times of houses getting wet, shaken, or needing a pop-up otherwise.
Let's not pretend this is not for the benefit of landlords. At huge cost to society.
We could instead liberalise zoning to allow much more to be built, while lowering income tax and raising tax on unimproved land value. That would actually benefit renters quite quickly.
In 2022, Labour shifted to an internationally comparable net debt measure which included investment assets held by the New Zealand Super Fund.
The new Government said it was concerned that including these financial assets made net debt too volatile to serve as a long-term fiscal indicator.
Anyone got any guesses as to why they are going against the international standard? Their explanation doesn't make sense to me.
Could they be planning on spending/closing the NZ Super Fund?
https://newsroom.co.nz/2024/03/21/when-the-facts-change-nicola-willis-s…
"The Collins dictionary describes a pyrrhic victory as a situation where “although someone has won or gained something, they have also lost something which was worth even more”. The Government’s tax cuts package now risks being exactly that. Its costs are out of control. There is no compelling economic case. Cuts to fund them will harm many Kiwis. Yet onwards they plough."
-this article puts it perfectly. Phyrric victory indeed. Tax cuts for tax cuts sake. It's time to lead, and delay their tax package so we can pay down debt and not add further fuel to the inflationary fire.
Nicola Willis is a muppet, for lack of a better term. Whenever her party would attack Grant for his lack of credentials, I would always think glass houses, what about Nicola?... in fact, National surely win the award for the highest number of incorrect costings in a single fiscal plan.
Unfortunately, there are a long line of muppets behind her in the Cabinet lineup and on the opposition benches. Seymour chief among the Cabinet rabble. I'm horrified at how much power and influence he exerts in this 'coalition'. He might as well be the PM. There is no denying he sure has served his loyal voter base while in power. As for Winston, he really has lost the plot. Only thing I respected him for was being the lone voice in opposition to the never ending flow of new migrants. Now he can't even do that it seems.
Yawn.
Turned out - as we've become accustomed too - to be yet another announcement about an announcement as nothing is cast in concrete until the budget ... which is still months away.
Treasuries analysis - as always - is out of date as they start months in advance of the release date. (They really need to cut out the waffle and caveats, and just present the facts. They'd have it done in a far shorter time and so it would have much more relevance at publication date.)
Trussonomics 101
https://thekaka.substack.com/p/borrowing-15b-more-to-pay-for-149b
The Government will have to borrow between $10 billion to $15 billion more than previously expected in order to make up for a slowing economy and to pay for $14.9 billion of tax cuts, according to economists for Westpac and ANZ.
Despite growing calls from the Government’s usual supporters for delays to the tax cuts, Finance Minister Nicola Willis said Budget 2024 on May 30 would include ‘responsible and affordable’ income tax reductions.
Former ACT Party leader Richard Prebble has called on the new Government to delay tax cuts, saying “unfunded tax cuts causing inflation and increased borrowing, will be both a political and economic disaster.” NZ Herald-$$$
Willis broke the convention of committing in the Budget Policy Statement to a spending allowance, saying only it would be less than Labour’s $3.5 billion, and that the slower economy meant a Budget surplus in 2026/27 was no longer assured.
The Government rejected Auckland Mayor Wayne Brown’s demand it rebate over $415 million of GST charged on top of rates paid to Auckland Council and start paying $36 million a year of rates on Crown land in Auckland. RNZ
Auckland Council said the Government’s public transport funding cuts and its refusal to rebate GST or pay rates would force cuts to schedules and increase fares, which would worsen congestion, increase emissions and further inflate the cost of living. Some suburbs would have no public transport at all. RNZ
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