The Coalition Government will release its first annual budget at 2pm today (Thursday), revealing details of how they will spend roughly $140 billion of public money in the year ending June 2025.
Most of this money flows automatically into the big departments which provide basic services such as superannuation, health, education, social benefits, and servicing debt.
But governments get to add new spending each year—called an operating allowance—which is used to cover cost increases in existing departmental budgets and fund new policies.
Finance Minister Nicola Willis has given herself permission to add up to $3.5 billion of new operating spending in Budget 2024, but has suggested she will spend less than that.
In addition to the new spending, the Coalition has also asked departments to cut their baseline budgets by up to 7.5% to create room in the overall budget for tax cuts.
It has also continued Labour initiatives which asked the same departments to trim their budgets by up to 2% and reduce spending on contractors by $400 million each year.
Finally, Willis has also announced there will be 240 individual initiatives that will have their funding cut or reduced. All of these cuts loosen up a lot of money to be reallocated.
The proceeds of these savings should be funnelled in cutting income and property taxes, or redeployed into so-called “frontline services” such as nurses and police officers.
Pre-budget announcements
The first policy announcement for Budget 2024 was back in March, when Willis announced a up to $75 rebate on early childhood education fees at an annual cost of about $180 million.
It was released early to give Inland Revenue time to work with early childhood education providers to set up an easy to use rebate system for parents.
Another $67 million was allocated to upskill primary school teachers on structured literacy and other resources to support students learning to read.
Associate Education Minister David Seymour got to announce $478 million in funding to allow school lunches to continue for two more years.
Choosing cheaper lunches for Year 7 and older kids would save roughly $100 million in each of those two years, relative to how the Labour Government had funded the programme.
He also secured $38 million in annual funding for charter schools, an Act Party policy.
Another 810-beds will be added to Waikeria prison, 685 Corrections staff will be hired and given a pay bump for an annual cost of about $500 million.
Defence Minister Judith Collins announced soldiers' annual pay will be boosted by $41 million, and another $408 million will be spent on equipment over the next four years.
Winston Peters protected the Ministry of Foreign Affairs and Trade from the departmental budget cuts and got to announce $6 million annual funding for a mental health charity — a New Zealand First party policy.
Money for 1500 new social houses was found by cutting the First Home Buyers Grant and redirecting $140 million to community housing providers over the next few years.
Pharmac was promised a $400 million annual boost in the Budget, to cover cost pressures, but hasn’t yet been given any money to fund any new medicines.
What we don’t know
The big announcement in the Budget will be long-promised income tax cuts. While they are sure to be delivered in some form, some have speculated they may be downsized or delayed.
National’s election policy was a roughly 11.5% adjustment to tax brackets and some targeted tax credits to focus those savings on middle income earners and families.
A median wage earner would have got a $1300 annual tax cut under that plan, while higher income earners were set to save $1040.
Households with two incomes and $300 in weekly early childcare costs could have saved up to $6552 a year — but fairly few families actually met this criteria.
Willis has not been willing to promise the exact same size tax cuts will be delivered later today and the party’s tax calculator has been taken offline.
A new calculator with the official policy details will go live on the Treasury’s website at 2pm and we’ll publish a story breaking it down for readers here on Interest.co.nz.
Economists and journalists will also be looking closely to see whether the tax cuts are fiscally neutral as Willis has promised. Even neutral tax cuts could be inflationary in the short-term if they are delivered before the savings and revenue measures take effect.
The Reserve Bank has said it will have to look closely at the details of the package before it can make any assessment as to whether it might affect interest rates.
The full details of departmental spending cuts and defunded government initiatives will also be released and closely watched for controversial choices.
Fiscal outlook
Alongside each budget, the Treasury publishes a set of fiscal and economic forecasts which give the public some insight into the years ahead.
Most economists expect growth forecasts to be downgraded as the Government agency factors in tighter monetary policy and falling productivity.
This could mean deficits and debt levels get bigger as less economic activity means tax revenues fall while spending on social services often increases.
Willis will be expected to present a spending plan demonstrating a credible path back to an annual surplus at the end of the forecast period in 2028.
Speaking to reporters on Wednesday, she said the Budget would set out a high-level fiscal plan for the next three-to-10 years that would set the economy up for future growth.
73 Comments
To be clear readers:
- The budget might forecast a surplus in 2028, but it won't happen - unless the Govt move several billion dollars of debt off books (PPP etc).
- Treasury (MSD) forecasts for welfare spending are being continually revised up as RBNZ keep their foot on the neck of the economy. The budget figures are already out of date.
- The budget will move money that was being spent in the economy (creating jobs etc) to tax cuts. This will, in aggregate, reduce demand and slow the economy further.
- The Govt are banking on a privately-financed infrastructure building boom to turn the economy round in 2025. However, we are hemmaoraging productive capacity (skills, organisational capacity etc). As Labour found out early on, having the money to do a thing, does not make the things you need to buy available or deliverable.
- This budget, like the one in 1991, will be permanently scarring; contributing to a GDP per Capita drop relative to our peers.
- The response to the economic carnage of the next year will be a UK-style austerity double-down - assets selloffs, private finance deals, money for your mates.
Its interesting how central govt taxes are treated entirely differently by RBNZ to local govt taxes and the conclusion is the same, they are causing inflation.
The former gets looked at for its downstream effects, while the latter is included directly in CPI. Even though each are doing opposite actions, one lowering while the other is raising both get the "this could/is pushing up inflation" view
As a renter I don't see a HFL OCR as pointless. It's my best chance of house prices reducing to a same level so I can gain some independence in life without having to take insane financial risks in the process. It's part of a necessary correction, as are many of the increased rates and fees for things that can no longer sustain the cheat code of funding maintenance via cheap debt rather than actually paying for it.
After WWII in Japan, their central bank facilitated low rate lending directly into specific industries, one at a time, to drive industrial and economic growth. This worked wonders for their economy, and grew a very wealthy nation over several decades - it all ended up as down payment for an over priced real estate market which collapsed in the 90s.
OCR as a tool for everything does not work well. Energy costs rose a couple of years ago and now the entire economy is feeling the heat in one way or another.
I dont mean in that sense.
I agree 100% with the need for more affordable housing. Though would like to see CGT and other tools used to meet that end.
what is an issue is that the ocr is high to defend against inflation levels - so if the government pumps more money into peoples pockets voa tax cuts - a significant portion will be spent, that will push UP inflation and thus lead to a rising or HFL OCR setting. And most people will lose any gain via higher mortgage costs, reduced salaries and possibly higher house prices in the short term (more money in pockets will mean people can bid higher etc)
Its like your right hand fighting with your left hand before a fight with someone - both end up exhausted and you are less likely yo win the real fight.
IF they implement CGT incrementally to start to prevent house price rise and raise more money via a new tax, it will have a negative impact on house prices. Then wait for inflation to fall before allowing tax cuts.. you will get the best of all worlds.
If Govt raised the low income tax rate by a lot then we would definitely see increased consumer demand in the economy that could offset reduced Govt spending. However, assuming that higher demand is automatically 'inflationary' is a big leap. We have seen wholesale and retail demand plummet in the last year but profit margins have held steady (suggesting no deflationary effect), so why would any adjustment back closer to previous levels of demand lead to higher prices?!?
In fact, while it took a couple of years to bed down the reforms GDP per capita improved significantly +ve in the latter part of the 1990s ( until the Asian financial crisis), as it had following Rogernomics reforms in the 1980s.
https://www.macrotrends.net/global-metrics/countries/NZL/new-zealand/gd…
As someone who actually has a clear memory of this time - I started high school around about the time the Berlin Wall came down and the NZ economy was stuffed, 10 years later I graduated university with a student loan and the economy was still stuffed. Those 9 years of Richardson, Shipley and Bolger were bleak, but maybe the current 3 stooges can beat them in the race to the bottom? I too predict asset firesales and mindless reactionary thinking.
Here's the comparison...
The budget will move money that was being spent in the economy (creating jobs etc) to tax cuts. This will, in aggregate, reduce demand and slow the economy further.
This implies Govt spends taxes better than the earner, I have yet to see evidence of this against massive evidence of wasteful Govt spending.
Heres some spending that should be cut
REVEALED: Taxpayers fork out $870,000 a year for MBIE staff to do union roles - Taxpayers' Union
It's a bit early for sherry, Rumpole. I was not making a comment about the relative 'quality' of Govt spending, only that Govt actually going out and spending money creates jobs and economic activity, whereas a landlord paying down debt, or savers sticking cash in their term deposit does not.
The response to the economic carnage of the next year will be a UK-style austerity double-down - assets selloffs, private finance deals, money for your mates.
The UK Tories will probably see their worst election result in living memory on 4 July, even with a poor opposition (see the 2024 prediction chart here). I wonder what impact this may have on National's approach. Will they learn from it or suffer the same result themselves?
- "The budget might forecast a surplus in 2028, but it won't happen - unless the Govt move several billion dollars of debt off books (PPP etc)."
I expect there to be quite a bit in the budget about PPP schemes. The National Party have a track record of accounting chicanery to fool voters into believing they aren't increasing government spending when they actually are. Or more correctly, hiding CAPEX behind OPEX. I wonder how much will end up in their donor's and supporter's pockets ... Probably quite a bit.
They are only partially fixing it. Since the new brackets were introduced on 1 October 2010, the RBNZ inflation calculator says wages have increased 63% since then and the brackets are only adjusting 11.5%. This adjustment only takes us back to where we were at Q1 2022.
Income tax earners have been bearing more and more of the tax burden over time.
Interesting, wages up 63% since 2010 but the minimum wage has increase by approx 81.16% from $12.75 in 2010 to $23.15 as at 1/4/2024. Seems minimum wage hikes have vastly outpaced the average wage increase given these stats. Middle income earners have been getting eaten for over a decade and now even further with cost of living.
Minimum wage earners are not exactly living the life of luxury as more of their earnings go on essentials which have inflated faster. Middle earners, provided they have not juiced themselves on mortgage debt, will likely be better off due to increased disposable income (nominally).
High income earners get reamed with nowhere to hide and no expenses to write off. After this stupid bill we will be paying an even higher proportion of taxes. If you want a smart economy you're not going to get it by bashing the smartest productive people and taking capital away from innovation. But they don't want a smart economy they want to continue the property ponzi with imported GDP 'growth' and obedient slaves doing mundane jobs.
Even neutral tax cuts could be inflationary in the short-term
are you sure about that? money in government hand or money in private households hand, what's the difference?
Never is....tell me a period when we don't have protesters and people wanting more, or complaining they are'nt getting enough, or they are more hard done by than someone else, look after the sick, young and elderly, and the rest just get on with it work hard and hopefully good things will come. People in NZ get a heap more help and hand outs than numerous other countries, just go travel through Asia or South America and you will appreciate it.
Problem with these people is you tell them that listening at school, followed by hard work, and living within your means is the key to success, which it absolutely is. However, they don't work that out until they are 40-50 years old and they have next to no chance of fixing it, and then it becomes everyone else fault.....que loads of complaining and demands for handouts.
Their biggest issue is the perception of the other 90% of the population.
Having already voted out labour in a large part due to perceived unfairness of the policies the protests are about... now that same majority has a perception the protests are by people receiving handouts, not working and disrupting the majority of hard workers who are doing it tough at present.
So the result of their protest is to make things worse for themselves. Which some of it probably is.. but they are going about it in the wrong way.
Their only solution is to sell the benefits of what they want to the majority of voters..... and for that they need to sort themselves out a lot.
You make it sound like they all just want more dole money.
Their grievances appear to be:
1) Act trying to effectively cancel the Treaty of Waitangi's effect in government with their treaty principles bill
2) Council's being forced by central government to have referendums on maori wards
3) The removal of maori words from everywhere possible in government
4) The repeal of section 7AA, prioritising maori children to go to maori families
5) The reversal of smoking restrictions, as Maori are addicted the most.
Thinking that making these huge political moves against a section of society will not have some push back is foolish. Regardless of the socio-economic status of a country.
The list is valid. the problem is how they are going about protesting by frustrating everyone else.
The way to change the direction of the government is to pick individual points from the list and sell the value of keeping/paying for it to the rest of the population. Its a democracy so majority voters, and donors or swing voters tend to get what they want.
We all pay taxes and want the best return on that money - and right now for the majority the focus is on - improving health, crime, personal finances, infrastructure, reduced council rates etc. Any money going to support small portions of the population need to be justified by their return to the majority - and some of these possibly can be! but if you just wanna whinge about losing money and make people late to work you are probably on a loser
Absolutely agree with the frustration bit, and the way the protest alienates those protesting with certain sectors of society, but isn't the way out of this situation actually doing something about "improving health, crime, personal finances, infrastructure, reduced council rates etc"? Unfortunately, they're providing another easy distraction from what this government is actually 'doing' while telling us it's doing another, namely transferring money to their cronies, donors and enriching the already well off. "Have a tax cut, don't look at where I'm putting the balances on my spreadsheet."
Driving slower is, we're told, a solution to our road toll, so perhaps this protest was about helping all New Zealanders stay healthy. Instead of getting annoyed with being half an hour late for work, get angry about why people are protesting. Bet inner city suburbs barely felt a ripple. Nga mihi.
Tends to be the norm these days where people feel if they shout the loudest then they will get their way, instead of taking a more intellectual approach as you suggest. Many have already had enough of the shouting, cancelling and demanding. The people want more, more rationale, more understand a reason before they will change their perspectives on core issues.
I think today is about taking away the budget day from the government. It is stressing the government out.
I saw a video of Luxon during vaccine mandate occupation. He was smiling about it and saying it was all fine and dandy, and just a legitimate response to the Labour government's actions. Now the shoe is on the other foot, and he isn't happy about it. "They are all breaking the law! They should only protest on the weekend!"
They should protest in a way that nobody notices? Not sure you really understand protest.
I don't think any of those items on the list really makes any of the protestors money, so not sure why your bringing it up again. Again referring to it like they want their dole raised.
"right now for the majority the focus is on" - None of your list have anything to do with the list of grievences caused by new changes by the government. It costs money to take maori names out of agencies. Repealing the orana tamariki act had nothing to do with improving outcomes. As far as I can tell, the maori wards are not really affecting anyone, so why is it top of the list to undo?
"Any money going to support small portions of the population need to be justified by their return to the majority." - Does this apply to the landlords getting their 3 billion tax write off back? Do we get a referendum on that specific issue? Or do referendums only start getting done when there is a less wealthy minority affected?
They should protest in a way that nobody notices?
No - they need to protest in a way everybody notices AND that changes minds.
Without selling it to the majority - and in fact frustrating the majority .. they are just keeping national (et al) in power AND giving them the will of the majority of voters to keep going further with the changes.
Any business knows that running multiple different processes to achieve the same result is more expensive in the long run than running one process and continually striving to make it more and more efficient. if you must have 2 processes theyt need to compete with each other for example to reduce costs or produce a better quality product... but that would normally be done on a small scale as an experiment and would need to be cost effective. So govt departments and processes should meet the needs of the whole populace with minimal but effective tweaks to processes based on age, race, location etc.
Whilst talk of money sounds capitalist (ttat what we are)and might negate some other very important parts of life - it is currently top of mind for some 90% of the population who are having cuts to lots of services and infrastructre, clinging on to jobs and eating cheaply... so for them seeing value for money for their taxes IS far more important that anything else right now
OK so we are somehow saving costs by getting rid of Maori words in Government names, and ignoring the culture of a child when fostering them. And Maori Wards are a significant reason why rates are rising, so we need expensive referendums to cut cost. All these initiatives just happen to be affecting the same people by chance. No ideology going on, just business.
Oh and by the way, in these tough times we also giving the wealthiest in our country a 3 billion dollar boost. Because, as our most valuable asset owners, they are likely doing it real tough.
Pull the other one.
....yes. and I think we are fast approaching that. The more of this silliness that occurs, the more the country will accept cancellation of all of this rubbish completely. The seats, the tribunal the lot. Can't come fast enough. Thanks to TPM it will probably happen faster than they think.
Yep. you are 100% correct. The preferential treatment is being cancelled. Of course people will squeal. That is the danger of giving people things that they should not have in order to gain votes, which is exactly what Labour did. The people gaining, become reliant on the handouts, and so when you remove them, that's obviously a problem, but something that is necessary.
Nope. Preferential treatment (and other silliness) is going to be defunded today. Certainly sounds like it to me. I wonder what the 240 programs are....and they have also announced that there will be no preferential funding like there has been in the past, so there you have it.
...and we are talking about a small minority of a small minority out there complaining today. 1 out of 6 Maori voted for this rabble, so you are talking about a portion of 2% of the minority getting angry that their hand outs and special programs are being cancelled. Yes, they are loud, but they are really insignificant, and they have dragged a lot of kids in to make up the numbers. It's really pathetic and hopeless....and embarrassing. The only people that care seem to be the media.
In these times of incessant snivelling about how tough life is for so many it’s been encouraging to read a personal account by one of those who fought to defend the world against fascist & racist tyranny 80+ years ago.
I’ve recently read “The Forgotten Highlander” by Alistair Urquhart. As a 19 yo soldier he was captured in the fall of Singapore & sent to work as a slave on the Thai-Burma Death railway. After succumbing to over 2 years of constant beatings, starvation, malaria & cholera he was hospitalised, recovered enough to then be sent with 900 other POWs on an unidentified Japanese “hell ship” transport which was torpedoed by the Americans and Urquhart spent 5 days alone on a raft in the shark infested sea before being rescued by a whaling ship. He was taken to Japan and then forced to work in a mine near Nagasaki. Two months later a nuclear bomb dropped just ten miles away . . .
All POW survivors were required to signed agreements with the British government that they would not discuss the war crimes they witnessed……”During the Cold War those of us who survived became an embarrassment to the British and American governments, which turned a blind eye to Japanese war crimes in their desire to forge alliances against China and Russia.” The government also required official military documentation of the atrocities he endured to determine his military discharge status. Of course no records existed so he was denied the extra disability pay that would have provided.
Alistair Urquhart married Mary in 1946, whom he nursed for the last 12 years of her life. He worked until his retirement in 1981.
He suffered from what is now called PTSD all his life until he passed away age 97. He wrote his book age 90 – “lest we forget”
Yeah. People were getting blown up in a war a while back, so why complain about current political events? Almost as good as people live in poor countries, so why complain about current political events.
Come on, someone has to complete the trifecta with a "Well a poor person today is living a life that any king could only have dreamed of in the 1200s, so why are they complaining" lol.
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