The Coalition Government’s first budget policy statement has confirmed the Crown accounts are on track to stay in deficit throughout the next three years.
Finance Minister Nicola Willis unveiled the Coalition's priorities, operating allowances, and updated Treasury forecasts at Parliament on Wednesday afternoon.
While the National Party promised to deliver a $2.9 billion surplus in Budget 2026 during the election campaign, it has found that may not be possible now in Government.
Willis has said the softening economy would make it harder to achieve that surplus as it would result in less tax revenue and trigger more income support costs.
GDP
The New Zealand economy was forecast to grow 1.5% in the Treasury's half year fiscal and economic update three months ago, but has been downgraded.
Real gross domestic product is now expected to be just 0.1% in the coming year, closer to a downside scenario Treasury outlined as part of its December forecasts.
Tax revenue is more closely tied to nominal GDP which is also forecast to grow more slowly than previously thought.
Treasury said the cumulative level of nominal GDP would be $42.8 billion lower than forecast in December and core Crown tax revenue would be $13.9 billion lower.
This would have a $3 billion impact on the operating balance in the 2026/27 financial year and another $4 billion impact on the 2027/2028 year.
These would wipe out the surpluses previously forecast in those years, based on spending plans signalled in the general election.
Willis said in the budget policy statement that a plan to get back into surplus would be outlined later when more information was available.
Operating allowances
Despite the worsening economic picture, Willis has opted to set the Coalition’s annual operating allowances above the level promised in National’s fiscal plan for Budget 2023.
She planned to set this year’s allowance at $3.2 billion during the campaign but signalled the allowance will be up to $3.5 billion in the actual budget.
The operating allowance is the amount of new money available to be spent on new policies and cover cost increases in each budget.
Treasury warned in its pre-election update that Labour’s operating allowances, which were slightly larger than these, were enough to fund future cost pressures but not much more.
Surplus
Lower revenue and similar spending means the Crown accounts are likely to stay in deficit for one year longer than promised during the election campaign.
Treasury has been forecasting then delaying an operating surplus for four years. In December 2022, it said the Labour Government was on track for a surplus in the 2024/25 financial year.
The 2023 Budget Policy Statement, released in December 2022, showed the Crown accounts were on track for a surplus in the coming 2024/25 financial year.
That forecast quickly evaporated and by late 2023 the surplus wasn’t expected until the 2026/27 year, and it would be tight even then.
Now, the surplus may be pushed back another year which would mean Crown accounts would have been in deficit for a total of seven years — longer than after the global financial crisis.
Politics
Treasury advised Willis to prioritise returning to surplus in the 2026/27 financial year “at the latest” as it would help with inflation, the current account deficit, and signal responsibility.
But in addition to the worsening economic conditions, National has also been struggling with funding for its proposed tax package.
Official estimates for the costs and revenues measures have varied widely from what was expected during the campaign and left the Coalition looking for some extra cash.
The Budget Policy Statement doesn’t outline specific spending but reiterated the promise of delivering fully-funded tax relief as one of the Government's priorities.
77 Comments
"Treasury advised Willis to prioritise returning to surplus in the 2026/27 financial year “at the latest” as it would help with inflation, the current account deficit, and signal responsibility."
Yeah making the recession so much worse is a great way to reduce inflation and signal responsibility...
The morons you support pissed 100 billion dollars against the wall for nothing while you clapped like an idiot. Now the new government gives tax deductibility back to landlords that providing housing that the last government (even with above pissed away money) could not even work out how to build or provide. The tax deductions going back to landlords are but a fraction of what the last lot wasted…..and here you are complaining. But rich isn’t it?
Oh, we also subsidise landlords' rental yields and prices, and bail them out when their houses get wet or shaken, and throw $11 Billion plus of taxpayer money at property in case prices fall during hard times.
Subsidising them while giving them tax privileging while using policy to undermine provision of adequate supply. We certainly do coddle the poor things who lost their dignity under the previous government. You'd never think it from the way they whine, though.
130,000 net immigrants last year. 2.6% population increase. Gdp/capita going backwards at a rate of 2.5%
I saw some commentary that over Biden's term 10 million immigrants poured into the country and the Americans are up in arms saying it is unsustainable and causing all sorts of problems. Well that is about a 2.5% increase in the US population from immigration in over 3 and a bit years. We did it in one year and they are still continuing to poor in unabated. Further the USA has a far more dynamic and functional economy, that more able to cope.
Young Kiwis, you have no hope competing with this in housing and employment, so your only hope is to leave.
I feel the most politically intelligent thing the government could have done is put the landlord tax breaks on hold. It looks like we just can't afford both the income tax breaks promised and the landlord tax breaks. The money just isn't there. I think this mistake will come back to bite National in the behind.
As expected, NZers fell for the old "Labour are throwing your money away" BS, and now that National are elected they can't find any significant savings to be made. They will sack a load of people (I don't have much of a problem with that if they are not productive), but that will save enough for $2 a week in tax cuts, then they will have to borrow or make frontline cuts for the rest.
You seemed very concerned about democracy being attacked. I just suggested a way in which one group of people get many times more voting power than others in this country. Thought you would be all over this. Good news is that a members bill has been drawn to curtail the practice, so here is something for you to follow. I hope whoever you voted for shares your passion for democracy. https://thespinoff.co.nz/politics/19-02-2024/a-new-members-bill-wants-t…
Te Kooti I think it will be hard slashing costs - it always is and harder when a large part of the expenditure is transfer payments - and even harder when Winston is there to protect the income stream of the elderly
Check out this convoluted mess and figure out where to start
https://www.nzinitiative.org.nz/reports-and-media/reports/cabinet-conge…
News Alert, politicians lie. Every three years they promise you can have a shiny new car, while dissing the one you currently drive as a worthless clunker.
After driving the car off the lot, the wheels fall off. On complaining? We never promised wheel nuts, but we may find some by 2028. Here, have a bill for the rego.
Just like every time this silly purge happens, the people take knowledge and experience out the door with them.
What they knew - and knew how to find - slips from organisational consciousness, but for the few systems saved only by unlikely happenstance - rehiring a consultant who was there previously, or stumbling across the right wiki page. Newer Ministry staff have lost knowledge of how to find records of the decisions made (and the rationales for them) by their predecessors. IT systems crumble and so much time is spent relitigating or building duplicates where things already exist.
Then, pricey ambulances roll in to save these systems. Now my third time seeing this cycle up close.
Properly resourcing a team to maintain them would have cost a bit but saved so much in the long, even the medium term.
I know of someone who works at MBIE. It's usually the case when public sector restructures happen. They're given the option of full time or part time contracting. Contracting is usually 2-3x the hourly rate to "compensate" for the lack of security, and 30 hours a week minimum.
Why would you say that. They have done exactly what people asked. Woke BS being rolled back. Public service bloat in process of being slashed. There will be a lot more coming down the pipe that you won’t like too. Tax cuts coming also, I’m looking forward to mine to be quite honest. I don’t need it, but it was taken from me with much delight by the last lot of incompetents, so the fact it’s coming back is good.
I'm to scared too..so far its been a disaster on all fronts..but at least Shane is looking after the fishing industry..(let the locals starve)
From April 1, catch limits for Northland's rock lobster fishery will reduce by 21 tonnes a year - cutting the commercial limit by 16 tonnes to 89 tonnes, and the recreational allowance by five tonnes to 22 tonnes, meaning the recreational daily limit is halved from six to three.
In all fairness, no government with a neoliberal growthist mindset can pull us out of this tailspin. We hitched our wagon to a now sinking China. US and Europe have zero interest in trading with us really. Sufficiency, localism and a rejection of consumerism are the only path forward!
true there will be 7500 less people to pay etc, no light rail etc, lots of cancel planned spending lots of fiscal holes where programes like free period products where not forward budgeted etc......
maybe we need to ask treasury who now say she is being responsible?
which implies grant was.......
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