Tax cuts and getting the Government’s finances “back on a sustainable track” will be the priorities of the upcoming Budget.
The coalition Government’s priorities for the May Budget were outlined in the Budget Policy Statement (BPS), released to the public today at 1pm.
Treasury’s forecast scenario – provided alongside the Government’s BPS – suggested the country’s economic outlook had deteriorated since the December Half Year Update.
The Government has come under increasing pressure over how it will fund its tax cuts, particularly after part of its tax plan – which would allow foreign buyers into the housing market in some cases – was abandoned due to coalition negotiations with New Zealand First.
The original plan included a 15% foreign buyer tax on houses worth over $2 million, to raise $740 million on average per year, but was now off the table.
Finance Minister Nicola Willis today unveiled the Government’s spending priorities for this year’s Budget in May.
A September 1News Verian poll found more people had opposed the policy than supported it.
Last year, Willis said she would resign as Finance Minister if National failed to deliver its tax reduction plan.
The International Monetary Fund (IMF) cautioned the Government last week about spending on tax cuts.
Today, Finance Minister Nicola Willis said tax cuts would be funded within the Government’s operating allowance through a combination of “savings, reprioritisation and additional revenue sources”.
Her statement did not include what those additional revenue sources would be.
“There is not going to be a surprise extra tax in the Budget.”
She said the Government would provide tax reduction “responsibly and affordably”.
“It is the most responsible thing we can do to deliver for New Zealanders who are going through a cost of living crisis.
“We’re not going to press delay on such an important priority.”
Willis could not confirm, when repeatedly asked, that the tax cuts would be exactly the same as those promised in the election campaign, but said the Government was a coalition and National would not break its coalition agreements.
“You’ll see on Budget Day.”
She said tax cuts promised in the election campaign “informed” the tax package that would be in the Budget.
She said that meant the Government would not need to borrow to fund tax cuts and would not contribute to inflation by providing them.
“As things currently stand inflation is pushing low and medium-income workers into higher tax brackets, meaning they are paying more tax.”
Lower operating allowance
The operating allowance would be set at less than $3.5 billion for the upcoming Budget, she said,
That was lower than previously anticipated, and the exact amount of which would be specified in the Budget.
That gave Cabinet time to consider updated fiscal forecasts, underway at Treasury, she said.
Willis said that deteriorating economic outlook highlighted by Treasury reinforced the importance of bringing government spending “back under control by embedding a culture of responsible spending, restoring fiscal discipline and right-sizing the government’s footprint”.
The Government intended to reduce debt, get back to a surplus and reduce government spending as a proportion of the overall economy, Willis said.
She said the Government would not “chase” a surplus for any one particular year, especially if it meant a surplus came at a cost of frontline public services.
She said Budget 2024 priorities were to “deliver meaningful tax reductions” to provide cost of living relief, “identify enduring savings” across Government departments and agencies, and improve public services by focusing new spending on health, education and law and order.
It also included keeping “tight control” of government spending “while funding a limited number of high priority Government policy commitments” and “urgent cost pressures” that could not be funded through reprioritisation.
The last in Willis’ list of five priorities was to develop a long-term, sustainable pipeline of infrastructure investments.