The coalition Government has announced $7.5 billion in cost savings and new revenue alongside Treasury’s half year update which showed a deterioration in the Crown accounts.
Finance Minister Nicola Willis framed it as the beginning of an economic “clean-up” after what she described as a “reckless” fiscal approach from the previous administration.
Treasury’s Half Year Economic and Fiscal Update still forecast the Government’s books would return to surplus in 2026 but it would be just $140 million, rather than $2.1 billion.
This was largely because inflation was now expected to be more persistent and force the Reserve Bank to hold interest rates higher for longer.
Higher rates will subdue growth and delay the economic recovery. That will flow through to lower corporate profits and therefore Crown tax revenue.
“Economic growth is forecast to average just 1.5% over the next two years, as elevated interest rates increase the cost of borrowing and of servicing the existing debt, driving weak consumption and investment.”
Real GDP growth is forecast to bounce back once inflation is under control, Treasury predicts an average of 2.8% per year from 2026 onwards.
Treasury said Core Crown tax revenue was expected to be $1.6 billion lower across the forecast period and an extra $2 billion of bonds would be issued to cover the shortfall.
Higher borrowing and interest rates will increase the Government’s debt financing costs, lifting core Crown expenses relative to the pre-election update.
These forecasts were finalised before the Coalition Government had formed, so they do not reflect policy decisions made since then.
Alongside the forecasts, Willis announced a handful of election promises which would improve the Government’s fiscal position by $7.5 billion across the forecast period.
This includes getting rid of free childcare for two-year-olds, removing the ability for commercial building owners to deduct depreciation from their taxes, and indexing benefits to inflation.
National will also bring the Brightline Test capital gains tax back to two years, which will cost $180 million over the forecast period.
Government agencies have been asked to find roughly $1.5 billion in annual cost savings, with specific targets set based on headcount growth since 2017.
Willis said this was a combination of the $500 million savings requested by the Labour Government, plus the $400 million contractor and $600 million back-office spending cuts National campaigned on during the election.
127 Comments
Longjohndrop, your poorly thought assumptions about me aside, people are certainly suffering out there but it's neither you nor I who make decisions around borrowing rates - OK.
You seem to conveniently cast aside the many Spruiker posts suggesting that borrowers would adjust to higher rates. The stark fact is that over time higher rates take an emotional and financial toll that can be life altering.
We are currently in the GAP period between interest rate increases delivered and the effects. An average mortagage of $400K re fixing from 3% to 6% for ease of calculation is $12,000 PA from discretionery income, some will sqeak through others will struggle and how Banks respond will determine future events - I fear a damaging effect on the economy and hope I am wrong.
DGM alert.
Sorry, it just seems that the tables have turned, and all the home owners are worried about an upcoming recession or depression and what that might mean for them. I'd rather be a DGM when times are good, like collecting firewood during the summer, or whatever.
"List of 21 fiscal cliffs disclosed to the Finance Minister by the Treasury:
Ka Ora, Ka Ako | Healthy School Lunches Programme
Pharmac – Combined Pharmaceutical Budget
Pharmac – COVID-19 therapeutics and vaccinations
International Climate Financing Funding
Tertiary Tuition and Training Funding Baseline Pressure
New Zealand Screen Production Rebate (International)
New Zealand Screen Production Rebate (Domestic)
Cyber Security Programmes
Kāinga Ora Operating Funding
Apprenticeship Boost
Geohazards Science Services, Data and Modelling
Kānoa Operating Funding
Oranga Tamariki Disability Support Services
Teacher Supply Initiatives
North Island Weather Events Road Response and Recovery
Transitional Housing Motels
Civil Aviation Authority Liquidity Funding
Equitable Digital Access
Temporary Accommodation Services
Historic Claims of Abuse in Care
Te Matatini – Funding to Stimulate the Sustainable Growth of Kapa Haka
“Our coalition Government has acted swiftly to remove some of these unfunded fiscal risks: including by stopping the Lake Onslow Project, the Income Insurance Scheme, and the commitments to Auckland Light Rail and Let’s Get Wellington Moving.
“Other time-bombs will take more time to defuse.
“Cost blow-outs in major infrastructure projects abound. The iReX Interislander ferry project is just one example. I have also been advised that the Transport Investment Programme that the previous Government signalled a commitment to deliver had an estimated total cost of $288 billion, while only $85 billion of funding had actually been appropriated to meet these costs."
“Our decisions ensure that $2.047 billion of forecast cash proceeds from the Emissions Trading Scheme can be used as a ‘climate dividend’ to support income tax reduction, including by closing the Government Investment in Decarbonising Industry Fund (GIDI), which has been subsidising already profitable businesses to reduce emissions"
Acknowledgement: "Ad" (The Standard)
I think what you will find is that nothing has been costed out properly...just like you doing your budget at home, I'm trying to teach my eldest the same lesson ..you can't go on holiday's every four months, upgrade your car, eat out two times a week and go to 10 concerts a year..WHEN you don't earn enough. The government can't be everything to everyone, but seems like by looks of the list they were trying to be.
I'm on the fence with the free lunches, as many will bag on irresponsible parents choosing their own wants over their kids basic needs, but the stark reality I hear from friends who are teachers, is that those parents will do this regardless, so it is better to focus on the children to help them break the cycle, than try and fail to alter parents behaviour and instil responsibility into them.
“I am also confirming the Government’s commitment to fully restoring interest deductibility for rental properties, with details of the phasing of this commitment to be the subject of an announcement in the New Year."
Doesn't sound like this will be back-dated after all, and still open to slowing down the timeline to help keep the books in order.
Correct Tron. Expenditure is deductible against income if there is a nexus between the expenditure and the income received. Well, it was historically. Then a fiscally illiterate Labour Government took charge and gave us a finance minister who almost certainly couldn’t reconcile his own bank account.
The reasons Grunter removed deductibility for interest on rentals was socialist bias and his abject failure to understand how a business runs and why people operate business's. On the other hand if Grunter considers rental property is not a business then it must be a hobby so not taxable.
".....People stuff their rentals full of their own personal mortgage debt so it’s not a business expense. .."
Not misinformation Tron. Seen it done. Heard it discussed as a method. Even had it suggested to me by a tax accountant. But he was careful to do it verbally, nothing written to get him into trouble.
It's common, and perhaps you already know that.
It's pretty simple, given the choice of having debt interest costs tax deductible or not, people choose to have it deductible.
That is, a debt free home they live in and the mortgage on the rental. Do you know any landlords with a mortgage on their own home and none on their investment properties?
Let me help you back. The business model in recent years was predominantly capital gain. Borrow big, get huge capital gain. Don't tell me different, you know this.
Despite what you tell the IRD, capital gain was the intent. Capital gain was the core driver.
The capital gain -the profit - was untaxed. Unlike other business where the profit is indeed taxed. So deductable cost, and tax free profit. Quite out of line.
Acknowledging of course in recent times things like brightline. Which had minor result, and different situations and intentions. eg. Mums and Dads who owned a debt free rental for 25 years.
Past performance does not predict future gains...we hope
Deep falls in real per capita GDP | croaking cassandra
Half Year Economic and Fiscal Update 2023
https://www.treasury.govt.nz/publications/efu/half-year-economic-and-fi…
The first paragraph of the Exec Summary reads:
"Economic activity remains slow, as forecast in the Pre-election Economic and Fiscal Update 2023 (Pre-election Update). High interest rates are expected to persist and drive a sustained period of soft economic growth, reducing inflationary pressure. Compared to the Pre-election Update, slightly stronger activity and persistence in domestic inflation means interest rates are expected to stay around current high levels for longer. This means that although economic growth is expected to be stronger in the near term than in the Pre-election Update, high-for-longer interest rates mean we are now forecasting a more delayed recovery in activity."
oookaaaay!
Is it worth reading further? (lol) I guess I should.
Edit 1: ... And then in the end-of-June financial years they predict inflation to be 4.1% to June 24 but then just 2.5% to June 25.
But hang on. The RBNZ's CPI was at 5.6 percent in the 12 months to the September 2023. So in 3 quarters they think it it will fall to an annual 4.1%?
Doesn't that imply either 4.1% for the whole 3 quarters, or a similar 5.6% for one quarter followed by two much lower figures? Or maybe by the last June quarter it's got so low that the RBNZ can no longer ignore it? They are other permutations obviously. But with the economy contracting, and if economic behavior remains true to form, by June it will be within the RBNZ's range. How is that HFL?
I should have skim read further to this bit:
Finalisation dates for the 2023 Half Year Economic and Fiscal Update
- Economic forecasts – 6 November 2023
- Tax revenue forecasts – 14 November 2023
- Fiscal forecasts – 24 November 2023
- Risks to fiscal forecasts – 24 November
- 2023 Text finalised – 14 December 2023
So basically, a lot of it is well out of date. At best, they got to update some words by the 14th Dec.
The HYEFU has a section called Risks to the Fiscal Forecasts.
The first section?
The economy is a key influence on fiscal outcomes…
Forecasts of nominal GDP are a key driver of forecast tax revenue. Forecasts for interest rates are used to estimate interest revenue, finance costs and the valuation of some long-term assets and liabilities. [...] For example, if nominal GDP was to grow by 1 percentage point more than forecast in each year of the forecasts, tax revenue would likely be around $8.0 billion higher than forecast in the final year of the forecast.
But we know now from the latest GDP release that the economy is in real trouble. Can it bounce back? I don't see anything on the horizon. Do you?
The HYEFU notes in many places that the RBNZ has the OCR at restrictive levels, the wording suggests painful levels. (They also note two consecutive years of negative per capita GDP. i.e. we're working as hard to get poorer.) So if GDP goes negative and we're in a recession then government is really in trouble.
How big a trouble? They already plan to borrow as much as the previous government next year. If GDP tanks then government revenue will fall and this wonderful new government will be borrowing even more (or worse, cutting back even further on spending and creating an even bigger mess). Bye, bye a return to surplus 26 or 27. ... A terribly bad time for tax cuts for anybody if this government really cares about balancing the books. (But they don't really care about balancing the books (it's another con). Nor should they.)
But don't worry. The RBNZ will come riding to the rescue early next year.
There's a massive amount of play acting in this charade. Why can't they just be honest?
Satellite service rental also does not need land or buildings.
* Well considering most don't count the sales management website server hardware as needing to actually reside anywhere these days being in "the cloud" which is really "its of no concern to us or our business really, just so long as we don't have to deal with it or think of the security" (and yes I have worked with companies using all the major clouds, so far sadly the large bulk of companies really do have a lax attitude to servers, updates and researching the security support needed, including many production release machines some staff also used for game servers in their 'on the job time').
"The largest element of this investment is an extension of the 20 Hours ECE subsidy, which is currently available for three- to five-year-olds, to include two-year-olds from 1 March 2024. Government is investing almost $1.2 billion over five years to fund this extension."
Gotta cut somewhere. No time to see if the investment had outcomes desired I guess.
All this investment in early education, what was the point of it all? Educational outcomes have been falling for years. Its clearly done absolutely nothing to improve children's intellectual achievements at school. We should just go back to calling it babysitting, and pay accordingly, instead of forcing working parents to pay through the nose for overqualified daycare. Heck, if daycare costs dropped then maybe all those parents sitting at home babysitting their own kids on a benefit might actually go back to work and contribute some taxes.
Maybe the real solution would be to restructure the economy so that a parent could be at home with their children.
Interesting how you demand that the "poorest" should pay more tax (the benefit is taxed as income), but don't demand the same of those who have enough.
Maybe if the property tax avoidance rort was cancelled all those "investors" could go back to work and contribute some taxes.
If we don't restructure the economy soon, so that young parents can buy a home and one can stay home to look after young children (if they want to) then there will be less and less children in our society (as is happening in NZ and globally - see South Korea for worst case scenario). I'm not advocating for mass population growth to fuel the fires of capitalism, but severe sub-replacement fertility won't end well and its just sad that young people can't live the good life due to the odds being stacked against them.
Hey its not all bad.. the planet is overpopulated, houses are too expensive and ai/automation is doing away with jobs.
Less people is the solution.
It will affect gdp.. but who cares as america and most their allies are broke anyway (america is now past the tipping point where they are borrowing to pay their debt).
So ultimately gdp matters less than the usa ability to continue to be allowed to run up more debt than they can ever repay .. so as to have the mightiest military so noone can challenge to usd
Basically less people is a good thing. The economy is defunct so having more people wont help it.
Why should parents on benefits be entitled to free childcare? They are literally being paid to sit at home and take care of their children, not put them into daycare so they can go down to the pub and have a session with their mates on the taxpayers dime. Same with stay at home parents, stay at home and take care of your own kids. Remove the subsidisation by workers, of people who dont need daycare but use it anyway to get half a week off looking after the kids, lower the cost of childcare by treating it as babysitting not preparing for Mensa, and the lower cost of daycare would then benefit everyone without costing billions of taxpayer dollars in subsidies.
While I understand your angle, you would never be able to police why people put their children into daycare therefore what you suggest is unfortunately not feasible, and if, for example, the current free childcare hours were removed, the centres will simply raise their prices to compensate for the loss of govt revenue they milk. They are a business after all. The sad thing is that two parents have to work these days in most cases in order to have children and afford a mediocre lifestyle. Look at the cost of rents rising, that is money straight from WFF into landlords pockets for a single income family with a child or more. Everything ties back in with the cost of housing. if we have affordable houses, we have a better society, but capitalism and greed seems to have scarpered that as the rich get richer and the middle continues to be squeezed.
Because hyper capitalism does not value the family and most two parent households cannot afford to have a parent at home with their children.
Ideally the "crown's" role is to serve the people by either regulating the extreme inequities, providing social services that negate the imbalances, or both.
You hit the nail on the head there. When women obtained more opportunities to work the world gained a huge increase in workers/resources/productivity in business terms. That cannot be done again, so the only thing business can do is squeeze more and more from the current available workers for productivity, and if it becomes uneconomical due to wage increases, or risk (each workers salary includes leave etc which is added as risk) then they will automate on a cost-benefit basis. We will soon enough have to change the way we think about work, pay, allocation of resources as they become more scarce, and if we don't do this then we will be forced to, be it from mass unemployment or sheer depletion of resources. Those who have high wealth and benefit form the status quo will push and lobby to keep the system and culture the way it is, so the focus then needs to be on mass reform and education so the aspiring leaders have 1./ The ambition and drive to make a difference and enact this, and 2./ The ability to influence the masses to demand said change.
People shouldn't be so entitled. They should find a $500 per week rental, and if they're lucky to earn the median wage of $30 per hour ($900 in the hand), they can pay the groceries, electricity, petrol, wof, rego, car/contents insurance out of the remaining $400. No, they should definitely not have an internet connection.
Using our very modest budget, $200 per week is what we spend on a basic grocery shop. So the remaining $200 should be more than enough for everything else......😂
What a mess the last Government left the country in and now Robertson has the gall to say that it is so bad that the new government cannot afford to do what they promised voters in the election campaign; that is, to provide workers with tax cuts. At least this government will keep their promises.
Actually, Labour is running scared that New Zealand workers will finally see for themselves just how much of a difference tax cuts will make to their take home pay. Forget Labour and their supporter's desperate rhetoric about these cuts only being good for landlords and high earners.
k
How much tax cut will you get?
“Now, we can reveal another harsh and unfair reality of their tax plan. ‘Mega-landlords’ would each likely make more than a million dollars extra from the removal of mortgage interest deductibility. Meanwhile, those who get disability benefits would see their incomes fall by more than $17,000 across the same period.
“Over five years, Nationals tax cuts would give $1.3 million to each of those landlords with more than 200 properties. This is based on the average benefit that landlords would get. Over five years this group of 346 mega-landlords would collectively gain nearly half a billion dollars in tax breaks.
https://union.org.nz/nationals-reverse-robin-hood-tax-plan-enriches-meg….
OK, lets break it down for those who are clever enough to vote to support the new government, but struggle with basic maths.
$1.3 million for each of the 346 landlords who have 200 properties over a 5 year period. That would be less than $1300 per landlord per house in tax savings. Sounds like perfectly reasonable numbers to me. $1.3 million multiplied by 346 is roughly $464m so that checks out. The only thing you could argue is that there isn't 346 landlords in NZ who own over 200 houses. But that personally doesn't seem that far fetched to me.
What exactly about those numbers are you disputing?
But Labour wanted all landlords to be "mega-landlords" - the whole build to rent strategy relied on massive taxpayer subsidies provided to BTR operators both for the build and the ongoing rental. Most of whom would be foreign owned so all profits would disappear out of the country. Why begrudge a few New Zealanders the money when at least they would be spending it in the local economy. And most of those "mega-landords" are community housing providers - those that bought the social housing off the Govt and now run them.
And how much do you think it costs the taxpayer to build 32,000 families a free house? Do you think the cost of providing social housing is free? We will soon see how many billions Labour sank into Kainga Ora once Bill English has finished. A few million given to landlords is far cheaper than spending billions on replicating the service that landlords previously supplied.
Only need to look at the effect of Labour's tenancy changes - in 2017 $35m was spent on emergency housing, under Labour that blew out to $365m or ten times the amount. That far exceeds the $22m in extra tax the Labour Govt got from landlords by eliminating interest deductibility.
Why begrudge a few New Zealanders the money when at least they would be spending it in the local economy
We should give more money to wealthy people who don't need help because it is 'good for the economy'.
I expect your thoughts on people spending their sickness or unemployment benefit are less charitable?
But you're fine with that money being given to overseas investors who will repatriate it to their home countries and spend it there. How does that make NZ better off? Someone has to provide housing, and whoever it is will need to be paid to do it. The only question is where that money ends up.
Over the past 4 - 5 years it's been close to 50/50 in dollar terms. But you're right, over the past 30 years the lowering of interest rates and increase in lending has kept stimulus off the public books.
- https://tradingeconomics.com/new-zealand/government-debt
- From $60b in 2019 to $160b in 2022.
- https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/new-and…
- From $260b in 2019 to $350b
"Indexing benefits to inflation"
Well, if that includes superannuation, that will be a huge cut in real terms over time.
I believe it's currently set to 2/3rds of the median wage? Wage inflation is typically much higher than CPI, maybe it will be easier to sell in the current environment.
NZ Super was previously indexed to CPI, until Labour changed it to Wages in 2020.
Labour were looking at changing it again earlier this year
https://www.nzherald.co.nz/nz/politics/govt-explores-raising-annual-ben…
"Treasury said Core Crown tax revenue was expected to be $1.6 billion lower across the forecast period and an extra $2 billion of bonds would be issued to cover the shortfall".
This is all nonsense as the issuing of bonds has nothing to do with financing spending. The money used to purchase bonds comes from central bank reserves and central bank reserves come only from the central bank and not the private sector.
The Reserve Bank itself shows this in its own website graphics here.https://www.rbnz.govt.nz/-/media/518b0156a77949d08cfee13723f98974.ashx
So you advocate the complete financialisation of NZ Gov debt?....possible, but not without consequence, especially when you consider what a NZD buys.
We wont have to close the borders (or perhaps we will, to stop the exodus) if we trash our currency.
Rock meet hard place.
It's the commercial banks money creation which devalues our dollar and taxation deletes the governments currency again after its spending. The government has the option of paying interest on reserves rather than issuing debt. We have the Treasury issuing bonds and then the RB using QE to buy them back again, completely pointless and just to maintain the charade of the government having no money of its own.
The government has (potentially) all the money they could ever want...BUT only to purchase that created in this fair land.
Sadly we create sweet fuck all that the inhabitants want so we need to import....and that requires us to consider the offshore value placed upon our currency...and the willingness of the rest of the world top bother with (only) 5 million (fussy) clients at the far reaches of the supply chain.
But by all means financialise our Gov debt.
Government spending is dependent upon the resources which are at its disposal and which can be employed in its unit of account the NZ Dollar and which is also a public utility. We don't use government currency to purchase our imports, we use bank created credit or broad money in the main and not government base money unless we are using notes and coins.All interbank payments are made by using the governments currency though and so some does end up in foreign accounts at the RB.
Economist Steven Hail has a good article which explains things here.. https://independentaustralia.net/politics/politics-display/albanese-gov…
"We don't use government currency to purchase our imports, we use bank created credit or broad money in the main and not government base money unless we are using notes and coins.All interbank payments are made by using the governments currency though and so some does end up in foreign accounts at the RB. "
And what is that bank credit that we can access in exchange for NZD?....when was the last time you asked for some Zimbabwe dollars, or Argentinian pesos for that matter.
The (euro) dollar banking system relies upon confidence in the ability to provide a return....bugger about with that too much and you will find yourself at the end of the queue to access the required (euro) dollars to participate...we are a small market with a very limited capability/capacity that wants to play with the big boys.....thats fine as long as we make it worthwhile for them....the moment we are more trouble than we are worth we will be dumped....and our currency will reflect that fact.
And the (euro) dollar system aint controlled by politicians
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