Finance Minister Nicola Willis told Parliament’s Finance and Expenditure Committee that Government borrowing would increase but not as a direct result of her government's tax cuts.
Willis appeared before the Committee on Thursday morning to answer questions about the Budget Policy Statement published late last month.
Opposition committee members, Barbara Edmonds and Chlöe Swarbrick both questioned the Minister over her seemingly contradictory views on debt and tax cuts.
Edmonds said Willis was on the record saying government debt was too high and unsustainable, but had also confirmed borrowing would increase in the future.
“Do you believe you wouldn’t need to borrow more if you didn’t have to pay for tax cuts,” Edmonds asked.
Willis said current debt levels were prudent in the sense they weren’t “putting New Zealand on an unstable footing”, but she still wanted debt to be on a downward trajectory.
“Yes, we will be borrowing but debt as a proportion of GDP will continue to decline,” she said.
Edmonds asked if commentators were correct that tax cuts would cost roughly $15 billion, but Willis wouldn’t answer directly.
She did admit the Government would be borrowing money, just not directly for tax cuts and not enough to increase the debt to GDP ratio.
This argument relies on the assumption that she wouldn’t have reduced public sector spending, or raised new revenue, if tax cuts weren’t on the table.
Swarbrick said since tax cuts reduced the revenue forecast to flow into the Government coffers, it could be argued that Willis was effectively borrowing to fund the tax cuts.
If the tax cuts were abandoned, the Government may be able to borrow less money.
Willis’ answer was that “there were trade-offs” being made and also that economic conditions would cause fluctuations in future revenue regardless of tax settings.
Swarbrick also asked why the Budget Policy Statement had not revealed the operating allowance for the upcoming budget, as most others had in recent years.
Willis said the allowance hadn’t been finalised because some policy choices hadn’t been made yet and some estimates for the costs of those policies hadn’t been finished.
These factors, and “fluctuating” economic forecasts, could affect the final size of the budget.
Neutral-ish
Speaking to reporters after the committee meeting, Willis said it would be unsustainable to remove income tax threshold adjustments from the wider package.
She said some commentators were asking her to do all the spending changes and all the new revenue measures, but then not return a “dividend” to taxpayers as promised.
“I just don’t think that is sustainable over the medium term, and I do not want to be a Finance Minister in a government that breaks that significant commitment to New Zealanders”
Tax threshold corrections were already long overdue, she said. The median full time salary earner was now paying over 20% of their income in tax, up from 15.5% in 2011.
Willis reaffirmed the full tax package would be fiscally neutral, meaning there would be no additional borrowing than would’ve happened without the full package.
“We will be spending less in this budget, in terms of the size of our operating allowance, than the last Government was planning,” she said.
Budget 2024 will be delivered on 30 May and will have an operating allowance of less than $3.5 billion.
101 Comments
The tax cuts will be tiny and stimulate the economy meaning OCR stays higher for long, and that extra 1% on your mortgage interest will be much bigger then any tax cut.
National are doing this because they said they would, not because its best for NZ right now.
I guess points for dumb minded execution but actually just pay the damn Police a decent wage.
Good point. I believe poor policy decisions from the current and previous governments have baked in massive cost increases for households already.
Council rates are going up around the country by 15% on average.
MBIE's ill-timed removal of the low electricity user option is still being phased in by most retailers. I shopped around this morning for a new power retailer, and everyone now has a $1.05 daily fixed charge compared to 30-40c a year ago. That's an additional $240/year, not counting the small increase in tariff I will be paying compared to a year ago.
Gas charges are up with ComCom allowing gas retailers to recover their capital costs faster since gas supply to households and commercial users is to be phased out sooner.
Toast is a relatively new, not-for-profit retailer - just checked Powerswitch and they are the same price as my current - but a very good cause from a business model point-of-view;
"gas supply to households and commercial users is to be phased out sooner." Any idea about time scale? About five years ago I requested the Minister to pay for my natural gas total disconnection at my house. Around $1000. No. So much for their Green credentials in trying to get away from fossil fuels.
I must agree. Considering the current inflationary pressures, tax cuts are not what the NZ economy needs right now, and they will be working against the current efforts by the RBNZ. As you said, such cuts will be more than offset by upward pressure on interest rates and inflation-driven increases.
Have you used the national calculator to work out how better of you’ll actually be? I like to think I make a pretty good amount per year. I’ll be getting a whopping $20 extra per week. Quickly absorbed by rate/insurance rises plus Nationals vehicle registration levy (not a tax)
It's so embarrassing being a New Zealanders and watching this play out.
We have literally just seen these policies fail in the UK over the last decade, it's reminiscent of the first world war when the generals just kept sending people over the top and not being able to work out why it wasn't working.
In Truss and Willis we trust.
We get you voted them in and are now embarrassed by your choices, but there is only so long you can squeal I don't care that my guys are really really shit because your guys were terrible.
Grow up and play the team in power who are actually making these decisions.
Actually didn't you resign from the comments section for good?
Nah, the middle class are being screwed by tax bracket creep. There is a big debate going on in Australia over this and consensus is the income tax bands must shift.
The landlord tax relief was a big mistake, that should all have gone into the hands of PAYE earners.
Don't forget the fact that most Kiwis earning below median wage are eligible for, and therefore likely on, some kind of government welfare payment. They should have received a CPI/LCI bump in their welfare checks starting 1 Apr, which is a higher % increase in overall take-home amount than what the proposed tax cuts bring to average earners.
For reference, MSD reports that 1 in 11 working-age Kiwi is on a "main benefit", i.e., this number does not include superannuation, accommodation supplements, WFF top-ups, etc.
Hilarious! Willis's word soup will see dictionaries worldwide updated.
But on a more serious note - government shouldn't cutting spending at this time as it will only make things worse. Not sure that handing money to voters and landlords is the best way of spending the money though.
A government financial deficit must equal a private sector financial surplus and that is straight forward accounting because we spend and save the governments money and not the other way around. https://en.wikipedia.org/wiki/Sectoral_balances
Hold up. Surely if they didn't embark on tax cuts, they'd at least be able to borrow less if not negate borrowing completely. Just because she says "it's not for tax cuts" does not make it true.
A bit like me saying I'm not borrowing money to support my gambling addiction because I spend my pay check on the pokies and use my credit card to pay the bills......therefore I'm borrowing to pay the bills.
Income taxes are only envy taxes levied by those old enough to have received assets affordably from previous generations, but who lack the skills to earn adequately in the new knowledge economy.
Nothing more socialist than the universal old age benefit and landlord rental yield welfare subsidies. Always got their hands out, socialists.
https://www.stuff.co.nz/national/politics/132934574/nationals-nicola-wi…
Asked if she was willing to borrow money to fund National’s tax relief, Willis replied: “We will be able to deliver it without borrowing... we are confident we can.”
But Luxon and Willis have remained vague on key details that underpin this policy. The party is refusing to release the models it used to balance these costs, with Luxon telling reporters on Wednesday: "We’ve given you all you need to see.”
Willis said: “I'm not going to start a novel political practice of releasing Excel spreadsheets.”
You are not a sovereign currency issuer though with your own central bank. The government spends its currency first and then it taxes it back again and cancels it and some of its currency it withdraws from our commercial bank exchange settlement accounts in the Reserve Bank and holds as bonds but this action does not finance its spending. https://www.levyinstitute.org/publications/can-taxes-and-bonds-finance-….
Borrowing is purely a money go round within the reserve bank and between the bank and the treasury and it all takes place on the governments own balance sheet. Government liabilities are created when the government first spends and not when it issues debt. Taxation doesn't give the government anything to spend, it only deletes currency and reduces the governments liabilities and also our monetary base. One purpose of taxation is to reduce inequality and so who receives the tax cuts is the more important question.
The reserve bank displays the operation in figure 3 here. https://www.rbnz.govt.nz/-/media/518b0156a77949d08cfee13723f98974.ashx
This website tells a more 'traditional' story regarding government borrowing - https://debtmanagement.treasury.govt.nz/about-us/borrowing-basics/borro… . How does that correspond with your broader monetary perspective?
Also you didn't seem to answer either of my questions. The OP was pointing out the folly of Willis telling stories regarding government debt - in that she is not borrowing for tax cuts but for something else that 'isn't her fault'. If you agree that government debt should be limited (even if only to control inflation), then how exactly the debt works is beside the point.
The treasury item is misleading as for whatever reason the government borrows it is not to finance its spending. Borrowing is anachronistic and dates from a time of fixed exchanged rates and before our dollar was floated. I am not defending anything that Willis says or does as I don't agree with her.
An article here from University College London, it pertains to the UK but our system works much the same. https://www.ucl.ac.uk/bartlett/public-purpose/sites/bartlett_public_pur…
Get your facts straight.
NZ Super is one of the most affordable in the developed world, right now and even considering future projections.
Treasury figures show government spending on superannuation is around 5 per cent of GDP, and according to the OECD, this is well below the average across the developed world.
The only fact I gave was the size of the Super fund, did I get that wrong?
Yes, relatively cheap at the moment, but will grow significantly over time. Already for every $9 I pay in tax, more then $1 goes to super - that's a lot of spending unavailable to pay for everything else society wants. Maintaining payments to all, from 65, will become increasingly untenable.
John Key was on the record emphatically ruling out a rise in GST prior to the election, and went ahead with it anyway.
Nicola Willis is on the record ruling out borrowing to fund tax cuts, and appears to be going ahead with it anyway.
“We will be able to deliver it without borrowing... we are confident we can.”
“I just don’t think that is sustainable over the medium term, and I do not want to be a Finance Minister in a government that breaks that significant commitment to New Zealanders”
...should that not read "I won't be the finance Minister if we break that commitment, as I promised to resign if the tax cuts weren't made...
Christopher Luxon cunningly working his way into politics, and then all the way up to Prime Minister so that he can feather his own nest and give tax cuts for him self (with his 7 properties) and all his crony friends. I'm surprised the Guardian hasn't picked up on this and written a long article about it, as it is capitalism at its worst.
Property speculators borrow their own money from commercial banks and no one else borrows anything. The governments fiscal balance creates no liabilities at all for the country as it spends only in its own issued sovereign currency. https://www.theguardian.com/books/2024/apr/02/outdated-and-misleading-i…
having read the comments here I am glad you people are not politicians - or in Wellington making decisions
tax cuts - promise made - dont deliver will be a deal breaker for a large number of voters
and its clear that lots of Govt expenditure is pretty low value - in the current environment people will make better (higher value choices) even if just paying the rates bill
we need more tax cuts -fix the bracket rules, less govt operational expenditure so smaller govt and more infrastructure expenditure. Swapping govt operational expenditure for tax cuts is unlikely to be inflationary given the current mood of pessimism. Infrastructure expenditure could be but likely very minor
My concern is that the tax take will actually prove to be higher not lower after the cuts, so my question - why should I continue to invest in NZ when Govt keeps taking a bigger slice while making life difficult to operate. Both need to be fixed and now not on the never never next year plan or we just slid further towards small pacific island status
pretty sure what individuals spend is subject to GST and despite not paying company GST my contribution to the Treasury has been significant over the years
having owned and operated current business here since 1997 and grown it from a small to large operation I understand what is needed here in NZ to get people to invest in productive operations (and I dont mean houses). Right now I would not and do not invest in NZ. that might change if it looks like the Govt can stick to a plan and actually meet its commitments. Currently the jury is out and one reason is that the PM is a task focused person (not necessarily bad) but doesnt seem to be a strategic planner so where NZ Inc is heading is a little unclear
More mature economies such as the US have been honest about the tax thresholds for many years.
“The Internal Revenue Service today announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes.”
www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-yea…
My fear is that govt cut backs / reduced spending will cause pileups and multiply problems instead of solving them. Are other companies embracing the govts spend less expect more policies? Could be a dangerous mix. I think you can pull off certain activities when you have liquidity but when liquidity is short sometimes the best course is to plow on and seek a longer term return because shooting yourself in the foot is never a good look.
Who were our last decent finance ministers? I though Bill English was alright, and Michael Cullen perhaps.
Grant Robertson, I'm not sure. The whole money printing through covid thing is not looking so pretty in hindsight. Maybe a bit hmastrung when the most popular PM in a generation is saying things like no new taxes.
I'm just waiting for the shit to hit the fan to give an excuse for the famous Bill English googly: GST to 17.5%
I was horrified to see Chris Bishop on the news tonight saying the reintroduction of no cause terminations will mean landlords have more confidence to make investment decisions, leading to an increase in overall rental supply. Somehow this was pitched as a desirable outcome. No mention of the fact that unless new builds are keeping pace, this could come at the expense of fewer people owning homes. We need less rental accom if anything.
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