Few surprises, more politics and policies

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Opinion

Finance Minister Nicola Willis spent the lead-up to her mini-Budget yesterday lowering expectations, and on that count she delivered.

There was a lot of politics — right from the headline on the first of six pages of press releases (compared with the usual 1800-or-so pages of a full Budget): Economic clean-up begins — and few surprises.

The Government’s income tax relief package and the full picture of how it will be funded won’t be revealed until the 2024 Budget in May.

Labour responded by saying the mini-Budget showed Willis’s claims of self-funded tax cuts don’t add up.

Its main substance was a list of 16 decisions, essentially campaign commitments, with a total impact of $7.47 billion. Most involve savings from killing off policies of the previous government, but the biggest is $2.3bn from the removal of commercial buildings depreciation, which both major parties campaigned on.

Plans to tighten public spending were also outlined. As well as the direction to government agencies to find $1.5bn of savings annually — including 6.5 percent cuts to many agency budgets — Willis revealed that those with headcounts up by more than half since 2017 were being directed to cut spending by 7.5 percent.

On the other side of the ledger, Willis identified 21 time-limited schemes — or “fiscal cliffs” as she has been describing them — totalling $7.2bn of costs over the next four years if all funding was continued, and said she had asked Ministers to all look for other smaller fiscal cliffs within their portfolios.

“The Government will carefully work through each of these financial challenges ahead of Budget 2024, making careful choices about future funding. We will restore a culture of care and discipline with the public purse,” she said.

Willis reasserted the pledge that the Government’s new policy mix will be fiscally neutral; conceded that they might need to cancel or delay some infrastructure projects on the back of major cost blowouts; and said returning the Government’s books to surplus by 2027 remained a priority.

The mini-Budget was delivered alongside Treasury’s Half-Year Economic and Fiscal Update, which shone more light on the deteriorating economic situation that will make that final priority hard to fulfil without deeper spending cuts.

Finalised before the surprisingly weak GDP data released at the end of last week, the half-year update showed forecast revenue and expenses have worsened since the pre-election update — with the forecast surplus in 2026/27 now $2bn less at just $0.1bn. A silver lining  is that Treasury sees inflation falling to 4.1 percent next year and 2.5 percent in 2025.