ACT Party says bad news in the Pre Election Economic and Fiscal Update will require it to reduce its proposed tax cuts

The ACT Party says it will have to dial back its proposed tax cuts because the Government has left the economic cupboard bare.

So, ACT will come out with revised numbers next Tuesday. 

The Party's comments come after Treasury unveiled its Pre-Election Economic and Fiscal Update (PREFU).

 This showed falling tax revenue worsened the Government deficit to an unaudited but actual shortfall of $10 billion for the 2023 financial year, $3 billion worse than was forecast in the budget in May. It's predicted to slip further to $11.4 billion in the 2024 financial year. Core Crown expenses are forecast to rise, and the state will not be in surplus till 2027, when there will be a credit of $2.1 billion.

All this is is bad news for the ACT Party, which is changing its own plans as a result.

“Our alternative budget, more than anything else, will be fiscally responsible,” says its leader, David Seymour.

“We of course want to give tax relief but we now have to re-evaluate how much tax relief is going to be possible.”

Seymour says the PREFU is worse than than this year’s budget update, which is worse than last year’s budget update, so ACT is continually having to adjust its own plans.  

“I am almost certain that we will have to reduce tax by a lesser amount due to the additional expenditure that has happened.”

Seymour says the economy faces triple problems of needing to balance the Government budget more quickly, of getting on top of the current account deficit and of reducing the interest payments that are crippling the Government’s books. 

ACT has tax cut proposals on the record already, which include having just two bands, 17.5% and 28%. This and other economic programmes would shave $38 billion off government spending over four years.

But Seymour indicates these plans as well as yet-to-be revealed ideas are likely to be wound back because of the numbers revealed in PREFU.

“We are going to have to make sure that we can put forward a responsible, alternative plan that may involve changing the cuts we have previously promoted," he says.

"But it is also going to involve finding areas of wasteful spending that can be reduced.”

Seymour adds it will be very difficult to reduce state spending when the police for example are stretched to the limit now. 

“On the other hand, I look at the Ministry of Business Innovation and Employment (MBIE) – these guys have gone from having 3,500 staff to having 5,500 staff,” he says.

“But it is very hard to find a single business person in New Zealand who thinks it is easier to do business thanks to MBIE growing by two-thirds.”

Seymour says the only reason that New Zealand is getting anywhere is that the Government is continuing to borrow as though New Zealand is still in Covid times.  He says the consequence of this is that the Government is spending more on its interest bill than it does on primary and secondary education.

A check by interest.co.nz showed the two figures are close, though schools still have an edge over institutions pocketing the interest bill.   

The PREFU says actual, though unaudited, interest payments by the Government on its loans more than doubled from $2.9 billion to $6.6 billion in the 2022 to 2023 year. But the equivalent for school spending in PREFU was $8.6 billion.  

Earlier, the Minister of Finance Grant Robertson, defended New Zealand economy, which he said is in a strong state, despite the PREFU numbers.

He says it got ticks of approval from credit rating agencies, and notes PREFU is not forecasting a recession.

“The New Zealand economy is holding its own in an uncertain global environment,” Robertson says.

He concedes the fate of inflation is hard for many people but there have been even worse problems overseas and the rate of inflation will fall, along with the Government deficit.