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Budget 2024 is a no-frills effort which relies on the public buying the message that New Zealand is in a bread and margarine economy and that jam will be off the menu until growth picks up and the Crown accounts are back in balance.
Tax cuts modest
The tax reductions will deliver up to $51 a week for households on the average income, a lot less than was promised in the heady days on the hustings. They are achieved by adjusting the tax thresholds for inflation from 2017 (as National promised in its manifesto, but not since 2010 which was when the last adjustment occurred).
They will take effect on 31 July (rather than 1 July as previously indicated to allow payroll officers time to adjust).
|
Current bracket |
New bracket |
Rate |
|
To $14,000 |
To $15,600 |
10.5% |
|
$14,001 to $48,000 |
$15,601 to $53,500 |
17.5% |
|
$48,001 to $70,000 |
$53,501 to $78,100 |
30% |
|
$70,001 to $180,000 |
$78,101 to $180,000 |
33% |
The cost across the next four years is $2.57b a year on average. This compares to $0.73b a year for the restoration of tax deductibility for landlords. Eligible families will also receive a boost to childcare payments of up to $150 a fortnight.
Grim fiscal and economic forecasts for the near-term
The Treasury is forecasting 0.2% contraction for the year ending June 2024 then growth of 1.7% next year rising to 3.2% in 2026 before dropping to 2.9% in 2027.
CPI inflation is forecast to come in at 3.4% this year before coming back within the Reserve Bank’s target in 2025 and remaining at 2% for the following three years.
The fiscal position has deteriorated since the Half Year Economic and Fiscal Update, released just before Christmas. Treasury attributes this deterioration to a further weakening of the economy. It says the decisions taken in the budget will “on balance reduce the contribution fiscal policy is making to inflation pressure”.
Finance Minister Nicola Willis plans to keep her foot on the brake – providing for new spending allocations across the next three budgets of only $2.4b. The budget has Government expenditure gently tracking down over the forecast horizon as a proportion of GDP – from 33.5% this year to 31.6% by 2027.
The relentless austerity envisaged in these figures will be extremely difficult to sustain politically – especially as the next election looms.
The deficit is projected to peak at $13.4b (3.1% of GDP) in the year ending June 2025 with further deficits over the next three years, although the expectation that they will reduce sharply to $8.5b in 2026 and $3.1b in 2027.
Net core Crown debt will remain stubbornly high at 43.1% of GDP in 2024, 43.5% in 2025, 43% in 2026 and 43.3% in 2027.
Budget initiatives
As signalled, the bigger allocations go to health, education and law and order.
- Health - $16.68b to accommodate demographic and inflation pressures across the next three budgets. Investments for this year include $3.4b for hospital and specialist services and $2.12b for primary health care.
- Education - $2.9b over the next four years, $1.5b of which is earmarked to education property.
- Law and order - $651m over four years, including the reinvestment of $55.1m police offered up as their departmental cut.
Business
There is little in the budget to promote productivity, a point Willis was challenged on in the lock-up press conference in relation to the budget silence on maintaining a strong freight connection across Cook Strait.
She said the Government had a “ferry solution” factored into its business plan and that it would be financed through the $7b top-up allocated in the budget to the Multi-Year Capital Allowance. The budget also allocates a further $1b to accelerate the delivery of the Roads of National Significance.
However, there was little else new for infrastructure and climate change was also a “poor cousin”, getting $2.6b from the Climate Emergency Response Fund for a range of already existing programmes.
Probably the biggest announcement is New Zealand First’s $1.2b Regional Infrastructure Fund $300m of which each year will go to capital (loans, equity and ownership investments) and $100m to operational expenditure.
Waste levy charges paid into the Waste Minimisation Fund will be available for a wider range of uses, including freshwater improvement.
