Finance Minister Nicola Willis’ mini-budget was a bit of a fizzer in the end.
Even though she and Prime Minister Christopher Luxon worked to lower expectations by adding more and more repetitions of the word “mini,” it was still underwhelming.
Luxon wasn’t even in town for the announcement and there were fewer journalists and financial analysts than usual as well.
Treasury’s forecasts were finalised before the coalition Government was formed, and very little new work was able to be done in the three weeks since Ministers were sworn in.
This meant all of the fiscal and economic predictions in the document reflected the policy positions of the previous Government.
Westpac economists Kelly Eckhold and Satish Ranchhod said the update showed stronger population growth and higher financing costs causing larger deficits and more debt.
“The Government has a lot of work to do to flesh out their policy programme and then implement it in a substantive way,” they said.
A list of coalition policies announced alongside the document were not new and weren’t incorporated into the long-term forecasts.
Grant Robertson, Labour’s finance spokesperson, dubbed it the “Nothing Burger” budget.
“New Zealanders go into Christmas none the wiser as to what the economic plan of this Government is, or how those tax cuts are going to be paid for,” he told reporters.
“We were also told that we would know the details of the cuts to public services, that were going to be used to fund tax cuts, that’s not in here either.”
Governments usually release a Budget policy statement, alongside Treasury’s half-year update, which sets out the priorities and parameters for the next Budget.
Willis said the incoming Government hadn’t had enough time but would deliver a “considered, thorough” policy statement in March.
The Public Finance Act requires the statement be presented to Parliament no later than March 31 and include a fiscal strategy report.
Jordan Williams, executive director of the Taxpayers’ Union, said the mini-budget wasn’t really a budget and a microscope would be needed to see any new announcements.
However, he was concerned about a number of new fiscal risks which had been added to Treasury’s document but were not included in the pre-election update a few months ago.
One example was the Interislander ferry cost blow out, which was flagged in the pre-election update but without a specific dollar value.
Willis has asked Treasury to make its reporting of fiscal risks more transparent, including some quantification where possible, and to collect one single list of time-limited funding.
The Finance Minister provided a list of 21 examples of material policies for which funding would expire during this Parliamentary term.
Interest.co.nz was able to find all but two of these disclosed in the Budget 2023 document.
Willis also backed a recent Auditor-General recommendation that Treasury should give more public updates on the progress of large capital projects that have had Cabinet input.
Down in the detail
The meat of the mini-budget was a set of coalition policies that would improve the Government’s fiscal position by $7.47 billion over the forecast period.
Cancelling a set of Labour Party policies and projects delivers the first $2.6 billion.
This includes stopping work on Resource Management Act reform, Wellington’s transport plan, free childcare for two-year olds, and half-price public transport for young people.
Tax and income changes save a further $2.8 billion. This comes from removing commercial building tax depreciation and indexing most benefits to inflation.
Finally, it scraps a number of projects funded through the Emissions Trading Scheme and redirects $2 billion of money back into the general Crown coffers.
This includes ending the Decarbonising Industry Fund and returning any money left in the Climate Emergency Response Fund and the National Land Transport Fund.
Willis also announced some broad details of the public sector spending cuts, although the exact amounts are not yet known and the work hasn’t been done yet.
She said Ministers had been asked to find roughly $1.5 billion in annual cost savings from their agencies collectively, with each individual target being “informed” by headcount growth.
The $1.5 billion figure was a combination of Labour’s savings programme, $400 million in contractor spending cuts, and National’s campaign promise of roughly 6.5% budget cuts.
Miles Workman, an economist at ANZ, said there wasn’t much of a signal about how the coalition’s policy agenda will net out for the economy.
The new Government would face some “very tough decisions” over the next few months to maintain the tiny surplus, $140 million, that has been forecast for the year ending June 2027.
Stephen Toplis, head of research at BNZ, said there had been some questions about whether the worsening fiscal position would prevent the tax cuts from going ahead.
“We think, more generally, that fiscal restraint will probably need to be even greater than currently postulated due to the impact of the weakening economy on the tax take.”
Toplis also noted that New Zealand’s net debt track remained “relatively well behaved” with a peak at 23.3% of GDP.
“It will probably end up higher but does not look particularly bothersome,” he said.