OPINION:
New Zealand is in the midst of a cost of living crisis.
Inflation is running higher than it has in more than 30 years. Household budgets are being stretched to breaking point as groceries, petrol, rent and other basic costs spiral ever upwards. Wages aren't keeping up, with prices outpacing them at a rate of two to one.
Mortgage holders are bracing themselves for more pain. Interest rates are climbing fast and are set to suck thousands out of Kiwi budgets in the months ahead.
Businesses and employers, already fatigued by two stressful years, are struggling to find staff, manage disrupted supply chains and sell to increasingly anxious customers.
Meanwhile, the Government books are in the red, with deficits forecast out to 2025. Debt, at 36 per cent of GDP and climbing, is the highest it's been in decades – far higher than after the Global Financial Crisis.
So how should Thursday's Budget respond to these challenges?
This is not the time to be adding more unnecessary costs or embarking on big bureaucracy-building ventures.
Instead, it is a time for the Government to help unblock bottlenecks to productive growth, bring more discipline to its own spending and focus on restoring financial security to New Zealanders.
The first priority should be to respond to the cost of living crisis by delivering income tax relief to the squeezed middle.
While the Government has lifted benefits and entitlements, it has done so at the expense of the humble taxpayer, many of whom are now struggling.
Today there is a growing squeezed middle of New Zealanders who earn too much to qualify for government assistance but not enough to absorb rapidly rising costs.
The simplest and fairest way to deliver income relief in this Budget would be to inflation-adjust tax thresholds.
Inflation acts as a stealth tax by pushing taxpayers into higher tax brackets. Indeed, the Government hoovered up an additional $15 billion in income tax last year compared with 2017.
National has put forward a tax package that would inflation-adjust tax brackets and deliver the average income household $1600 extra in annual income. Not huge, but with the cost of living soaring, every dollar counts.
The second thing the Budget must do is rein in wasteful and ineffective government spending.
Households across the country are having to re-jig their budgets to account for rising costs, foregoing nice-to-haves and delaying plans to spend and borrow more.
The Government should show the same discipline.
Government spending has ballooned from $76 billion a year in 2017 to $128 billion this year, a 68 per cent increase.
The problem is that New Zealanders have not seen a 68 per cent improvement in services.
I'd like to see evidence in this Budget of Ministers having gone line by line through existing spending to ensure it stacks up.
Some good places to start? Pulling back on growth in the public service back office, including the massive communications machine that's sprung up across government agencies and putting a sinking lid on the ever-expanding empire of government consultants and working groups.
Do we really need twice as many public relations staff at Waka Kotahi as we had in 2017? Should other agencies follow Kāinga Ora's lead in allocating $24 million to renovate their own offices? Can Ministers honestly claim they are getting maximum bang for every taxpayer's buck?
Finally, the Government should be careful about baking in any new big-spending ideas.
Despite obvious economic headwinds, the Finance Minister intends to allocate an additional $6 billion in annual operating funds in this Budget. This is the largest amount of new Budget spending in New Zealand's history. The timing of this seems… odd.
No one questions the need for investment in improving frontline health and education services and in the infrastructure needed for growth. The question is, can New Zealand trust that this Government will get sufficient outcomes for their spending?
Labour has a track record of making big announcements without a delivery plan for driving results.
I'm reminded of the $2 billion allocated to KiwiBuild with a promise of 100,000 new homes – at the time of writing, only 1304 had been built.
Similarly, the $1.9 billion allocated to mental health has been widely criticised for being poorly co-ordinated and delivering no additional specialist mental health services.
New Zealanders will therefore be rightly sceptical of any similar big pronouncements to rearrange things in our health system. The test will be how much cash gets lost in the shuffling of deckchairs and how much actually flows through to patients.
Similarly, while National agrees with emission reduction to meet our climate change obligations, it's vital any new policies are fair, efficient and workable.
In an unstable global economy, with many doing it tough, New Zealand deserves a Budget that charts a clear path out of inflation, provides income tax relief to the squeezed middle and moves our economy towards a more secure future. Simply spending more and taxing Kiwis more to pay for it will not cut it.