The Government’s Budget Policy Statement leaves the key fiscal questions on Budget allowances and the deadline to return to surplus unanswered.
Finance Minister Nicola Willis had previously pledged the statement would outline how much the Government plans to spend in each of the next four Budgets, as is standard practice. Instead, she said on Wednesday, the full details wouldn’t be available until Budget 2024 is released on May 30.
All Willis could say was that the new operating spend in Budget 2024 would be lower than what Labour had planned at $3.5 billion. She wouldn’t promise that it would meet National’s pre-election target of $3.2 billion.
The 2027 deadline for returning the Government books to surplus is also now on life support. That was another commitment by National before the election and reiterated by Willis afterwards. In recent days, however, she has declined to confirm the 2027 date.
On Wednesday, Willis said the exact timeframe for a return to surplus would be revealed at the Budget in May, after Cabinet had the chance to digest the most up-to-date fiscal and economic forecasts from the Treasury.
“We won’t be chasing a surplus in any one particular year at any cost, particularly when that cost would be to frontline public services,” she said.
The most recent fiscal projections from the Treasury, released in December, suggested the Government could achieve a surplus of $140 million in 2026/27 (National’s target year) rising to more than $3 billion the next year.
Since then, Willis said Wednesday, rough estimates suggest the operating balance would be $3 billion lower in 2026/27 and $4 billion lower in 2027/28.
“On these particular forecasts, achieving a surplus in 26/27 is almost certainly not achievable. A surplus in 27/28 is still achievable but not a given,” she said.
Returning to surplus and trimming government spending would be a process rolled out over successive Budgets.
In December, real production GDP growth for 2024 was projected to be 1.5 percent. That has dropped to just 0.1 percent in the latest figures.
Willis said these deteriorating economic conditions highlighted “the importance of bringing government spending back under control by embedding a culture of responsible spending, restoring fiscal discipline, right-sizing the Government’s footprint and improving the efficiency and productivity of spending”.
“This will not be achieved in a single Budget. International evidence is that reducing deficits is best done over the course of several years by focusing on structural reforms to expenditure and revenue settings.”
The Government laid out five priorities as part of the Budget statement on Wednesday: Tax cuts, cuts to government departments, improved public services in health and education, tight control of public spending and a long-term infrastructure investment pipeline.
Willis has also returned the headline net debt measure to the standard used from 2009 to 2022, before her predecessor Grant Robertson altered the way it was calculated to align better with international measures. The 2022 standard would still be reported by the Treasury but the 2009 measure would be the main concern, with a target set for 20 to 40 percent of GDP – down from 43.5 percent where it currently sits.
The statement lays out three purposes for debt: As a smoothing device, as a buffer in the event of an economic shock and to “fund high-quality investments that provide benefits to New Zealand over time”.
The Government now also has a public expenditure target of 30 percent of GDP, down from today’s level of 33.4 percent.
On tax cuts, Willis walked back comments made last week that the changes to income tax bands would be unchanged from National’s pre-election plans. She wouldn’t promise Wednesday that the tax cuts would be identical to what was campaigned on but said the Budget would deliver “meaningful tax relief”.
There must be a real fight between the coalition partners if they cannot even settle on how much they have to spend in 2024-25 and subsequent years
Three major ‘givens’ in this government’s fiscal approach that lack real analysis and justification are: (a) why a public surplus is inherently a good thing, especially given that any public surplus is funded by a reduction in private savings, (b) that spending on public services in 2017 is an appropriate benchmark for assessing current spending on public services. Surely the staring point should be a coherent assessment of the type and level of public services that we should be getting, not using a benchmark of some historic public spending level that arguably reflected a deliberate underspend in public services, and (c) that it is sound economics to reduce public debt levels from levels that are already much, much lower than ‘successful’ developed economies, notwithstanding the massive underfunding of public infrastructure, the fact that the government is a sovereign currency issuing nation so can always meet its financial obligations in $NZ, and that government debt for infrastructure (if necessary) is cheaper than relying on private funding.
Totally agree, Andrew. The endless government assertions about how badly NZ is doing are nonsense. Financial management through Covid was remarkably successful. The OECD Country Notes On New Zealand (June 2023) state: “New Zealand had a fiscal deficit of -4.7% of GDP in 2021, below the average across OECD countries (-7.5%). In addition, New Zealand also has a comparatively low debt rate. In 2021, the debt was 53.3% of GDP, compared to 120.8% on average across the OECD. The debt rate marginally increased to 56.7% in 2022.” There is absolutely no justification for arbitrary ceilings on public spending, especially since more of it is so urgently needed across so many areas.