No smoking gun for Willis but struggling economy will do

Analysis: With the Government’s books now opened, Finance Minister Nicola Willis hasn’t quite found anything to substantiate her allegations from two weeks ago that her predecessor Grant Robertson hid billions of dollars of “fiscal cliffs” from the public.

To the contrary, most if not all of the 21 time-limited funding lines Willis produced were publicly released as part of the Budget in May, as Robertson insisted. Certainly some of the biggest ticket items like Pharmac and school lunches were disclosed and even incorporated into National’s fiscal plan ahead of the election.

Willis pushed back pre-emptively against the idea that public cliffs should be excused.

“Just because they’re well-known does not make it okay,” she said. But that moves the goalposts a bit from her original allegations, which suggested Robertson used “clever workarounds” to hide the cliffs from public view.

Willis said the total cost of the 21 time-limited schemes was $1.36 billion in Budget 2024 and $7.2 billion in total over the next four years. She added that she suspected there might be other, smaller “fiscal cliffs” that she has asked ministers to search for within their own portfolios.

“The Government will carefully work through each of these financial challenges ahead of Budget 2024, making careful choices about future funding. We will restore a culture of care and discipline with the public purse,” she said.

Her mini Budget may also be a bit of a fizzer. There’s nothing in there about tax relief for New Zealanders, unless you’re a landlord (with the return of interest deductibility officially confirmed) or a property investor (the brightline test will be shortened back to two years).

“The Government is progressing work to deliver meaningful income tax reduction in next year’s Budget. This includes considering design and implementation advice for the delivery of our proposed Family Boost childcare tax rebate, and for delivering income relief to workers and their families,” Willis said.

Income tax cuts would be considered through the lens of Act’s income tax policy, she added, in line with the coalition agreement.

“The advice we have received so far gives the Government confidence that we can responsibly deliver the tax relief New Zealanders deserve. What we are offering you is not a tax cut by Christmas, but we are offering you a tax cut next year and responsible economic management.”

This is a small win for Robertson, as he’s been saying for weeks now that if the exact funding mechanisms for the tax cuts aren’t revealed in the mini Budget, it demonstrates Willis still has no idea how she will pay for them.

Instead of offering tax relief for Kiwis, the mini Budget is just a press release containing a list of 16 Labour-era policies the Government is scrapping and the fiscal impacts of doing so. Stopping work on Fair Pay Agreements, Lake Onslow pumped hydro, Let’s Get Wellington Moving, resource management reforms and a half-dozen other policies will save the Crown some $2.8 billion over the next four years.

Then there’s the removal of commercial building depreciation, which Labour had also committed to prior to the election, which will bring in $2.3b in revenue.

Main benefits will be indexed to inflation rather than wage growth, reducing payouts to beneficiaries by $676 million over the forecast period.

The Climate Emergency Response Fund is also being fully disestablished, with $2b from cancelled climate policies being funnelled back towards tax cuts.

Finally, the Budget kicks off a baseline savings exercise with the Government seeking to find $1.5 billion a year from agencies. That will be accomplished through 6.5 percent cuts to many agency budgets, with those departments where headcount has grown by more than half since 2017 asked to slash spending by 7.5 percent.

This all points to the actual image Willis is trying to portray with this mini Budget. Tax relief will come in 2024, but for now she’s playing the part of the responsible fiscal manager picking up after six years of Labour’s supposed waste.

Helping her out is the grim state of the books and the Treasury’s economic forecasts. GDP growth projections are down since September, inflation is proving stickier than expected, unemployment will rise higher and interest rates will take longer to decline. The Government is bringing in less tax revenue and facing higher costs, meaning it’s now on track for an almost negligible surplus of $140 million in 2026/27, rather than the $2.1 billion that was projected in September.

These figures don’t take into account the new Government’s actions or policies, they’re frozen at November 24, before any National, Act or New Zealand First ministers were sworn in. Instead, they’re a reflection of poorer economic conditions than expected.

That’s a godsend for Willis, who led the first of four mini Budget press releases off with the title: “Economic clean-up begins”.

It’s the new Government’s best attack line, to blame their predecessors for the declining state of the economy and the grim forecasts for the next couple of years. It will work, even though it’s complicated by the failure of Willis’ other criticisms around the fiscal cliffs.

However, it (like funding for Pharmac) is time-limited. Soon enough, New Zealanders will want to see the new Government do something, rather than just cancel things. They’ll want to see that tax relief they were promised and they’ll want to know it was paid for like it was supposed to be.

Willis will enjoy a bit of a honeymoon and dour economic conditions will prolong that, but eventually she’ll have to produce something for Kiwis’ wallets – and the longer it takes, the more the Opposition will continue to hammer her in an attempt to cut that honeymoon short.