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.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.