Praneeta Mahajan
Hamilton, May 30, 2024
The Coalition government’s first Budget, unveiled today, May 30, 2024, by Finance Minister Nicola Willis, adheres closely to the ‘Back Pocket Boost’ tax relief package promised during the election. This nearly $15 billion tax cut package, slated to be “fully funded” over four years, has generated significant discussions among economists and the public alike.
A Promised Relief
Nicola Willis began her Budget announcement with a firm declaration: “I have kept my pledge.” This statement underscores the government’s commitment to delivering on its campaign promises, despite pressures to moderate the proposed tax relief. The budget document outlines that $1.9 million households are set to benefit, receiving an average of $30 weekly, with households with children receiving $39 weekly on average.
However, these benefits vary significantly across different income groups. Minimum wage workers can expect a modest increase of $12.50 per week, while superannuitants will see a mere $4.50 per week.
Public Reactions
Public reactions to the tax cuts and childcare provisions have been mixed. Jane Roberts, a middle-income mother of two, expressed relief at the increased childcare payments. “Every little bit helps,” she said. “With the cost of living going up, the extra money will make a real difference for families like ours.”
Ms S Martin, a single mother of three, praised the childcare provision. “The additional childcare support is a game-changer for me. It means I can work more hours without worrying about the high costs of daycare. This Budget is really helping parents like me get back on our feet.”
On the other hand, Mark Thompson, a super annuitant, was less enthusiastic. “Four dollars and fifty cents a week would not even cover the cost of a cup of coffee,” he remarked. “It feels like we have been overlooked.”
Similarly, Liam Johnson, a minimum wage worker, commented on the modest weekly increase. “It is better than nothing, but $12.50 a week is not going to change much but any relief is welcome at this point for many families that are trying to make ends meet.”
Tax Adjustments
A significant component of the relief package is the adjustment to income tax brackets. While tax rates remain unchanged, the income thresholds at which these rates apply have been increased. Additionally, the Independent Earner Tax Credit (IETC) has been expanded, raising the upper limit for eligibility from $48,000 to $70,000. The reduction threshold has also been adjusted from $44,000 to $66,000. Initially planned to take effect from July 1, the start date for these changes has been delayed by four weeks to accommodate payroll providers’ needs.
The in-work tax credit is also set to increase by up to $25 a week from July 31, 2024 a later start than the originally planned April 1, 2024. This delay, like the others, allows for more efficient implementation, as recommended by Inland Revenue.
Childcare and Additional Measures
In addition to tax adjustments, the budget includes a childcare payment aimed at supporting low-and-middle-income households, a measure first announced by Willis in March. However, not all promises have been retained. The initial proposal to increase Working for Families was abandoned during coalition negotiations. These negotiations also saw National agreeing to consider ACT’s proposal for a flatter tax system, though Willis indicated that such changes would not be feasible this year or within this term.
Funding and Savings
To fund the $3.7 billion annual cost of the relief package, the government has identified $23 billion in savings over four years. A meticulous line-by-line review of government spending has pinpointed an average of $5.86 billion per year across 240 savings and revenue initiatives. Noteworthy among these savings is a baseline exercise across various departments, which contributed more than $1.5 billion annually. While most departments met their savings targets of 6.5% to 7.5%, the Defence Force, Police, and Ministries of Foreign Affairs and Justice were exceptions. The Ministry of Housing significantly surpassed its goal, cutting $391 million instead of the targeted $109 million.
Programme Reductions
The budget also involves trimming funds from various programmes. The NZ Symphony Orchestra, Human Rights Commission, Major Events Fund, and Climate Change Commission are among the initiatives facing budget cuts. The Warmer Kiwi Homes scheme will see the end of subsidies for hot water heating and the scaling back of an outreach programme aimed at hard-to-reach households. Additionally, savings will be achieved by shifting the first year of Fees Free to the final year of study, taxing online casino operators, and increasing immigration fees.
More work remains
Ms Willis characterised her inaugural Budget as a “clean-up job” fulfilling key coalition promises while acknowledging that more work remains to address New Zealand’s economic challenges. “This Budget would not fix all of New Zealand’s economic challenges on its own and there is much more to do, but it does show what is possible with care and discipline,” she stated.
Despite some contentious cuts and adjustments, the Budget emphasises a disciplined approach to fiscal management. Willis insisted that savings and reprioritisations will be an ongoing activity for all ministers, aiming to “put the books back in order.”
As New Zealand navigates its economic landscape, the government’s balancing act between providing relief and ensuring fiscal stability will be closely watched by both supporters and critics.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
