Venu Menon
Wellington, December 20, 2023
Finance Minister Nicola Willis leaned heavily on Treasury’s Half Yearly Economic and Fiscal Update to tar the previous Labour Government’s “reckless” fiscal policy as she unveiled the National-led Coalition Government’s mini-Budget in Wellington on Wednesday.
But Treasury was still forecasting a return to surplus in 2026, albeit whittled down to $140 million from the loftier $2.1 billion.
That was the consequence of the Reserve Bank being forced by persistent inflation to hold interest rates “higher for longer.”
That in turn meant slower growth and delayed economic recovery, leading to lower corporate profits and a drop in tax revenue.
Treasury saw economic growth averaging at 1.5% over the coming two years, with high interest rates pushing up credit and debt servicing costs while driving down consumption and investment.
But it is not all gloom and doom ahead. Treasury predicts retail GDP growth to pick up once inflation is reined in from 2026 onwards.
But if Crown expenses were on an upward trajectory in relation to the pre-election update, those were part of forecasts made prior to the formation of the present coalition government.
Finance Minister Willis seized on that consolation to announce cutbacks to the previous Labour Government’s populist policy measures and dredged up savings to the tune of $7.5 billion across the forecast period of June 2028.
Free childcare for two-year-olds and tax deduction on depreciation for commercial buildings were among measures that were jettisoned by the new government to generate savings.
Government agencies have been tasked with squeezing savings out of their operational costs, with targets pegged to staff growth since 2017.
Lest this should be mistaken for a policy carry-over from the predecessor government, Willis took care to point out that the National-led Government co-opted and went beyond Labour’s pre-election cost-cutting drive of $500 million. The new government’s initiative covered additional cuts of $400 million around contractors and $600 million on back-office spending.
Some promises had moveable timelines. Interest deductibility for rental properties, for instance, was now an intention rather than a timebound promise.
Similarly, there will be no tinkering with income tax thresholds for the present, deflating the expectations of “workers and their families.”
The details on that have been shelved for the main Budget next year.
But the specifics of the tax relief promised before the election were absent in the mini-Budget. In that sense, the National-led Coalition Government’s mini-Budget is more of a promissory note with a flexible delivery date.
Venu Menon is an Indian Newslink reporter based in Wellington
