It’s delivering $20 a week for most working Kiwis. That money will likely flow into the economy and give it a boost.
That might be good news if you’re a small retailer perhaps. But it is unlikely to thrill the Reserve Bank, which will see it on the inflationary side of its monetary policy equations – potentially pushing interest rate cuts out further.
Economists will view the tax relief as stimulatory when it lands in the third quarter of the year. It will eventually be offset by the disinflationary impact of spending cuts.
So it probably won’t be significant stimulus enough to change the RBNZ’s current forecast for a first cut in September. It will, however, kill the hopes of those last remaining optimists who had their fingers crossed for a cut in November.
I believe Nicola Willis and Prime Minister Christopher Luxon should be commended for unapologetically delivering the Budget they promised.
In an age where trust in political leaders is thin on the ground, they have delivered what they said they would. That means something.
It’s not quite the Budget they promised voters pre-election. The economy has deteriorated by more than expected (certainly by more than the Treasury forecast in December anyway).
Something had to give. Given a choice between sticking to their commitment to balance the books by 2026/28 or delivering the tax cuts, they opted for the latter.
We now see a thin surplus pencilled in for 2027/28 and the country will borrow an additional $12 billion over the next five years.
All of this was clear by February. Luxon and Willis’ commitment to those tax cuts has been unwavering. They must believe deeply that delivering some financial relief to middle New Zealand, in the form of that weekly $20, is central to their long-term political credibility.
If their political instincts are right, a sizable chunk of the voting population doesn’t care what the economists and commentators say and will reward them for their follow-though.
We’ll see.
We might be getting money back, but the tone of the Budget was austere. The weight of 240 lines of reduced spending - not quite a thousand cuts - will be hard to bear for many.
There were no significant spending treats for business sectors. There was infrastructure funding for roads but the outlook for future investment looks limited, with Willis allowing herself just $1b extra operating allowance for the next two Budgets.
Beyond the extra borrowing and the spending cuts already in place, we find ourselves looking at two further years of Government penny-pinching.
Perhaps this is where Luxon’s promise of innovative finds, public-private partnerships and more foreign direct investment comes into play.
The tax-cut euphoria – if there is any – won’t last.
Meanwhile, critics to the political right will argue the Government has failed to address the severity of New Zealand’s fiscal position.
Its bob-each-way strategy blurs the lines between austerity and stimulus. It leaves the Government vulnerable to an age-old political risk - trying to please everyone and ultimately pleasing no one.
One suspects Luxon and Willis are well aware of this. They have left no room to sprinkle any fiscal pixie dust in the election year.
The only way through this is for the pair to deliver on another of their big promises - relentlessly efficient execution of policy.
