Finance Minister Nicola Willis says the Treasury has warned her that economic growth is likely to be “significantly slower” than previously thought.
Willis will release the Coalition Government’s Budget Policy Statement on March 27, alongside updated forecasts for the economy.
“The numbers haven’t been finalised, but I know enough to say they won’t make happy reading,” she told the Auckland Business Chamber in a speech.
The Treasury has become “even more pessimistic about the growth outlook” since it provided its half-year update in December, prior to Statistics NZ’s GDP revisions before Christmas.
However, forecasts released by the Reserve Bank in February do not predict a more serious slowdown relative to their November numbers — just a lower starting point.
Treasury’s forecast for 2024 growth was more optimistic than the central bank’s prediction and so there may be room for revision.
Regardless, Willis has been signalling she may not be able to return the Crown accounts to surplus by the end of the Parliamentary term as originally promised.
The Coalition Government has already been searching for extra cost savings or revenue measures to help protect its bottom line and possibly make up for lower tax revenue.
Some policies have been tweaked in the past weeks to make them a little bit cheaper.
Interest deductibility will be phased in slower than planned and a commitment to not increase fuel taxes will be partly offset by higher car registration fees.
Willis said she was conscious of speculation about how lower economic growth might impact the upcoming Budget and outlined three possible ways the Government could respond.
One approach would be to walk away from “major commitments” such as income tax cuts and big investments. Another, would be to allow the Crown accounts to weaken further.
Neither of these were options she was willing to entertain, at least publicly.
Instead, the Finance Minister said she would stick to the coalition's spending commitments while cutting what the Government deems to be wasteful spending further and pushing through economic growth policies.
“With low-growth forecasts bearing down on New Zealand, now, more than ever, we must double-down on the drive for real economic growth,” she said.
“We must pull out every stop to beat the gloomy forecasts and get this country growing faster, more productively and more sustainably”.
In a recent interview with Stuff, Associate Finance Minister David Seymour said the Coalition was not considering walking back its tax cuts or borrowing more money to fund them.
The economy was softer than some had hoped, which would mean lower tax revenue, while rising unemployment and higher interest rates added extra costs for the Government.
However, those headwinds weren’t expected to trigger a clause in the coalition agreement which allows the fiscal plan to be amended in response to changed circumstances.
“Put it this way, I’m one of the Budget ministers and there is no talk of not delivering those tax cuts this year,” Seymour said.
The Government would also not be borrowing “more than was otherwise expected” in order to fund the tax cuts. This can only be possible if more revenue or cuts can be found elsewhere.
Tax troubles
The draft fiscal plan faces pressure on all fronts. Revenue may be lower, costs could be higher, and already some key numbers backing up its income tax cuts are coming up short.
National was warned during the election campaign that its tax plan would not work out to be fiscally neutral and now official estimates are confirming that prediction.
One of the biggest earners, a tax on foreign home buyers, never made it past the coalition negotiations. That immediately left the coalition short almost $3 billion across the forecast.
The Climate Change Commission has cast doubt on the $2.3 billion the Government hoped to earn from the Emission Trading Scheme (ETS), with advice to halve the number of units ASAP.
It will be very interesting to see how Treasury forecasts future revenue from the scheme in light of that advice, when a decision on unit settings isn’t expected until after the Budget.
The cost of restoring interest deductibility has increased by almost $800 million since the election campaign due to higher mortgage rates. It is now estimated to be $2.9 billion.
Treasury said National underestimated the revenue that would earned by be removing commercial building depreciation. It thinks it will be $200 million higher, at $2.3 billion over four years.
But the proposed online gambling tax may only raise a fraction of the $716 million baked into National’s fiscal plan. The Treasury said it would bring in just $150 million.
Keeping Labour’s so-called “App Tax” saves the Coalition $206 million relative to the fiscal plan and moving the Brightline tax back to two years was correctly estimated at $202 million.
But the end result of all these changes is that the Back Pocket Boost tax plan will need an additional $3.8 billion in funding over the next four years — assuming ETS revenue holds.
That’s a far cry from the promise that it would be fiscally neutral and the shortfall can only be made up with new taxes, spending cuts, or from small unallocated budget allowances.
70 Comments
Tax cuts only stimulate the economy if they are passed on to those that will spend the extra money, ie the poorest.
But under National they will in the main go to the wealthiest, who will not spend their additional 18,000 per annum, they will pump it into the housing market.
And then the poorest will get whacked with a GST hike, to go with their lower wages, higher rents, out of control inflation (which is not even reported in the CPI) and for good measure a sustained period of bullying from the government and ministries.
the tax cuts are mostly for income tax reduction from what I know. I understand what you are saying but I don't really agree.
the National's tax cuts are mostly from adjusting the tax bracket, which addresses the tax bracket creep over the years. the lowest income earners got hit hardest from the tax creeps. 10 years ago a full time minimum wage earner's effective tax rate was 15.54%, and today's minimum wage earner's effective tax rate is 16.81%. those are the same minimum wage earners, they pay more and more tax if no tax adjustments. this is why the poorest needed tax relives more than the rich. the rich simply have the waggle room for the creeps, the poorest don't.
the second point is that, you seems count someone with an income, say 100k a year which is 20% higher than the median income, as wealthy, but they are actually just middle class. they deserves live their lifestyle just as the poorest group does.
and the super wealthy people don't usually pay income tax at all, or very low ones. they don't really need to pay attention on the income tax changes.
These are not tax cuts. In the United states, tax brackets are adjusted each year for inflation. That has not been done in NZ since 2010, and each year people in the lower brackets pay more.
It is really tiresome hearing the constant tirades against those who pay half the tax in NZ, a small minority, and being told they pay no tax. This is simply envy and jealousy or else simply ignorance from people who want the government to support them..
It's really tiresome hearing that those who pay "half the tax" are being hard done by, don't understand the concept of effective tax rates and causes of inequities, and believe it is due to jealousy or envy, because they consume too much of the narrative and can't think for themselves, or develop a wider perspective of the issues.
But i do agree on the tax bracket issue. And it's not paying more in the lower brackets, it's that they move in to the higher brackets too quickly.
Tax cuts will only boost consumption if they're spent into the economy and not into mortgages.
How will they be compensated by higher tax income when the biggest tax cut is actually a reduction in tax income?
Relying on possible interest rate cuts is not a meaningful forecasting assumption.
You assume any extra take home pay going into mortgages? that's a big assumption, I don't really agree. only 40% of NZ households have mortgages to start with. there will always people who will simply bank their extra home pay, but more likely to spend it than bank it.
more consumptions means more GST, and more income tax revenue to the government.
I mentioned the interest rate cuts to say government interest expenses will be lower down the track, hence more room for fiscal plans.
no assumption hence my use of "if".
for the lower incomes a tax cut may relieve some pressure but i doubt it will boost consumption as you assume. For those better off without a mortgage I also doubt whether they will rush out to spend given the current price of everything. Increased council rates are looming too. Those with mortgages will most likely bank it given the pressure of current mortgage payments. For many it might make more sense to up their mortgage payments. So I doubt overall whether there would be any meaningful boost to consumption. There's also the risk that more consumption just maintains sticky inflation adding to interest pressures.
The biggest tax cut is the landlord tax relief - a massive reduction in tax revenue - an uptick in GST may compensate this but will it actually increase tax revenue?
There is no "will be lower" down the track (how far down the track) as that's a massive assumption and not certain, which is really bad fiscal forecasting. If and when interest cuts come in to play it will be a reaction to adverse economic conditions which may have a bigger impact on the government's books, even requiring them to borrow more. Any interest offset may have to be spent - a zero sum.
She's had plenty of time to understand the numbers she previously put forward are complete nonsense, and imposition of austerity will drive the NZ economy into a deep recession which means there is no way tax cuts make economic or fiscal sense.
But she will press ahead anyway, as the plan is simply to replace the tax cuts with a GST hike. The only question is how high will she push, 17.5% or 20%?
The Natz playbook is so easy to read for anyone with the faintest awareness of history.
They're called predictions at the moment, Mr Frank. They will become real news when they are announced.
Personally I'm betting early next year.
I hope to see you commenting on the announcement article, and I hope you haven't switched your attitude towards the increases by then just because a party you support is involved in raising the GST rates.
But she will press ahead anyway, as the plan is simply to replace the tax cuts with a GST hike. The only question is how high will she push, 17.5% or 20%?
Really? By the way, I think you should understand that govt spending is not necessarily funded by tax revenue. So the tax cuts + no change in GST is possible.
https://www.nzherald.co.nz/nz/politics/second-blowout-in-a-week-governm…
And her numbers keep showing up as wrong.
Treasury doing everything they can to stop Govt spending (and please the new bosses) + RBNZ choking off the flow of credit into the economy + engrained trade deficit (fuel, EVs, holidays abroad etc) = guaranteed recession.
This is so uncomplicated. Our country is run by muppets.
Forget hold on to your hats and asking for payrises. Soon it will be hold onto your jobs and bosses will be laughing you out of their office should they even get a whiff of you asking. Can't be having higher proportion of spending going to wages and salaries if the demand isn't there to sustain it like it was in 2021 boom time fuelled by cheap credit and wasteful spending by the masses.
Don't forget they were voted in by muppets, too.
There are some here who opine that our species isn't altering ANYTHING, and that we have never depleted any resource.
Guano, Mammoth, Moa, Whales, all the worked-out mines, all the old-growth forest, all the desertification; none of that happened, according to them.
What we really need, is an entry exam for voters.
“We must pull out every stop to beat the gloomy forecasts and get this country growing faster, more productively and more sustainably”.
What they mean is 'lets keep immigration running hot, more people is more productivity, while reducing expenditure on government services and infrastructure.'
She is completely deluded. It's going to be proven a massive strategic error to prioritise landlord tax relief at the front end of their first term. Salary earners are going to become increasingly agitated as the promised "middle class battler" relief doesn't come at all, or arrives in underwhelming form.
Really dumb politics.
I am of the view that Labour will campaign openly in 2026 on a wealth tax, we'll simply be desperate for the money.
Certainly the middle class that receives no form of welfare (net tax contributors) will be tired of seeing:
- low income earners/beneficiaries getting WFF/accommodation supplements,
- a growing cohort of retirees receiving welfare (many while working),
- landlords receiving taxpayer subsidies to prop up their borrowing decisions
- wealthy using creative accounting to minimize their tax bill.
Especially the middle class net tax contributors that pay rent.
Name any other business that isn't attempting to make a profit without failing, can survive years of losses, doesn't rely on tax refunds to fund it thereby free riding off other taxpayers, receives a taxpayer subsidy (if renting to certain income levels) that distorts the market, that has a captured market so doesn't compete, has tax and equity advantages that other don't, and can outbid owner occupiers/FHB's, driving up property prices and exacerbating housing issues. Have i missed anything?
It was never an envy tax, it was brought in apparently as an election promise to cool the property market and assist FHB's. Hence why the deduction was still allowed for new builds. If investors want to invest in property build the bloody house. Negative gearing should never have been allowed on existing housing and should only have applied to new builds. It would've prevented the runaway property market, the housing affordability issue and associated debt problems including the massive deflation in the purchasing power of our money.
I'll repeat the substance of my comment from earlier this week.
The main aim of property investment is to eventually have a debt free asset (that your tenants have paid off) & subsequently achieve an ongoing long term inflation adjusted income. Any meaningful CG is incidental (& unlikely in the next 5+ years).
Property speculators otoh are not investors.
Further: The Brightline test National introduced is designed to discourage speculation & reasonably effective. IIRC Labours 2021 interest deduction change was not announced policy prior to the 2020 election, it was a kneejerk to the complete monetary & fiscal ballsup Orr & Robertson had created in the NZ economy.
And I'll repeat mine - intention/aim and reality don't coincide.
I believe you're of an older cohort and probably started investing at an earlier time than the recent 20 years. Attitudes when you started were different and also not possible to see the consequences. Prices were much more affordable and yields were better. I did the numbers and as the prices increased buying an "investment" property only made financial sense due to the capital gain. Works well for you as an individual - has not worked great for the collective. The past 20 years was all about tax free gains and the property market promoted this. For many "investors" the aim isn't the rental income but the debt free asset they intend to sell for a profit to fund their retirement. The financial sense of either depends on how many properties one owns and during the 2 decade boom there were many Ma and Pa "investors" who only bought the single rental property.
It may not have been announced policy but they were elected largely on their FHB promises. At least they were responding to the ballsup seeing that the housing market went berserk. Who else contributed to that because it still needed buyers? Would be interesting to know the breakdown of investors and FHB in that early period.
As for National's brightline test it was to be seen to be doing something, a kneejerk reaction. Where's the data that says it was reasonably effective? May have caught out a few flippers but any other speculators just wait 2 years and a day. National still views them as investors and thinks they're being hard done by by the 10 year brightline. They believe that by reversing this back to 2 years it will "save" investors $50M a year. Really flawed thinking.
You still fail to see any wider perspective. The negative gearing means you're not contributing tax but you'll bitch about others not paying tax or free riding. Why not pay if off from your own efforts instead of free riding off the tenant? Why not build the bloody house instead of outbidding on existing houses? You're still getting your investment and adding to the housing stock. Win win for everybody.
In a recent interview with Stuff, Associate Finance Minister David Seymour said the Coalition was not considering walking back its tax cuts or borrowing more money to fund them.
At the same time Kiwibank chief economist Jarrod Kerr is saying public debt needs to balloon to provide infrastructure for the population.
First time I've heard Jarrod speak and a few things concern me. His reckons seem very water cooler - not much depth and too much of the exceptionalism that Kiwis love. Nothing enlightening or insightful.
Rabbiting on about our AAA rating is silly. Everyone knows these ratings are by and large meaningless. F'more, the "world loves NZ" nonsense should be dead and buried. It's garbage. People love Switzerland, Canada, Thailand, and on and on. Yes, aspirational people from developing nations would love to get to NZ. But that's not the top talent. They're interested to go to places where their talents can be used.
https://www.rnz.co.nz/news/business/511766/independent-infrastructure-b…
He said it was great that there were more workers, who were young and filling vacant roles, and that was "putting downward pressure on wages".
Lower wages.. good stuff, maybe Jarod can help NZ citizens carry their bags to the airport.
"People want to come here. And you got to think about where they're coming from - Asia, China, the Philippines, India. This is a massive upgrade."
I don't really understand this, an upgrade for who? The people coming here? Probably. For NZ inc? Debatable. How many more migrant exploitation cases, where the employer is an import from one of these countries, does Jarod want?
I don't really understand this, an upgrade for who? The people coming here? Probably. For NZ inc? Debatable. How many more migrant exploitation cases, were the employer is an import from one of these countries, does Jarod want?
Yep. To be honest, for many of the migrants, I expect things will be quite gnarly for those coming with little in the way of savings. And that will likely be high incidence.
It seems the shortfall is exactly what they're looking to shuffle back into the pockets of landlords. I can see a good solution that would also help their popularity. In fact they should make interest expenses non-tax-deductible for all types of business. We give enough money to banks without incentivising debt.
Or mortgage interest expense tax deductible for owner occupiers. RBNZ C32 existing lending is $350b. Assume $200b of that is Owner Occupied and now tax deductible @ 5% average interest rate, that's a $10b hit to the Government tax receipts.
It means the Government actually has a stake in the negative effects of allowing property and credit bubbles to form, and FHB are less impacted as the mortgage interest increases come out of their PAYE.
Starve the beast!
National hasn’t slowed down its landlord tax cuts versus what they promised, they’ve slowed them down versus what they negotiated with ACT. If they’d stuck to their election promise that would be +$800M.
What goes unsaid is national is cutting public services and infrastructure to free up money for tax cuts - now that their other pay fors have fallen by the wayside. This is a contractionary fiscal policy and it’s going to take a stuttering economy and drive it into the ground.
Such economic geniuses this lot.
They are to be pitied, true.
But remember that the Limits to Growth are global, and no current political party, here or elsewhere in the First World, is within a bulls' roar of addressing the degrowth coming our way.
That's despite the obvious signs; health queues, water woes - these are signs that entropy is overtaking us.
Rapture here we come....
Of course she's committed.
"I am going to ensure that National meets it commitment to deliver tax reduction. I do care that it adds up. If we didn't deliver tax reduction, yes, I would resign, because we are making a commitment to the New Zealand people, and we intend to keep it."
https://www.1news.co.nz/2023/09/15/nicola-willis-id-quit-as-finance-min…
Council rates - like government debt/triage - will continue to outpace 'incomes'; from here on in.
Can't not. Get used to it.
Great article. NZ currently succinctly summed up in a couple of paragraphs.
" We’re seeing this in increasingly fractious and aggressive politics. Governments are becoming steadily more authoritarian ahead of challenges that they sense, even if the causation continues to elude them.
There are two explanations on offer for the worsening prosperity, and the deteriorating economic security, of the average or “ordinary” person, meaning anyone lacking substantial wealth and the right connections.
It turns out that both of these explanations are correct, and that, taken together, they explain the predicament of the majority.
The first explanation is worsening inequality, an accelerating flow of wealth from the many to the few. Intentionally or not, this has been driven by policies, particularly those designed to sustain a semblance of “growth” through extreme monetary gimmickry.
The second is that the economy itself, far from continuing to expand, is in the process of inflecting from growth into contraction.
Put both of these together and the result is that a self-serving minority is cornering an increasing share of a shrinking economy."
"These conditions are becoming increasingly dangerous. Economic hardship, and perceptions of worsening unfairness, are two of the four classic causes of social instability. The others are a leadership isolated from reality, and the promise of an alternative vision which says that things can get better if we adopt a different basis for the organisation of society.
Western society now emphatically ticks three of these four boxes. Hardship is worsening, and trust in the fairness of distribution is sinking. The high command displays every sign of not knowing what’s going on with the economy, or of how this is affecting the ‘ordinary’ person."
A lot of talk about wealth and capital gains taxes but stamp duty never seems to get mentioned. I'm sure there are various reasons.
To fund these tax cuts and restoring interest deductiblity we could have say 3% on owner occupied homes (excluding FHBs) but 0% on new builds and 6% for investors but 0% on new builds. Then say 15% capital gains tax - same rate as gst. I think the marginal rate is way too high and could cover property, businesses and shares. Maybe exclude Kiwisaver.
Would be good in the future to see more around R&D credits, increased KS amounts, help to grow SMEs and assistance for childcare - that would help the squeezed middle.
As someone that will benefit by potential tax cuts I'd rather they put that money into our crumbling infrastructure, Healthcare and transport systems. Having said that I don't trust either side to spend it wisely ;)
"...stamp duty never seems to get mentioned. I'm sure there are various reasons. "
Yes, because they're a stupid ticket clipping rort. Thankfully NZ finally got rid of these a couple of decades ago (was previously promised as part of the electoral mandate quid pro quo for the introduction of GST).
"Reasons" include economic & housing supply inefficiency, constraining labour flexibility, unpredictability (only applies when people move/sell share of home). Even Oz is moving now to stop it (initially on new homes)
All that really needs to happen is for all income (PAYE, realised capital gainz, benefits/superannuation etc) to be subject to income tax. That way it’s fair - no matter how the money is “earned” or not the same proportion comes out for all. Look through our shameful use of trusts and apportion beneficiaries the pro rata share of income.
Then adjust tax brackets, and bring in a tax free threshold of 20k which will reduce pressure at the bottom end and encourage people back into work. Seems mad to me high school students pumping gas pay tax and boomers selling houses don’t.
Also allow for sharing of household allowances. It currently makes no sense that in a single income family for income tax purposes the sole earner income is there own, and yet for benefits it’s considered a family income (so if they earn above threshold their stay at home partner gets zero benefit). Whether one works or both works it’s the total household income that should be counted and split by 2.
Retirement savings (kiwisaver) should be tax free to boost savings and growth, and simply taxed as income on the way out.
No withdrawal for first home to the prop up the housing Ponzi, and for god sakes close the gap with Australia where employer super is 12%.
oh and means test govt super. Income and assets. Like Australia does
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