National has had to scrap one of its major welfare policies in order to fund its tax package after NZ First forced it to back down over allowing foreign buyers back into the housing market.
Incoming Prime Minister Christopher Luxon unveiled the policy concession as part of the historic deal on Friday, 41 days since the election - and 21 since the final results - to deliver the country’s first coalition of three political parties, involving National, Act and NZ First.
“I said on election night that we would be a Government that would deliver for every New Zealander, regardless of who we are, where we are, and whatever our life circumstances are. How we do that has been at the very core of our negotiations.”
Outgoing Prime Minister Chris Hipkins wasted no time in adapting to his new Opposition role, accusing the incoming Government of sowing seeds of “very divisive debates” with a raft of policies around the Treaty of Waitangi, including a commitment to support Act’s referendum on the Treaty principles to the select committee stage.
“This is going to be a Government that drives people apart,” Hipkins said.
The deal struck between National, Act and NZ First also included the novel approach of the Deputy Prime Minister role being divided in half across the term - an issue that had proved a sticking point in the final stages of negotiations.
NZ First’s Winston Peters will be Deputy Prime Minister until May 2025 before Act’s David Seymour takes over for the final 18 months.
National has pledged to keep its tax relief package but had to find alternative ways of funding it, with its agreement with NZ First scrapping plans on allowing foreign buyers back into the housing market that it hoped would have raised $740 million a year.
One of those is not raising the Working for Families abatement threshold from $42,700 to $50,000 in 2026, saving an estimated $555m over three years, and changing fees-free tertiary education to the final, rather than first, year.
These come on top of roughly $2 billion they hoped to save over four years by decoupling benefit increases from wages and reverting to inflation, effectively cutting the average Jobseeker benefit by about $40 a week.
There was also the possibility of additional savings from a further shrinking of the public service. National had wanted a 6.5 per cent reduction from certain public agencies - with savings of $594m - while Act wanted a far greater reduction by returning the public service to 2017 levels. National has agreed to look for efficiencies in the public service while keeping the 2017 levels in mind.
Hitting pause on future changes to income tax beyond next year is also not going to lose Luxon any credibility; National’s tax package was to continue adjusting the income tax thresholds for inflation only if it was “affordable and responsible”.
There was also many areas of agreement, including plans to scrap the Māori Health Authority, Three Waters and Resource Management Act reforms. National’s bid to return 90-day work trials and scrap fair pay agreements and social insurance scheme also made it through.
There are broad commitments to maintaining climate change commitments, but offshore oil and gas exploration is back and the climate change portfolio - along with the environment - are outside of Cabinet.
During the election campaign, Luxon said it would be “divisive” to have a referendum on the Treaty of Waitangi principles, which was one of Act’s more important campaign policies.
Luxon has agreed to introduce a Treaty Principles Bill based on existing Act policy and support it to a select committee, which will ensure a national debate without necessarily leading to a referendum.
Seymour confirmed to the Herald the bill would include a binding referendum as part of the commencement clause, and he would work to convince the public why it was necessary and not divisive.
Another area of compromise was in National and Act agreeing to keep the superannuation eligibility age at 65, which had long been championed by Peters.
A $1.2b capital funding for the regions wasn’t totally unexpected; it harks back to the Provincial Growth Fund that Peters wrangled out of Labour in 2017, and while NZ First’s 2023 manifesto didn’t put a figure on such a fund, it stressed the importance of regional infrastructure.
Luxon has also agreed to fund 500 more police officers over two years, 200 more than National had campaigned on but with an extra six months to deliver than NZ First had wanted.
There is crossover between the two deals, with both Act and NZ First gaining commitments to repeal the Therapeutic Products Act and historic smokefree legislation passed at the end of 2022, which includes a world-first generational ban. The latter would also have the effect of increasing tax revenue from tobacco sales.
Luxon did not budge on Act leader David Seymour’s wish to scrap the firearms registry, but Luxon did agree to reviewing it, as well as a rewrite of the Arms Act.
Peters secured the coveted role of Foreign Affairs Minister – a job he has filled in previous administrations.
Seymour will become the Minister for Regulation - one of his major campaign policies.
There are Cabinet 20 ministers - 14 from National, three from Act and three from NZ First.
National has kept many of the big jobs including Finance, Education, Health, Social Development and Justice. The role of Attorney-General has gone to Judith Collins.
Hipkins will resign as Prime Minister on behalf of the Government on Monday ahead of the new ministers and Government being sworn in.
Hipkins congratulated the three parties on reaching their deal before describing it as a “very confused and contradictory grab bag that will ultimately take New Zealand backwards”.
He suspected the axing of the foreign buyers’ tax would require the next Government to borrow money to fund its tax cuts.
“That means that inflation will stay higher for longer, interest rates will stay higher for longer and, ultimately, New Zealanders will pay more than they are likely to benefit from in the tax cuts.”