Christopher Luxon clarifies remarks on new taxes or reducing promised tax cuts as fiscal warnings grow, analysis finds $3.3 billion hole

Prime Minister Christopher Luxon has clarified his remarks about introducing new taxes in the Budget to fund his tax cut plan, as the Government continued its effort to play down expectations of what is on offer in this year’s Budget, which will be unveiled on May 30.

During his Tuesday morning broadcast media round, Luxon clarified to Newstalk ZB’s Mike Hosking Breakfast, and RNZ’s Morning Report that his tax plan would be broadly similar to what National campaigned on.

“There won’t be any new taxes in the Budget, we are determined to deliver low and middle-income New Zealanders tax relief as we talked about during the campaign” Luxon told Newstalk ZB.

“The tax relief is going to happen. Period,” Luxon said. Luxon said he would “love” the tax plan to take effect on 1 July as promised, and he said it was still his “intention” that this happened. The plan was simply waiting for Cabinet sign-off. Luxon said the plan would be in a form similar to what was campaigned on at the election.

It comes after Deputy Prime Minister Winston Peters appeared to endorse an analysis from the Sunday Star Times finding a $5.6 billion hole in the Government’s plan, comprised of revenue not coming in as promised and other measures costing more than forecast.

An analysis by the Herald, which factored in areas of the Government’s plan that had gone more favourably, put the “hole” figure at $3.3b over the four-year forecast period.

This did not include the challenges faced by the Government’s roading plan, which is estimated to cost $24b more than National budgeted for, according to figures from NZ Transport Agency Waka Kotahi, obtained by the Herald.

On Monday, Luxon confirmed working New Zealanders and middle-income earners would be in line for a tax cut at the Budget, but he would not say whether these cuts would be of the same quantum National promised at the election, meaning they could be smaller.

In a slightly chaotic post-Cabinet press conference, Luxon promised there would be tax cuts, but would not say whether they would be of the size promised in the coalition agreement. He then would not rule out using new taxes to pay for the tax plan, including new taxes on working people.

The confusing messaging from Luxon followed a speech by Finance Minister Nicola Willis on Friday that the Government would “stick to... commitments to lower personal incomes tax, to drive more resources into frontline services and to invest in infrastructure”.

But with Luxon not guaranteeing a specific amount of tax cut, there are questions over whether Willis’ commitment amounts to an endorsement of the principle of lower taxes and not a commitment to follow through on the level of tax cut promised at the election.

National’s coalition agreement with Act commits the parties to delivering tax cuts of some kind “subject to no earner being worse off than they would be under National’s plan”.

However, the deal also allows the parties to wriggle out of any commitments they can no longer afford. Act has already agreed to back down from some elements of the reinstatement of interest deductability, a decision blamed on the deteriorating economic situation.

When asked to guarantee Kiwis would get the same amount of tax relief promised prior to the election and endorsed in the coalition agreement, Luxon would only say that this would be answered in the Budget at the end of May.

“We are deeply committed to delivering tax relief to low- and middle-income working New Zealanders,” Luxon said.

The Herald analysed National’s pre-election fiscal plan, a kind of draft Budget, to look at how its pre-election costings had panned out when costed by Government officials. The analysis ignores policies that are yet to come, like proposed tax reduction, the Pharmac top-up and plans to fund more places for GPs.

The analysis found that the Government is about $3.3b off where National wanted it to be in its fiscal plan. There are a number of reasons for the “hole”. In some cases, the shortfall is due to coalition negotiations. NZ First cost National $2.915b by killing the foreign buyers’ tax, while Act cost it a further $802 million by asking for interest deductability changes to be sped up.

Other policies have changed as a result of economic forecasts panning out differently. The plan to index benefits to inflation will save $1.37b less than forecast, thanks to changing wage and CPI forecasts, while changing the allocation of ETS revenue will bring in $210m less than hoped for.

Other changes came as a result of poorly modelled costings during the campaign. Closing gambling tax loopholes will net $522m less than hoped.

There are some wins. The Government will get about $1.5b in revenue by cancelling Labour’s smokefree plans. Axing commercial depreciation is forecast to be $210m more lucrative than forecast.

Willis said there had been “adjustments, both up and down, in both the estimated cost of proposed coalition commitments and the likely savings that will be generated by proposed revenue and reprioritisation measures”.

She would not comment on individual figures ahead of the Budget, “as many of these remain subject to final forecasts and decisions by Cabinet”.

“The Government remains confident it will deliver personal income tax reduction in a way that is responsible and affordable,” she said.

Asked whether the forthcoming Budget would include further revenue-raising tools to compensate for the loss of the foreign buyers’ tax, Luxon did not deny that it would.

“You’ll see it all in the Budget. All I’d say to you is we will have a fully funded tax plan for low and middle-income working New Zealanders. It will be a combination or revenues - those revenues may look different to how they did before the election, they may look the same, but there are ups and overs on that,” he said.

Luxon was asked to rule out introducing a new tax in the Budget. He replied it “was not our [the Government’s] intention”.

He was asked whether he would endorse Willis’ statement, made prior to the election, that there would be no new taxes on working people. Luxon made no such endorsement and instead only said: “Just wait for the Budget, it is coming very shortly”, adding the Government was “dealing with a dynamic set of circumstances” but was “determined” to deliver tax relief.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.