A weaker economy will worsen New Zealand’s public finances even as the Coalition Government cuts spending, new Treasury forecasts show.
The Crown agency said economic conditions were expected to stay subdued after a period of strong demand, tight supply, and historically high inflation.
Real gross domestic product was forecast to contract 0.2% in the year ended June 2024 and only grow 1.7% the following year.
That conceals a much sharper drop in GDP per capita, as population growth is helping to bolster the headline number. Per capita, the economy declined 2.8% in 2024.
Government tax revenue flows from the nominal size of the economy, not adjusted for inflation, which is also forecast to be lower than previously expected.
Treasury said the smaller economy would translate into soft tax revenue growth, at least in the near term, while core Crown expenses remained high.
Core tax revenue would be $28b lower than forecast in the half year update, due to $18.5 forecast changes and $9.8 billion in tax policy changes.
Treasury said while policy changes contributed to the overall reduction in core Crown tax revenue, it didn’t affect headline fiscal indicators due to offsets.
This means operating deficits will deepen and net core Crown debt will continue to rise under the Coalition. Next year, it will spend $13.4 billion more than it earns.
Treasury estimated NZ was running a structural deficit of around 1.5% of GDP, this adjusts for the economic cycle and strips out one-off costs.
Across the forecast period, annual operating deficits will add $36.1 billion to the public debt. That number climbs to $50.6 billion when counting capital costs, as well.
This is $18.3 billion more than had previously been forecast, despite the spending cuts.
Net core Crown debt as a share of economy will peak in 2025 at 43.5% and will still be at 41.8% at the end of the forecast period. The Coalition Government wants it below 40%.
Long term forecasts show surpluses growing from 2028 onwards, suggesting there will be room then to upgrade services, further cut taxes, or pay down debt.
Treasury had forecast a $1.5 billion surplus is forecast in June 2028, assuming the economic forecasts play out as expected.
This assumes the New Zealand economy achieves an annual average growth rate of 2.9% during the last three years of the forecast, once interest rates have been cut.
“The economy is expected to gradually strengthen from the second half of 2024, with private sector incomes supported by the Budget 2024 tax package, a continuing recovery in tourism earnings and an easing inflation outlook enabling a gradual reduction in interest rates,” Treasury said
These forecasts show unemployment peaking at 5.3% at the end of this year and inflation falling back into the target range, allowing for interest rate cuts slightly sooner than the Reserve Bank has planned.
Treasury said the fiscal impulse, or how much the Government was contributing to inflation, was contractionary but less so than previously assumed.
41 Comments
haha, oh, it must be true then if Nicola said it....
Look, as a landlord I'd like to pass on my appreciation to the struggling kiwi families. I genuinely appreciate your sacrifice, I mean that 15% gst on a loaf of bread to feed the kids may seem on the nose but it means I can get my interest deductibility and tax free gains.
I will be thinking of you all when I am in Sicily in August, grazie di tutto
Feel free to jack up your rents as much as you like, as Grobbo once said, "if the tenants dont like it they can rent somewhere else". If tenants are struggling its their own fault [according to Labour]
https://www.newshub.co.nz/home/politics/2021/03/housing-crisis-tenants-…
Pretty simple really ...
1. re-direct investment into productive areas of the economy by ...
2. an overhaul of the tax system directing money into productive assets while ...
3. spreading the tax burden over all income sources so earners have more choices about where, and how, they invest, save and spend.
https://www.treasury.govt.nz/sites/default/files/2024-05/befu24.pdf
"Economic conditions remain soft but are expected to gradually strengthen from the second half of 2024 with the easing inflation outlook enabling a gradual reduction in interest rates"
But the RBNZ aren't planning on cutting interest rates until the end of 2025. Where exactly is this strengthening of the economy going to come from?
Agreed ... Someone's forecasts are indeed wrong.
But my point is that absolutely nothing has changed from a structural point of view in the NZ economy. Nothing. Nada.
Ergo ... All that's going to happen is a near repeat of what happened last time i-rates fell after a recession, and the time before that, and the time before that, ....
Unless there is significant structural change - and an overhaul of the tax system is a fundamental part of that - we'll just do what we've always done and slip further down the global rankings.
(Have I mentioned Kiwis aren't that bright? We elect visionless and fearful politicians that do not do anything except tinker. But we're collectively dumb enough to think they have made changes when in fact it is nothing more than a case of rinse and repeat.)
Long term forecasts show surpluses growing from 2028 onwards, suggesting there will be room then to upgrade services, further cut taxes, or pay down debt.
Doubt it. They needed to collect more, not less tax in an environment like this. So said all of the international economic advisories that provide us with advice. But they went the opposite way. It will become evident every quarter following those tax bracket adjustments. And as we look shakier and shakier (and in particular if our housing market deteriorates further), I can only imagine our cost of international borrowing goes up.
Least aspirational budget I've ever encountered..
Then factor in these:
https://ourfiniteworld.com/2024/05/21/reaching-the-end-of-offshored-ind…
https://consciousnessofsheep.co.uk/2024/04/30/a-world-without-growth/
https://surplusenergyeconomics.wordpress.com/2024/05/28/279-the-fiascos…
https://www.bts.gov/data-spotlight/us-trade-and-impact-low-water-levels…
The last one is capable of wiping all Budget assumptions in one hit. So few projections factor in physical-constraint feed-back loops.
"The last one is capable of wiping all Budget assumptions in one hit. "
Or ... and more likely ... who we trade with - and everyone else affected by low water levels in the Panama Canal - simply adjusts the volumes of trade so that what is already a bottleneck becomes less of an issue.
Or put another way ... when a bridge fails, trade doesn't stop, it just finds new routes, or new suppliers and new customers. And NZ has many markets - especially around the Pacific rim - that could easily pick up more of NZ's products. (Kiwis forget that on a global scale NZ produces a tiny fraction of global consumption - even in our biggest exports.)
Except there are no jobs for severely physically disabled people on jobseekers. Also no jobs for those with severe communication & sensory disabilities. Notably because most employers will not hire disabled people when a cheaper migrant, (willing to work for illegal rates) is around the corner. After all the fiction of disabled people working actually requires the jobs to be available and accessible to them. If you are not funding mobility transport increases, (as PT often excludes many disabled people on the outset so mobility transport is often the only transport available) most jobs are not accessible. If you think those with MD MN etc can do fruit picking then the orchard owners would be funding a minimum wage (much higher cost then a benefit) for literally no return as you kind of need to be able to lift your arms to pick fruit. Most office work that is WFH that may be suitable often discriminates against disabled people in hiring from the outset.
So sure since most beneficiaries are able bodied over the age of 65, they surely would be the largest group who are able to get work whereas most beneficiaries under the age of 65 are disabled or carers of disabled people (they are doing the nursing work that would be required otherwise but they get less then minimum wage for the time; a cost saving for the govt).
If you want disabled people to be able to get jobs you need to fix the discrimination against them in hiring, the discrimination against them in education and the denial of transport access to them & denial of access to housing and buildings... how likely is this to be fixed in the next 10years? Unless we have an ADA style law there will still be no jobs accessible to most disabled people. Hence the utter complete joke of disabled people being jobseekers, (who account for most jobseekers) when there are no jobs for them to seek because none are truly available to them.
Perhaps the 12% of the working age population who are currently on a benefit could get jobs and become tax payers instead of benefit collectors? That's usually how well run economies succeed.
Hilarious stuff. Care to prove that nonsense?
(I love the way some people take their prejudices, wrap them up in seemingly sensible 'economic' logic, and then recommend them as solutions to issues. Here is a perfect example of why I say Kiwis aren't that bright.)
Really Kate. You sound like a real doom and gloom expert. No we do not need more tax without proper control of the Country's spending. This is how New Zealand has got itself in its present predicament. But what we do need is true leadership so that all New Zealanders can life a reasonable life
Here’s my analysis of the budget
1) A society is judged on how it treats its most vulnerable.
2) NZ already has 130,000 households in energy poverty. The proposed $15 per month increase in electricity bills will push more households into energy poverty. The budget did nothing.
3) Foodbanks in 2023 in NZ fed 480,000 people per month. Equivalent to the population of NZ per year. The budget did nothing.
4) Rent to income ratios in NZ rank as some of the highest in the world. The budget did nothing.
4) but surely adding depreciation claims back in will reduce rent /sarc
Only government parties think that benefits and supports that go directly to large property investors like the accommodation supplement will trickle down to benefit most the poor in society who cannot afford rent.
1) Provably wrong. Most politicians are picked without any consideration as to how they favour the vulnerable and sadly most voters vote selfishly and without consideration of the actions politicians & govt depts actually take. For instance Labour massively cut the wages and incomes of the most vulnerable and cut disability support, they also denied the poorest health sector workers for the most vulnerable the required pay equity increases they won in court (delaying them for 6 years and then finally cancelling them for good against court direction).
They also added policies to keep children in violent home environments as they viewed the safety of children as mattering less then race (with Whāngai fostering one of the worse practices to keep children in families that continue the cycle of violence in hapu from grandparents, to aunts & uncles, to parents and enabling violent people to massively destabilize the lives of children leading to the children suffering greater trauma and having more MH issues in adulthood). Having family die from this it is of no surprise that most of those on OTs books now are disabled children, who are also kept in violent households, who suffer worse life outcomes and will become near 50% NEET because of a denial to access education & communities. The safety of the child & stability of home environment is now far less important when considering their support so we will always see more children at risk of violence and more children suffering from drug and alcohol abuse or from violent injuries causing disabilities and trauma. To not even consider the intergenerational violent trauma of wider hapu & risk to children when making fostering placements is exactly the carte blanche approval for yet more violence in children's lives. It is saying that the safety of children matters less then the pride & culture of the violent parents. Sadly for many disowning wider family altogether & no contact is the only way to escape the violence for themselves and to ensure their own future children can avoid it... and it can still follow them in life regardless. We were lucky as many of the violent family members that were older left for Australia, but sadly not the wider family, gang affiliations and Whāngai fostering lead to many lost generations (they lost their opportunities, their future to trauma and some lost their lives).
Are we really surprised that the behaviour of National would be not much different. All political parties have devalued the lives of the most vulnerable in NZ and those with the worse wellbeing and no party leads with a priority to change that as those at the bottom of the heap on every metric, those disabled, are never much more then a footnote in actions taken by political parties.
Even the Greens & TPM did far more to harm disabled people and removed their access to housing and communities then any action taken by previous governments. It is pretty shameful.
So lets be clear. No political party prioritizes the lives of the vulnerable over their marketing appearance and their real self serving priorities. The NZ public mostly does not care one iota either when they go to vote and will not hold any politician to account (with memories shorter then a goldfish). All political parties act in the worst interest for the most vulnerable currently.
2) energy increases were always going to happen as power companies would have to increase the costs massively even to maintain the existing network. Because of massive increases in demand and more renewable sources we also need massive infrastructure development in the generation & transmission networks and storage which also requires massive cost increases in your bills. Assuming they would not increase or that the govt could subsidize private businesses to the tune of billions of dollars considering our current financial state as a country is ignorant at best.
I am actually surprised the difference is so low compared to when Aurora was forced to stop pocketing the money and instead do the essential emergency maintenance so failing power poles don't kill their own staff (when they found all the money they had pocketed had unsurprisingly gone into investors pockets and C level bonuses and could not be recouped again when sht hit the fan). They pushed up the power bills so much as the public had to pay for all the private profits they had been stripping from the company years before. It is a good case to learn about in engineering as the engineer whistleblower who came forward after his friend was killed ended up being blacklisted from the industry. He came forward knowing that would happen because his ethics & morals were stronger then those being silent (but then again it did take a close friend being killed first).
In comparison the power increases are actually good news as they are far less then they should be and far less then inflation. I was expecting much more damage to the pocket from bill increases considering the state of NZ networks and the very rubbish design we use that is so susceptible to both weather and even people stealing the cables & equipment for metal.
Nope, we need to incentivise home power generation systems so we can decentralise power generation and supply locally...
Line and substation upgrades are needed when everything flows down existing channels, but if homes generate power for local businesses then it becomes self sufficient using the existing infrastructure - which means no additional investment from power companies
but they will likely skim the ticket, paying $0.08c from producers, and charging $0.22 - $0.24c to the neighbour for supplying nothing other than the existing power lines
Most homes are within 10-20km of business zones, so transmission distances are shorter and losses are reduced between production and consumption - as power lines have resistance and lose power the further it travels and the more times it is converted to another voltage
3) Protip the govt is not in the business of making or selling food, they cannot direct your local supermarket at what prices they are able to set so the supermarkets will increase prices according to both logistics inflation & lacking competition.
There is a lot more support for kiwiharvest though which if you are not aware is how most foodbanks in the country are able to source the food they give away.
So if you want more done on 3 on the supply side then either look to regulating the private business of food retail a lot more with forcing more competition, & forcing pricing down (but you cannot go below the cost it is to purchase and transport the goods to stores) and looking at the massive cost increases on logistics which the govt can control as a significant amount is tax gathered.
Here is a pretty big clue on 3 there is nothing much that can be done unless incomes increase massively (the foodbank demand side) and most of those using foodbanks are on benefits... yeah don't see any government making a significant difference there because none of them actually do consider the cost of living necessities in setting benefits and considering we just passed a massive global mass disabling event we will see a huge spike in the numbers of families needing food bank support... oh look we did.
4) Seriously this is a joke what did you expect here?
Rent controls? would not be able to be enacted at all because of the massive shift (see below as to NZ investment culture) and so all private rentals increase (very rarely decreases) regardless of what any government does.
Subsidies & benefits? Only increase rents overall and so only serve to increase the rental costs for everyone.
More social housing? We already have no available social housing places and a demand that would take decades longer to build to cover. Social housing sets rent to around 30% of the income being taken, the measure touted as affordable but is often far from (as it never accounts for the cost of living for other goods increasing at rates larger then income increases). So building more social housing currently would not decrease the rents for most of the public one bit as it would take years for even current waitlists to drop much.
Capital Gains Taxes? Is not going to make much difference, (some but not what you are calling for) as investment in housing is such a cultural touchstone people expect it to fund a nice retirement lifestyle regardless of the harm it does to society or the debt risks they take up (after all they could always increase the rent they charge if their repayment rates & bills increase).
In fact given that buying investment properties for renting out is such a factor in our culture we really would need to have significant blocks and restrictions on buying investment properties in the first place yet we allow any person or company currently to buy (it is trivial to get around the foreign buyer bans).
The government cannot enact laws that push for massive divestment in housing & cause more competition to reduce rents because that would be the end of whichever party was in power considering it is so tightly tied to the entire country's retirement wealth portfolio. They have the baby boom generation to look out for after all who are just reaching retirement age. Hence not even the most far sided in the opposition suggest that either. Because what truly would enable affordable rents is something so distasteful to all political parties they would need to have rock solid ethics and balls of titanium to enact and none of them actually want rent decreases to affordable levels. None of them are willing to consider living costs in benefits either so there is always going to be massive rise in inequity.
In short you seem to not know what a government budget is or does:
1) A society is not judged on how it treats its most vulnerable. Most societies are judged on other factors. Take politicians for instance and their actions. Most of society does not even know what their politicians do or put their names to even in the departments they face. Yet they will vote more on behavioral and marketing factors then real tangible effects. Even when politicians have deprioritised the most vulnerable in their actions and targeted them for denial of access to living needs and communities they can still market themselves as being more socially conscious then others.
There really is no reaction when politicians perform actions that heavily harm and discriminate as we saw in the last govt. The public did not even look up and even now most the protests are ignoring and discriminating against those who have worst wellbeing metrics and the most deprivation in NZ. The protestors make out they are for poor kiwis while perpetrating more harm and discrimination against the most vulnerable kiwis. With slogans directly targeting vulnerable kiwis who are destitute and poor with maximum levels of discrimination. And you think society judges them on how they treat the vulnerable. Fat chance; even the protestors celebrate their actions against the vulnerable and call for even greater denial of living needs from those who are truly vulnerable. It is mob mentality. Society can do all sorts of horrific harmful things so long as they have a group to egg them onto it. That is one true common element throughout human history. It is much harder to actually do good, then it is to say you are good and do bad.
2) NZ does not own all power transmission & generation. We also do not control the weather that affects those things & the cost of maintenance. Through any budget we cannot directly manage NZ power companies or direct how much they pay staff bonuses & investors in contrast to how much they spend in maintenance & investment in new necessary development.
3) The budget funded NZ leading foodbank providers. But no budget could control the supermarket pricing as we do not own or control NZ supermarkets
4) The budget funds NZ social housing to allow rents to be 30% of income (affordable by international standards) but NZ govt does not own all housing and no budget can control the rents a landlord charges.
Man alive ... This really was a budget for Landlords !!!
1. LLs got interest deductibility re-instated (essentially a tax cut) ... But wait, there's more ...
2. LLs also got the PAYE tax cuts ... But wait, there's more ...
3. LLs' tenants - yes, their tenants - got PAYE and various other tax cuts so their disposable incomes increased ... so LLs will be able to push through even more rent increases !!!
Man alive our tax system is going to ruin NZ.
Does NZ have so many LLs that they can dictate government policy when they vote? Or are Kiwis so dim they can't see what's going on and vote to be screwed?
Does anyone else notice the pattern of labour increasing our national debt to create positive GDP and creating a mess while national goes about cleaning it up for a term trying to push it back down??
Arderns govt added $75bil to our national debt for a flu strain that killed less people than the common cold did 2 years prior..
Nationals budget shows the financial statement stabilising and then improving, but no one likes 'boring', people don't want freedom, they just want free stuff...
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