David Seymour advocates for surplus, clashes with colleagues over budget strategy

David Seymour has warned the Government should work hard to get back to surplus. Photo / Mark Mitchell

Act Party leader and Associate Finance Minister David Seymour has warned that the “alternative to being a slave to a surplus is being a slave to debt”, diverging from his colleagues in Government who have said the opposite.

Seymour told the Herald that “ultimately, if you’ve got a choice between being a slave to surplus and being a slave to debt, I choose surplus”.

“I think we’ve got to find a way for New Zealand to be sustainable. We’re going to need to show New Zealanders that a government from the right has a plan to do that,” Seymour said.

“You can’t campaign saying that the other guys are complete spendthrifts, wast[ing] of taxpayers’ money, unless you’re prepared to bring real change to the fiscal track.

“I think it’s essential that we keep going and make sure that we show a way back to surplus and in a way back to surplus that is credible and soon.”

Seymour’s remarks come after his National Party colleagues, Finance Minister Nicola Willis and Associate Finance Minister Chris Bishop, have said the Government would not “chase a surplus at all costs”, in the words of Willis, or be a “slave to a surplus”, in the words of Bishop.

Those remarks were made following a speech by Treasury’s chief economist Dominick Stephens last week in which he warned that Treasury was once again revising downward forecasts for New Zealand’s economic growth, which flowed through into lower revenue for the Government, making it far more difficult for the Government to hit its surplus.

“Recent data has suggested that the economic downturn has been deeper, and the recovery may begin later, than the Treasury forecast at Budget 2024,” he said.

The Treasury, at the Budget, forecast the books returning to surplus by 2027/28 – a year later than National promised before last year’s election. This was despite Willis and her associate ministers trimming the operating allowances – the amount of new spending set aside by the Government – to $3.2 billion in the most recent Budget and $2.4b in the next two budgets. Labour’s last two operating allowances were $5.9b and $4.8b.

On December 17, Treasury will release its next set of forecasts, the Half-Year Economic and Fiscal Update (HYEFU). Alongside this, Willis will release her Budget Policy Statement (BPS), which sets out her vision for the next Budget and where the Government may choose to change or confirm the operating allowances set earlier this year.

If she is really keen on keeping the surplus in 2027/28, Willis could clamp down on spending even more, by cutting the operating allowances, although Treasury warned that the allowances as they currently stand contain slightly less money than required just to stand still. Further tightening would almost certainly require cuts.

Willis told Heather du Plessis-Allan Drive that there were “challenges” to the fiscal position.

“We depend on the forecasts of growth in the economy. When the economy is smaller there is less revenue and it makes it harder to get a surplus,” Willis said.

“I can’t control Treasury’s forecast assumptions, what I can control are our Government’s discretionary spending decisions.”

Treasury Chief Economist Dominick Stephens . Photo / supplied

The months before Christmas are a crucial part of the Budget cycle as Ministers bid for funding. Budget Ministers are also meeting to set the parameters of the Budget, in particular the allowances – although these can be changed at the last minute, indeed, recent Budgets have seen the allowances change mere months before Budget Day.

The question of whether this coalition will change the allowances, reduce them to chase a surplus or even increase them to respond to the demands of a creaking health system is a totemic one for this Government. In opposition, Willis in particular, ruthlessly prosecuted Labour and her predecessor Finance Minister Grant Robertson for caving into spending demands and increasing his allowance each Budget in response to spending pressures. She made a virtue of the fact that, barring some crisis, she would stick to her spending plans.

Seymour said and Willis had “been meeting fairly frequently about the Budget”.

“I think everyone’s clear that we’ve got a real challenge and that we need to put options on the table and then find a way forward ... the process is still ongoing,” Seymour said, adding it was “far too early for anyone to be announcing changes”.

He said the right place to be announcing changes would be the BPS next month.

“As Nicola Willis would often say, it’s not a revenue problem, it’s a spending problem,” Seymour said.

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.