Forecast for 2024: Rising unemployment, falling growth rate, Bleak outlook
Venkat Raman
Auckland, December 20, 2023
Finance Minister Nicola Willis’ Mini Budget provides for an initial operating savings of $7.47 billion but most income-earners would have to wait until next year for tax cuts.
There is however good news for property owners who will receive relief worth $2.31 billion as tax on depreciation on commercial buildings is removed. Indexation of main benefits to CPI inflation numbers will cost the exchequer $676 million while the return to the Brightline test to two years will put $180 million in the accounts of property owners- all these over the next four years.
The Savings Channels
Among the items that will accrue savings to the government will include reversing the previous Labour government’s planned 20 hours early childhood education initiative extension to two-year-olds ($1.18 billion), cancellation of the Let’s Get Wellington Moving Project ($525 million), stopping work on Resource Management Reforms ($302 million) and scrapping Labour’s policy of half-price public transport fare for people under 25 years of age ($265 million).
Ms Willis said that government spending is expected to have increased by around 80% between 2017 and 2024, with far too few results to show for it.
“Our government is determined to restore respect for taxpayer money by stopping wasteful spending, improving value for money and driving resources out of the back-office and into frontline services. Today’s mini-Budget sets out a series of decisions that we have already made which deliver an initial down payment of $7.47 billion in operating savings and additional revenue over the forecast period,” she said.
This includes $2.61 billion saved by stopping work on projects mentioned above.
In some cases, these decisions have also removed significant fiscal risks from the government books: such as the potential $15 billion liability for Auckland Light Rail, up to $16 billion associated with building a pumped hydro scheme at Lake Onslow, and the risk of further Crown funding being required in future to balance the cost of Clean Car Discount rebates with the level of fee revenue received from high-emissions vehicles.
Supporting tax cuts
“Our decisions ensure that $2.047 billion of forecast cash proceeds from the Emissions Trading Scheme can be used as a ‘climate dividend’ to support income tax reduction, including by closing the Government Investment in Decarbonising Industry Fund, which has been subsidising already profitable businesses to reduce emissions. This work is just the beginning. The Government has started an ongoing Fiscal Sustainability Programme to embed a culture of responsible spending across the Government,” Ms Willis said.
She said that the first step in this programme is an Initial Baseline Exercise for government agencies designed to find around $1.5 billion per annum in savings to deliver on the National Party’s policy commitments and fund critical cost pressures.
“This exercise brings together the $500 million per annum baseline savings exercise initiated (but not completed) by the outgoing government, along with our previously pledged commitments to reduce consultancy and departmental spending,” she said.
Health Check for Ministries
Ms Willis said that she has written to all Ministers to direct their agencies to find savings ahead of Budget 2024, with individual agency targets informed by headcount growth since 2017. All savings proposals will be subject to an assurance process and a final agreement by Cabinet at Budget 2024. In agencies with significant frontline cost pressures, savings could be used to help offset these costs.
“I have also asked Ministers to undertake a ‘health-check’ on medium and high-risk capital projects in the investment pipeline for their agencies, to understand and respond to under-funding, cost-blow outs and delivery risks that may exist. The Auditor General’s recent report showed that government infrastructure spending under Labour lacked rigour. A much more disciplined approach is needed,” she said.
Budget 2024 and future fiscal policies of the current government will aim to achieve a financial surplus while delivering tax incentives including tax cuts. The following actions are envisaged as a part of the government’s plans: (1) Enabling full cost-recovery for immigration visa processing (2) Taxing online casino gambling operations (3) Stepping up the audit activities of the Inland Revenue Department (4) Replacing the fees-free policy with a final-year fees-free policy from 2025 and (5) Improving the cost-effectiveness of the school lunch programme.
“We are committed to getting the books back in order and effectively managing taxpayers’ money. We have found billions of dollars worth of savings within weeks of being elected, and we intend to continue this savings drive to deliver a better deal for all New Zealanders. The government will bring in more transparent and responsible fiscal management in the wake of the unacceptable approach of the previous government,” Ms Willis said.
Accusing the previous government of subjecting New Zealand to an unsustainable fiscal path, she said that high levels of public spending left the books out of balance, three times delaying a forecast return to surplus and vastly increasing the burden of public debt.
“The former Finance Minister consistently exceeded the operating allowances that he set for himself ahead of Budget, meaning actual new spending routinely exceeded planned levels. This pattern, with the volume of future fiscal risks, confirms Labour’s promised return to surplus as forecast in the Pre-election Economic and Fiscal Update would never have been delivered. We knew that Labour had left us a fiscal mess to clean up, yet I am shocked by the extent of the financial time bombs that they have left behind. Our coalition government has acted swiftly to remove some of these unfunded fiscal risks,” she said.
The Fiscal Cliffs
The Treasury has advised the Finance Minister of 21 fiscal cliffs. They are as follows: (1) Ka Ora, Ka Ako (Healthy School Lunches Programme) (2) Pharmac: Combined Pharmaceutical Budget (3) Pharmac: Covid-19 therapeutics and vaccinations (4) International Climate Financing Funding (5) Tertiary Tuition and Training Funding Baseline Pressure (6) New Zealand Screen Production Rebate (International) (7) New Zealand Screen Production Rebate (Domestic) (8) Cyber Security Programmes (9) Kāinga Ora Operating Funding (10) Apprenticeship Boost (11) Geohazards Science Services, Data and Modelling (12) Kānoa Operating Funding (13) Oranga Tamariki Disability Support Services (14) Teacher Supply Initiatives (15) North Island Weather Events Road Response and Recovery (16) Transitional Housing Motels (17) Civil Aviation Authority Liquidity Funding (18) Equitable Digital Access (19) Temporary Accommodation Services (20) Historic Claims of Abuse in Care and (21) Te Matatini – Funding to Stimulate the Sustainable Growth of Kapa Haka.
