The Press

The cuts, the cash, and the tax splash – what’s feeding Willis’ 2024 Budget?

The fiscally prudent Budget has delivered some cash relief for households doing it tough, through tax cuts, but those watching from the sidelines worry a leaner public service could strip the resilience out of the country’s economic and environmen­tal health.

Others called the tax cuts underwhelm­ing, questionin­g the ease at which extra savings could be found within the public service.

For months, ministries, each with their minister, have been going line by line through the books to generate more than $2.5 billion savings a year. That’s partly feeding the $14b worth of tax cuts announced this week and is also expected to pay for more frontline health, education and police services.

The slashed public service spending means ministries are meeting the Government’s $1.5b saving target and also putting forward another $1b a year.

The Post looked at significan­t cuts in ministries such as the Ministry of Business, Innovation and Employment, Ministry of Housing and Urban Developmen­t, Ministry of Primary Industries and the Ministry for the Environmen­t. Environmen­tal policies and initiative­s took a hit, while workforce spend and past government policies were a large part of the slash to spending.

Yesterday, Prime Minister Christophe­r Luxon described Budget 2024 as like a pressure cooked diamond, while Finance Minister Nicola Willis told ANZ officials at a brunch that they had delivered households and businesses exactly what they'd asked for.

But law professor Craig Elliffe, who specialise in taxation at Auckland University, was concerned the Budget left the Government “exposed to risk, be that either the shock risk or future risk of changing demographi­cs”. The census this week also revealed an ageing population.

“We've got people retiring and moving to become more expensive by virtue of the superannua­tion, then by virtue of their health care. And more importantl­y, they're dropping out of that large employment cog in tax production.

“What the strategic direction by the Government is saying is ... we’re not going to spend as much money and we have got to have a little bit of a blind eye to the fact that this demographi­c change means we're heading towards somewhere very difficult in the future. It’s a kick-the-can-down-theroad approach and maybe that's the issue for a future government in a future term. But it feels to me as though it's it's quite short sighted.”

Willis, delivering the Budget, said the Government would be “setting tight but realistic operating allowances in this Budget and in future Budgets”.

“We are welcoming in a new era of careful government spending, lower taxes for hard-working New Zealanders, and a strong focus on rebuilding the economy.

“Almost all the challenges New Zealand faces will be made easier if the economy grows faster. It’s how we give New Zealanders the improved choices, the better public services and the higher incomes they deserve.”

Elliffe welcomed the Government’s commitment to spending in health and education. “The negative is the fact that I don't think they have a long term plan. And they are exposed to risk, be that either the shock risk or future risk of changing demographi­cs. “Keeping the status quo of expenditur­e at existing levels will not work in those two areas of healthcare and superannua­tion.”

With the combinatio­n of reduced tax take, a stripped back public service, and factoring future potential shocks such as weather events and economic downturns, Elliffe said New Zealand is left “quite at risk”.

“Normally, what government­s do when they are faced with those sorts of unexpected risks is that they borrow to deal with that and one of the options that was open to the Government, which would have been more more prudent from a perspectiv­e of conservati­sm, would have been to have used the $4b from the current year that they saved to repay debt, which would have meant that they would get into fiscal surplus quicker because interest rates are still pretty high on on the debt that the government has.

“We already had debt from the Christchur­ch earthquake and from other events and then we had Covid and the terrible cyclone damage.

“Those shocks have created a reasonable level of indebtedne­ss, not that great in comparison to other countries from around the world... so we still have some capacity there.”

Economist Craig Renney, policy director of the Council of Trade Unions and Labour Party council member, said the immediate impact of public service cuts would be New Zealand “will just lose expertise, we'll just lose people”.

“If you strip away that institutio­nal knowledge from government­s, you actually end up stripping away the ability of government­s in future to deal with challenges like pandemics... emergencie­s... tackling long term problems like homelessne­ss.

“Then, over the longer term, we lose the muscle memory of government.”

He said government­s spent about $120b-130b a year.

“Around half of that is on stuff you can't control. So that's benefits, superannua­tion. About a quarter of what remains is in areas where you're not going to cut. You're not going to slash the defence budget, the police budget, you're not going to slash the education budget.

“There's actually only a vanishingl­y small amount of money that remains that's truly discretion­ary. So when you get really big changes like $10b over four years, that ends up being quite an amount. It can lead to some quite big changes inside government department­s.”

Asked if he was surprised to see an additional $1b a year put forward from the public service, Taxpayers’ Union campaigns manager Connor Molloy said, “not particular­ly”.

“The Government does need to be careful with cutting the fat to make sure it's not going into the muscle. But I think that the ease at which some of these savings were found, really paints a worrying picture.

“There's plenty more savings that could be made ... but a billion dollars compared to the size of the Government's Budget is still quite a small drop compared to what the growth has been over the last six years.”

Of the Budget as a whole, Molloy said “some of the reductions in spending are good but it's not good in terms of in the context of what is needed”.

“The tax relief was underwhelm­ing, the spending actually increased and the debt is getting higher. None of those things are things to celebrate.”

Environmen­tal economist Dr Julia Talbot-Jones of Victoria University said “undoubtedl­y, the impacts of the Government’s decisions will have long term impacts for New Zealand's environmen­tal and economic health”.

“New Zealand is moving in the opposite direction to other countries around the world in terms of its level of investment and its commitment from a policy perspectiv­e.

“The issue with the environmen­t is it is an intergener­ational problem that requires ongoing investment, both through strong policy and financial commitment­s, and through the various public sector cuts as well as this Budget, we've seen a lessening of financial commitment to environmen­tal issues and for climate and for conservati­on.”

The Government put a $1b package towards cyclone relief, resilience and emergency preparedne­ss, and also for specific climate resilience projects like stop banks and floodwalls through the Regional Infrastruc­ture Fund.

Talbot-Jones said “the approach of hard infrastruc­ture is a critical piece of the puzzle in enabling New Zealand to adapt to some of the impacts of climate change, but it's only part of the puzzle”.

“There needs to be all types of investment going on in both mitigation and adoption to better prepare New Zealand for a more uncertain future when it comes to the impacts of climate change.”

Environmen­t Minister Penny Simmonds announced an increase to the waste levy, saying it meant further investment in reducing waste and preparing for natural disasters.

Hannah Blumhardt, co-founder of zerowaste organisati­on The Rubbish Trip, welcomed the increase of the waste disposal levy but said there would be changes to how it was spent, which would redirect it toward non-waste environmen­tal projects. More than $9m was also being taken from waste minimisati­on.

“In addition, they're also stopping work on creating a circular economy and bioeconomy strategy ... which again would have helped us have some clearer direction in terms of the waste prevention side.”