Finance Minister Nicola Willis is warning fiscal forecasts in the May budget are unlikely to look better than the half-year update delivered in December.
Speaking at the 2024 New Zealand Economics Forum at Waikato University, Willis said she was not relying on any economic improvement when preparing her first budget.
“Our cautious view is that the emerging data suggests it is highly unlikely that the full set of forecasts in May will deliver any upside surprises when compared to the Half Year Update”.
In a press conference after the speech, she said it could even turn out that the Government has less fiscal headroom than was forecast three months ago.
“We're not planning on the basis of more money in the kitty. We don't see that we're going to be flush with cash”.
Willis said higher interest rates were having an effect on employment which would have a “profound human impact” and “make a dent in the Government’s books”.
Some economists are expecting the Reserve Bank of New Zealand could raise the Official Cash Rate above its current 5.50% level. This would have a negative impact on the Crown accounts.
When asked if she was “softening New Zealanders up” for more spending cuts, she said she was just communicating openly about the challenge the country is facing.
Crown accounts for the six months ended December, released on Thursday morning, showed core revenue was tracking slightly ahead of forecasts while spending lagged behind.
This resulted in the operating balance before gains and losses (OBEGAL) running at a deficit of $2.7 billion, which was $1.2 billion smaller than was forecasted at the half year update.
Net debt was at $87.1 billion, or 21.7% of GDP, and was almost 5% lower than forecast.
Willis said monthly updates “may well bounce around a bit” but she was not expecting the books to stay ahead of forecasts.
Tuning the engine
Much of the Finance Minister’s speech was focused on the Government’s work to “tune-up New Zealand’s growth engine”.
This would include removing regulations, lifting education standards, growing export opportunities, building infrastructure for energy, transport, and housing.
“We want our country to be seen as a haven for talent, capital and innovation. Open for business and hungry for investment. The make-it-happen capital of the Asia Pacific,” she said.
A Budget Policy Statement will be released on March 27 and the first coalition budget two months later on May 30.
Willis said she had taken up an offer from the Treasury to “review or refine” the fiscal rules which are set by the Government of the day and set limits on spending.
“I think that the previous government fiddled around with the rules in such a way that it was a game of smoke and mirrors, to hide how badly deteriorating our fiscal performance was”.
“We saw the surplus slip, slip, slip away, so yes, we are giving consideration to firmer fiscal rules that provide more transparency and accountability”.
The current fiscal rules set a net debt cap of 30%—this provides a buffer for crisis spending—and requires the Government to maintain a small surplus over time.
Some commentators think the debt cap was set too high and the surplus target wasn’t specific enough.
Immigration cap coming?
While not mentioned in her speech, Willis said during the press conference that she saw the “immigration influx” as a challenge and the Government would change immigration settings.
“We don't want to be in a situation where New Zealand is taking in huge numbers of low skilled migrants when we actually have New Zealanders who need to be in jobs … as unemployment rises”.
“So, we are going to be tweaking those settings and you will hear more from us about that”.
Willis wouldn’t commit to a cap on inward migration but noted many of the work visas had been issued to low-skilled migrants. That was where Ministers were focused, she said.
108 Comments
This government has told the public service to stop creating documents on what their policies will do, as they will not read them.
They specifically ruled out any cuts to heath and education throughout their campaign, and when in immediately said the Ministry of Health and the Ministry of Education needs to cut spending by 7%.
Whoever is in the driving seat of this government doesn't give a toss about NZ or the truth, just their wealthy backers.
Of course, but they were open about it. That's why I voted for them, I don't rate any of our politicians in which case may as well choose the one that is best for you financially.
Oh and this “We want our country to be seen as a haven for talent, capital and innovation. Open for business and hungry for investment. The make-it-happen capital of the Asia Pacific,” she said.
Let's come back to this in a few years and see how much progress they made.
As someone who had family in the MoH during the COVID madness, i can tell you the bloat in that dept was immense. Big numbers taken on and floors expanded to other buildings for extra staff initially to work on the possible cannabis bill that may have been pushed through if the referendum went through, then all the extra staff working on the end of life bill too. Add in covid response teams, and large numbers of all of these staff taken on by the dept, not as consultants, and then they have to try redeploy them before terminating the contract which can be tedious. Salaries went up and up for 2 years, numbers didnt really drop drastically of staff. They need a haircut
Exactly.. simultaneously RBNZ and the govt are fighting each other and ultimately just causing things to get worse.
Govt.. lets spend, increase immigration, try to raise house prices to grow the economy. And offer tax cuts
RBNZ .lets raise interest rates to cool the economy
Ocr might actually get hiked.. as a warning to the govt to pull its head in.
First on chopping block should be Captain Jacinda's non-binding $30 billion spend on climate homeopathy.
"That sum could buy dozens of new kindergartens or police stations or whole hospitals with medical schools. It could eliminate poverty or overhaul our decrepit education system. It could way over-fund the National Party’s tax cuts, for decades. It could even fund New Zealand’s yawning infrastructure deficit.
Instead, the Ardern Government in 2021 offered to donate this gargantuan sum to the acquisition of international carbon credits as part of its 2021-30 “Nationally-Determined Contribution” (NDC) under the UNFCCC Paris Agreement on Climate Change.
This unmatched generosity had no mandate. It formed no part of the Labour manifesto in the 2020 elections. It was not the culmination of public consultation or any kind of public debate. It was obviously not budgeted. Despite its avowed pre-emption of subsequent governments, it made no pretence at all of being multi-partisan.
Parliament – which was suspended at that time because of Covid-19 lockdowns – was not consulted or even informed. Nor was the Labour Party’s own caucus or policy committee.
But, most unusual of all, was the fact that the Cabinet rode roughshod over the unanimous opposition of all of its officials and advisers."
https://www.bassettbrashandhide.com/post/barry-brill-an-absurd-ardern-a…
"The achievement by a party of its NDCs is not a legally binding obligation."
https://www.c2es.org/content/paris-climate-agreement-qa/
First on chopping block should be Captain Jacinda's non-binding $30 billion spend on climate homeopathy.
Team Cindy was way out of control. But their confidence of being untouchable was so strong. It wasn't just the big issues. The little behaviors illustrated it. Appointments of Goff and Mallard to their positions in UK and Ireland are examples. Taking us all for a ride. Problem is that these people actually believed in their value.
profile,
I agree. I have asked quite a number of people about this commitment and all were horrified/in disbelief. It must go.
However, I saw Barry Brill's name on one of the links and wouldn't give credence to anything he said. I had dealings with him over 10 years ago on his climate views.
We don't want to be in a situation where New Zealand is taking in huge numbers of low skilled migrants when we actually have New Zealanders who need to be in jobs … as unemployment rises. So, we are going to be tweaking those settings and you will hear more from us about that
"Hmm so higher unemployment means less tax and more spend on benefits. Maybe if we then spend even less on public jobs, raise unemployment further and have an even lower tax take, choke local business, then balance that with even higher benefit numbers then that might be a good solution? Whadaya reckon Luxy?" Willis said, uncertain of the meaning behind any of the words she was happily spraying the nation with.
"Whatever makes the houses go boom, Nicola! Did you not hear what our donors said!? Fewer people in jobs, more low skilled immigration and downward pressure on wages. That way the rents go up." he replied hurriedly, as if not thinking through his response at all.
"But how do we tell the public that's our plan?"
"I don't know, just make stuff up!"
That's the problem. We're have a top-heavy system where the central government of the day has control over every critical part of the economy. Forget long-term infrastructure investments, we can no longer even get basic road maintenance underway without getting into a heated political debate, going through enquiries, and bureaucrats and politicians blaming each other.
The government collected nearly 2x in total taxes in 2022 than it did in 2012 (134b vs 69b) and yet cannot afford to fund the basic upkeep of our social system and infrastructure.
Time to wipe the slate clean and begin a new system, and I have the answer. Abolish central government. Create 4 states for NZ and each state take care of itself. I know there’ll be details to sort out (foreign affairs, international trade, etc, etc) and I do have answers for some of that.
It’s time.
We want our country to be seen as a haven for talent, capital and innovation
By repealing the handful of half-decent policies introduced by the previous government to improve the woeful housing and infrastructure situation in NZ?
Why would someone want to bring their talent or capital here when all we have to offer is mediocre (and worsening) policies, infrastructure and business environment. We're small and isolated, but counterintuitively are also becoming more inefficient and less agile as an economy.
It's like trying to sell a small hatchback that costs a fair amount, runs on outdated technology, burns through a lot of petrol and is difficult to manoeuvre. The worst part being that the management is always infighting and there is never common ground on how to fix any of its design or engineering issues.
State of Nation 2024 report paints a bleak picture for New Zealand (msn.com)
Nothing wrong with a small hatchback,just ask Nicola...
Willis said Kiwirail was effectively paying for a “Ferrari… and now we’re going to go off and see whether there are any good reliable Toyota Corollas available” to cut costs.
The hilarity is that the muppets that run the ferries didnt scope out the project correctly and came back asking for another 1.5 BILLION dollars.
The govt has to say no.. and should fire the board and project team. Imagine they send a message its ok for everyone to keep asking for a few billion morw for prebudgeted projects.
This, fletchers etc makes one wonder just how incompetent our nz boards are.
watched it today and they never wanted to build the wellington terminal in the new location and that is what blew out the cost, they were told to by the centreport and wellington council as they wanted the land the current terminal is on.
second they even asked the question why are we kiwirail building port terminals? that seems to be the minister of the day's idea WP
it should be the port companies and council's with government help that should have built them (and opened them up for competition to allcomers) air new zealand does not build the airline terminals they use on the local destinations, most trucking companies lease their depots from private landlords,
wellington and picton should have 1 terminal for both bluebridge and interislander same as an airport or major bus terminal, with a mooring nearby for ships not ready to load.
Why would someone want to bring their talent or capital here when all we have to offer is mediocre (and worsening) policies, infrastructure and business environment.
Bang on. NZ is good for golfing holidays with some good grub for those that seek that pleasure. But that's pretty much where it ends.
"We want our country to be seen as a haven for talent, capital and innovation"
Haha heard that all before. This is what they say but what they will do will be all about supporting the property market and that's where investment will go, not into any thing innovative.
interest.co.nz chart seems to say employment is still on the increase, so tax take should still be going up, unless pay rates are going down?
https://www.interest.co.nz/charts/labour/unemployment -> employment growth %
Must be her English Lit and Journalism qualifications coming through. Skills in waffling and twisting words, not so much in numbers and critical thinking.
Don't forget her Fonterra experience. Govt affairs or something. Sounds like little more than schmoozing to me.
It must actually be pretty difficult for them both being so visibly in On-the-Job Training mode in such high-profile roles.
I was amazed at Simeon Brown's words re the consistent global experience of induced demand on roads, "I understand the theory but..." [this time it'll be different]. Comical.
I don't think anyone was ever claiming or pitching that Jacinda was business person. Both Simeon and Nicola were touted as private sector high flyers.
To be clear I don't think you need experience in an industry to be a minister of that industry, but if you do not have experience the first thing you should do is listen to the civil servants that are familiar with the issues and can offer a range of solutions.
These arrogant f****tards didn't even bother to read up their portfolios before they got the job and are making decisions based on ideology. They are specifically rejecting policy impact statements because they don't want to hear the evidence. It sort of fits with the religious fundamentalism of the party leadership.
They epitomise the arrogance of those that voted for them, people who think everything fits with a simple narrative govt=bad, civil servants=useless, private sector=better, poor people=waste of space, environmental regulation=woke.
If it doesn't fit this narrative they ignore the evidence.
“profound human impact”
“We want our country to be seen as a haven for talent, capital and innovation. Open for business and hungry for investment. The make-it-happen capital of the Asia Pacific,”
What does it even mean? How does it solve any of our current ills? More golf resorts, more "elite" suburbs and towns, more selling off to the highest bidder, more power and control by authoritarian financial institutions and globalist corporate behemoths? Almost everything the non ignorant seem to be pushing against.
So just another ideology, same as their previous investment banker "leader", with no concept of the human impact. Face it, chasing capital, investment and innovation for the sake of it just further seperates from the human being. Monetary policy and fiscal policy does not care about the human side of anything. We think we elect representatives of us, who only care about their positions of power, ego and money.
Eight House Helen put it much better.
"Our hope is that a new national confidence is emerging about our ability to move forward. The importance of such national self-confidence and common purpose has been stressed by speaker after speaker as basic to finding and uniting around unique solutions that are appropriate to who we are.
"We have achieved a clear mandate from the conference to take this project to the next stage," Helen Clark said.
"We need all New Zealanders to understand that they will only be better off on all dimensions, that we will only 'create Kiwi prosperity' - the by-line of the conference - if we do achieve a step-change in our economic growth performance," said Dr Hood.
"One of the aims of this conference was to raise national consciousness about some of the priorities we need in order to secure economic growth and the reasons for them"
https://www.beehive.govt.nz/release/knowledge-wave-conference-statement…
That conference in 2001 had the right idea of where we should go and the opportunities ahead. As a 21 year old at the time I followed it and was excited by it's prospects. But pretty soon afterwards we instead just got into buying and selling houses off each other for higher and higher prices and that's where the money went instead of knowledge and innovation. What could have been.
Twenty years later and the primary industries who were purposely not invited as they have no knowledge what so ever and had been sunset industries for 15 years. Noww produce 82% of exports from 6% of GDP by 4% of the work force. WTF have the other 96% of workers been doing?
Most advanced economies have left the 'money jar is empty' grandstanding behind. This comfortingly familiar (yet false) analogy is cover for a gleeful shrinking of the State by ideologues who genuinely believe that small Govt + scant regulation will supercharge capital and private enterprise. The rising tide will float all boats. The blind faith is strong. Hallelujah. Let us honour the memory of the misunderstood heroine Liz Truss. Join me next week at the church of the NZ Initiative.
This batshit crazy Govt is not only committed to reducing Govt spending, but to running a surplus as we barrel into a recession. A Govt surplus is literally, explicitly and mathematically a reduction in GDP - a weight round the neck of the economy. Countries with current account (trade) surpluses can get away with running a budget surplus without pushing the private sector into debt, but, errrm, have you seen the size of our current account deficit?
The basic equation here is:
Current Account Deficit + Govt Surplus = Increase in Private Sector Debt (or decrease in savings).
In other words, the Govt's fiscal and economic plan literally relies on huge increases in private sector debt. Well, guess what? People and businesses have basically stopped borrowing. Net increase in private sector debt has averaged 7-8% of GDP since 2012, but last year it was about 3.5% of GDP and this year it looks like being even lower - maybe 3.3%. Something will have to give. That's why I am so confident in my 'recession for longer' call. The Govt's fiscal and economic strategy is creating a recessionary doom loop.
Mmmh. Is this the belief that if the government builds a house with magic up money then it doesn't cost us somewhere somehow?
And yet if I build it, I end up with a house but diminished asset somewhere else.
Then there is the parallel analysis based on the use of the physical resource not the 'money'
If Govt builds a house, then the cost to the country is the materials and labour required to build it. Govt also pays interest (by choice) on the money that it has spent into the economy (to build the house) - until the money is taxed back. The key thing to understand here is that Govt goes into 'debt' when it spends money. Govt spending creates private sector financial assets.
The two critical questions for me are:
- Has the Govt consumption of the relevant materials and labour prevented something else happening that is more important?
- Will the money being spent into the economy mean that demand for stuff exceeds supply (creating inflationary risks)?
In wartime, we had all of this sorted of course - on question (1) Govt decided that dedicating more labour and materials to the war effort was critically important, and, on question (2), Govt used taxation and incentives for private saving to make space in the economy for the extra demand. In fact, in most countries, the private savings was literally the Govt debt. The public saved in war bonds.
Bingo!! Govt creates Govt debt (private sector financial assets) when it spends money into the economy. Govt then offers the private sector the opportunity to swap some of those financial assets for bonds.
The proof is in the pudding here though. So check this out: When Govt sells a bond, the Govt debt does not change a dollar. So how can that bond sale be borrowing?
The government sells some bond for a dollar. It receives the dollar. Somebody now has that bond.
Until the government repays that dollar to the bondholder the government owes the bondholder. Which is a debt until it does so.
That government debt has increased one dollar.
A current account deficit basically means that more NZ dollars (or dollar-denominated Govt bonds) are owned overseas. Think of the current account deficit as an increase in overseas savings in NZ dollars. So, if we run a current account deficit of $10bn, then the amount of NZ dollars owned by NZ people / businesses reduces by $10bn.
A Govt budget surplus is what happens when Govt takes more money out of the economy than it has spent into it. So, if Govt runs a budget surplus of $10bn, then the non-Govt sector will be $10bn poorer.
So, if Govt runs a budget surplus of $10bn and we have a current account deficit of $10bn, then the NZ private sector has to get $20bn poorer. The NZ private sector can get $20bn poorer in two ways: (1) they can reduce their dollar savings by $20bn, or (2) they can increase their borrowing by $20bn (or a mix of the two).
The Helen Clark boom years pre-GFC show this very clearly. People and businesses were borrowing vast amounts of money (15% of GDP) and this flow of credit money into the economy meant that we could run a higher current account deficit (around 7%) and a Govt surplus of around 5% of GDP.
It's not foreign ownership of NZ bonds that funds our current account deficit though, it's how they fund the NZ$'s required to settle. If a foreign buyer funds via a repo then that does not fund the current account. Mostly a real money foreign buyer will fund via the cross-currency swap and this is the best gauge of a nations external accounts. Kauri bonds are a good example of us funding our current account via the cross currency basis. The basis curve works by moving so far that a forein buyer receives relatively more return in US$ (or whatever) than the same credit in their market. So the basis sucks foreign reserves into NZ$, similar to a floating currency.
As for a budget surplus and current account deficit, I'm not sure I see the correlation. I would have thought they would be negatively correlated in that a leakage would supress domestic demand not increase it.
You are talking about 'funding' things. But, ultimately our NZ dollar economy is made up of three interlinked balance sheets:
- the rest of the world
- the domestic private sector
- the NZ Govt
When the NZ Govt goes into deficit, one or both of the others go into surplus. Does that mean that Govt is 'funding' the others when it runs a deficit? When commercial banks pump $20bn of newly printed money (net) into the economy - expanding the balance sheet of the domestic private sector ($20bn extra cash to spend and $20bn extra debt) - are the banks funding the private sector, or the other way round?
Genuine questions by the way - just trying to work out what you mean by funding.
The point I am making is there is limited relationship between Government accounts and external accounts. We can, and have, had any combination of domestic surplus/deficit and external surplus/deficit. A terms of trade shock can move the current account from surplus to deficit (and vice versa) regardless of Govt spending (look at Australia with their first current account surplus in nearly 40 years).
My point on funding is the current account has to be funded by our capital account and our capital account has little do with domestic surplus/deficit. Our capital account is in surplus as we have to fund our accumulated current account deficits.
Ah, I see. What I am saying to you is (to borrow a phrase) that over any given period of time you CANNOT have a current account deficit and a govt budget surplus without the private sector getting poorer / going into greater debt. That's just maths. Similarly, you cannot have a current account surplus and Govt deficit spending without the domestic private sector getting richer (debt reducing) - hello Australia last year.
so your two critical questions are correct - and we appear to have got FA from our increase in Govt expenditure and the associated increase in govt debt - so really really low value return
I dont really care to much if they balance the budget but it would be nice if we got a serious focus on and increase in operational efficiency - across the board for the next 5 -10 years.
Starting with better budgeting of $$ and time and then meeting those budgets and timelines - and at the agreed standards. and this is for every sector including the Fletcher's of this world and local bodies like WCC.
It is impossible to judge the merits of a task if the budget is wildly inaccurate and impossible to hold people accountable if there is no timetable. The CEO of Fletchers should have been required to tender his resignation, ditto Mr Orr, ditto the head of Wellington Water. No demanding accountability means we will continue to drift
What did we get from that increase in Govt spending? We got the money the Govt spent - more dollars in our economy that we can give to each other to do stuff. But, yes, it would be much better if Govt spent money (more money even) on the things we actually need in the future - water pipes, houses, electrification etc. At some point they will work out that the market ain't going to step up and magically provide these things.
Nah. The only reason we need to expand infrastructure is our immigration is driving demand. In the west population is in decline.
So.. less immigration..less houses hospitals etc..
If the immigrants were high value to the future economy and outweighed the cost to expand our infrastructure and pub. Services.. fair enough.
but they arent
He didn't say expand infrastructure he said spend on infrastructure. Lots of the current infrastructure is either failing or will fail soon. The bulk of new infrastructure spend would be to reduce future maintenance costs e.g. more cycleways means less future money spent on maintaining roading (which is super expensive), same with water.
The bulk of our infrastructure spend is going to be on repairing/maintaining infrastructure assets.
Willis enjoys No or negativity. Same as rest of Govt front bench.. Little in the way of policy, and look very likely to be like the 2008-2017 Govt, drift along and smile. I grimage at the still warm regard for English and Key, both offered little outside verbals
Deliver on tax front, get on with infrastructure and try to live up to Luxon evidence based policy promise , unlikely with Mitchell and Bishop prowling around.
Style over substance. So long as their wealthy donors get their wishlist they can cruise along clipping the taxpayers ticket and then get a cushy job working for one of their wealthy donors firms.
The UK Tories do the same thing, I don't know how kiwis fall for it.
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