Finance Minister Nicola Willis was right when she said her mini-Budget would be very “mini” indeed.
At just six pages (double-sided) of press releases, it came in at about 0.3 per cent of the size, in pages, of an actual Budget, and left some major questions unanswered, including around the shape of the new Government’s tax policy - a key campaign commitment.
After much hoo-ha leading up to the mini-Budget about the scale of tax cuts, the document itself promised only one of the extensive list promised in National’s pre-election plan. The party had been clear prior to the election and since that most of those tax cuts would take effect on July 1 and therefore did not need to be in the mini-Budget.
Nevertheless, there had been a hope the mini-Budget would offer some signalling of the shape and cost of the cuts. Instead, it included a list of 16 decisions made by Cabinet that would have an impact on the Government’s books. Of those changes just one, returning the bright-line test to two years from 10, was a tax promise.
The 16 changes amount to savings of $7.47 billion over the four-year forecast period - a large saving in dollar terms, but it equates to a little over 1 per cent of total government spending for the same period.
Willis described the changes as a “fiscal repair job”, which would ramp up in the new year.
She was clear that tax cuts, a central plank of National’s campaign, would still be delivered, however, the precise form they would be delivered in is in doubt thanks to a deal done with Act during coalition talks. Act signed up to helping National deliver its promised tax cuts, but National agreed to consider using the principles of Act’s tax plan to deliver its own.
She said this would mean people would still get the tax cuts promised under National’s plan, but they might be delivered using the mechanisms in Act’s plan.
“The core commitment is to the amount of tax reduction New Zealanders were promised when they went on our tax calculator, that’s our starting point.”
Willis said the coalition agreement binding the parties was explicit that if a different method of tax cut were chosen, “there would not be reduction in the quantum of the tax relief that people receive”.
National’s plan was mainly around lifting tax brackets by 11.5 per cent and expanding access to the $10 a week Independent Earner Tax Credit. Act wanted to flatten the tax system, which would mean lower earners falling into a higher tax bracket, however Act would have compensated for this with its own tax credit, which would have meant no earner being worse-off.
Willis agreed it was fair to say that National’s plan relied more on shifting brackets and Act’s relied more on tax credits.
Labour’s finance spokesman Grant Robertson said the document left much to be desired.
“No one is any the wiser today as to how National will pay for their tax cuts than they were yesterday. [Willis] is claiming they are self-funding, there is not a shred of evidence of that in what she’s put up today,” Robertson said.
Treasury did gesture towards National’s tax cuts in its forecasts, saying the overall impact of the package when it was eventually announced would be “broadly neutral over the forecast period” - in other words, the tax cuts would be paid for by spending cuts.
However, Treasury also made an oblique warning that a neutral fiscal impact could be threatened by second-order effects such as the tax cuts adding to inflation. The tax cuts’ effect could have an impact on government revenue, as inflation led to more money coming in, but higher interest rates and worse economic conditions would mean more money going out.
The $7.47b in savings were derived by booking savings from things National and its partners said it would remove, including Fair Pay Agreements, the Lake Onslow project, Industry Transformation Plans for the primary sector and the Income Insurance scheme.
Community Connect, which offered half-price public transport fares for 5- to 24 year-olds, is also gone. The Government Investment in Decarbonising Industry fund, which helped heavy industry to move to low- or zero-emissions production, would be wound up, saving $647 million. That money will go towards a “carbon dividend”, which the Government has said it would use to pay for tax cuts.
The mini-Budget was released with some gloomy economic forecasts showing the country will enter a real GDP per capita recession, with GPD per head of population going backwards for two consecutive years, starting with a -0.7 GDP per capita next year followed by -0.1 per cent the year after.
Treasury warned of slower growth across the board, with GDP growth averaging just 1.5 per cent in the next two years, which has an effect on the Government’s books.
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.