Finance Ministers typically spend the month of May delivering pre-Budget speeches. The first of these tends to include a few details of the forthcoming Budget. Willis delivered hers to the Hutt Valley Chamber of Commerce, noting that it was the first time in 14 years the Finance Minister had delivered their first pre-Budget speech outside of central Wellington.
The clarity came after months of speculation that gloomy economic forecasts would force the Government to abandon its tax cut pledge, and embark upon a relatively grim bout of austerity. Instead, Willis pledged moderation: some spending cuts, some new revenue tools, some tax cuts, and some new spending.
She even gestured to the spectre of the Mother of All Budgets, arguably the most austere Budget of modern New Zealand history.
“It won’t be a big-spending Budget. This is not the time for the Government to sweep up yet more of your income in order to redistribute it to a range of well-intentioned, but ill thought-through, initiatives,” Willis said.
“But nor is it the time for an austerity Budget of the sort suggested by a few commentators seemingly enthusiastic to see the mistakes of history repeated,” she said.
She said the changes would not be inflationary and would be funded from new revenue measures and reprioritisations. She said the Government would manage this from its operating allowance of less than $3.5 billion. An operating allowance is the net amount of new money added to a Budget each year. The Government can add to this by cutting existing spending and deploying it somewhere else, and adding additional revenue.
“One, our tax relief will be funded from within the operating allowance through a mixture of savings, reprioritisation, and additional revenue sources. This means funding our tax package will not add to net core Crown debt,” Willis said.
She said she had also received new modelling from Treasury that supports the belief that her version of “fiscally neutral tax relief” will not add to inflation.
“Treasury modelling indicates that fiscally neutral tax relief - financed through reduced government consumption - reduces inflationary pressure and nominal interest rates. This is mainly because there is generally a lower multiplier on tax relief than for general government consumption. This means our decision to fund tax relief in the Budget will not add to inflation,” Willis said.
“Increases to the current income tax thresholds will allow hard-working New Zealanders to keep more of what they earn, compensate for the impact of fiscal drag on average tax rates, and ensure there is a greater financial return from work. Tax relief will be good for our economy.”
Willis said that initial advice from Treasury showed that more frontline jobs would be created as a result of this Government’s decisions than have been lost in the recent savings exercise. She said some agencies like Police had failed to meet their 6.5 per cent or 7.5 per cent savings targets, while other agencies had found greater savings.
Willis also announced the re-establishment of a new stand-alone Social Investment Agency. The agency was established by the last National-led Government in 2017 but was changed into the Social Wellbeing Agency by Labour.
“As a new stand-alone central agency effective from 1 July, the Social Investment Agency will lead the development of social investment across Government, helping us understand who we need to invest in, what works for those people and how we measure progress,” Willis said, adding that the agency would have $50.5 million in new funding to support its new functions.
Willis said she would also establish a Social Investment Fund “to directly commission outcomes for vulnerable New Zealanders”.
She said it would “work with community, non-government-organisations [NGOs] and iwi providers”.
“I am also establishing a Social Investment Board as a ministerial advisory committee to provide external challenge and guidance as we undertake the shift towards social investment, and a group of Social Investment Ministers to work with me on powering up the social investment approach across the system,” Willis said.
