By Giles Dexter of RNZ
An uncertain economic outlook and slower recovery will keep government finances in deficit for the next three years before a return to surplus.
The Budget forecasts a $3 billion a year lower tax take, while expenses are about $1 billion higher than forecast in the December update, resulting in the budget deficit peaking at $12 billion in the coming year and staying higher than expected before a surplus of $200 million in 2029.
Finance Minister Nicola Willis said today the Budget was aimed at securing and enhancing economic recovery.
“Budget 2025 responds to New Zealand’s long term challenges with initiatives to boost growth, investment, and savings.
“There are targeted investments in essential services and infrastructure… And reforms fix financial holes in the government books.”
Treasury forecast this year’s deficit, using the newly introduced calculation excluding ACC costs, to the end of June would be $10.2 billion, about $2.7 billion lower than forecasted.
The deficit will peak in the coming year at $12.1 billion, nearly $2 billion more than the December forecast, with the 2027 forecast nearly double the previous forecast at $8.1 billion.
Willis said she was proud to get deficits lower and reduce debt levels.
The Budget has used close to $13 billion from the now-revamped pay equity scheme.
Economic outlook
Treasury economic forecasts were pulled back in the near term because of uncertainty about the global outlook and a slower economic rebound after last year’s recession.
Growth was forecast to be slower for the rest of this year before picking up and sitting near three percent a year for the next three years.
Unemployment is forecast to be near the peak and is expected to fall below five percent in the next two years, while inflation is forecast to stay close to the Reserve Bank’s two percent target point for the next few years.
Business tax breaks
Businesses were offered a tax break for new machinery and plants through a larger and quicker depreciation of assets.
The Investment Boost incentive will allow businesses to claim 20 percent of the cost of the asset immediately, compared to the current 10.5 percent rate.
Willis said the enhanced tax break would help drive growth.
“Investment Boost delivers more bang for buck than a company tax cut because it only applies to new investments, not those in the past.”
The policy was forecast to cost the tax take about $1.7 billion a year in foregone tax, but was said to be likely left economic growth by one percent and wagers by 1.5 percent over the next 20 years, with much of that in the first five years.
Net debt is forecast to peak at 43.5 percent of GDP in 2025 and is forecast to remain above the government’s 40 percent ceiling for the following three years.
KiwiSaver changes
The KiwiSaver retirement scheme was given a makeover with a staggered increase over the next two years in the minimum default contribution rates to four percent from the current three percent, with 16-18 year olds also to be eligible for contributions.
Willis said the changes would make KiwiSaver more sustainable and encourage people to save more for their houses.
However, the government halved its own annual contribution to $260 a year, and withdrawing that from anyone earning over $180,000 a year.
The move was expected to save the government about $400 million, while it was assumed that employers would offset their contribution through lower wages.
