The budget in a nutshell
Budget 2024 delivers promised tax cuts which are real though not spectacular. New Zealand won’t be borrowing to pay for them because Nicola Willis has squeezed the Crown for savings wherever they could be found. It all adds up provided the promised savings can be delivered on and we don’t experience any unforeseen catastrophes.
What follows is a longer explanation framed in an easygoing, conversational style for your reading pleasure.
Does this column have a lot of numbers?
No. It has some numbers, but not many. It’s a bit hard not to have any numbers when writing about a budget, but we also shouldn’t make a fetish of numbers in a way that means we miss the general thrust of things.
What does OBLEGAL mean?
I’m not getting into that, sorry. Go ask Thomas Coughlan from the Herald. Let’s try to skip as much jargon as we can.
Okay, first of all, what’s happening with tax?
So, there are going to be meaningful tax cuts. If you had, in your head, the figures being thrown around before the election of $250 per family per fortnight then prepare to be disappointed. That’s on you, though.
Next time look more carefully at “up to” disclaimers in election promises.
Nevertheless, the tax relief being delivered is not trivial. It’s tied to a recognition of the bracket creep that New Zealanders have faced over the last decade, which is the right way to frame it and the moral case for the adjustments. Any day where action is taken to offset the fiscal drag of stealth tax cuts is a good day.
What will the new rates be?
Probably easiest to set this out in a table
.So, as you’ll see, the changes are not game changing. But they’re not nothing either.
Is that it?
No. There is also going to be an extension of the independent earner tax credit, which is worth $10 a week, to those earning $70,000 or less a year. Then there’s the already announced changes how early childhood education will be funded and the government wants you to factor that in too.
So how does that affect me?
Hard to say. After all, I don’t know you. And because there’s a mix of general and targeted measures here.
However, the government says that, for a couple who have two children, the average benefit will be $78 more in the pocket per fortnight. On the whole, some 1.9m households will get another $60 a fortnight and 3.5m will get to keep an additional $32 per fortnight. 19,000 or so households are going to benefit more than $200.00 a fortnight.
That seems kind of modest
Yeah. I mean just speaking personally when I have to remix our mortgage in September the interest bill on our mortgage will be much more than anything has given anyone today. So it’s not going to shift the gloomy sentiment but it really feels that what can be done, is being done.
What this means, by the way, is that defeating inflation is going to be really important. When the last government announced its cost of living payment, the response was muted in part because by the time it was paid it had been gobbled up by rising costs anyway. People didn’t perceive they were really all that better off and Labour didn’t get a lot of credit as a result.
So, why so modest?
Here’s the God’s honest truth: things really are a bit of a mess. The fiscal cliffs faced by Willis are very real – with drug funding being a great example (in the pejorative sense). More generally, the economic deterioration over the past few years has been exposed as being deeper and harder than even those of us pessimists expected.
Are elderly people going to be looked after?
Yeah a little bit. A retired couple will get an extra $9 a fortnight to begin with which will rise to $25 a fortnight in 2026. An extra movie if they go to the matinee and use their gold card discount.
But really this budget is focussed on parents with children.
How much is this going to cost the country?
That depends on whether you see letting people keep more of their own money as a cost. Presumably the government does, because that’s how they’ve framed it in much of the literature.
Anyway the upshot is that revenues will be hit to the tune of $3.7b a year as a result of the government’s tax reforms. Not small, but not ruinously “expensive” either.
Is that going to be inflationary?
The government says… no. Why? Because the extra money you’ll get to keep is going to be offset by reductions in spending that are (slightly) greater than the amount of the cuts.
Are we borrowing for tax cuts?
No. The tax cuts are being set offset by cuts in spending. You could argue that the money foregone could be used to pay back debt sooner. But that’s not borrowing for tax cuts.
Imagine I scrapped Disney+ and subscribed to Amazon Prime instead. Given I have a mortgage, and could instead have spent the sub on the mortgage instead, does it follow that I am borrowing to watch the next season of The Boys?
Okay, okay – but how the savings going to be achieved?
Savings have been identified across the board. Truly. All agencies had to find a certain level with some coming in for special, extra attention. And apparently, those targets have been achieved.
It really seems that no stone has been left unturned in the search for efficiencies and low quality and/or expendable programs.
What’s getting chopped?
Too many things to list, really. For example, the Commerce Commission is going to have to make do with quite a bit less (creating the question: who will fail to regulate supermarkets if the ComCom isn’t going to be funded to do it). Something called the Consumer Advisory Council is getting the chop which will save $5.7m through to 2028.
And while the Ministry of Pacific Peoples isn’t quite going to be exploded, it’s losing about $25m.
The first year fees free programme for tertiary education is going to become a final years fee free program, which will reduce the costs while actually making more sense than the former government’s approach.
It really is a case of finding a million here and a million there and then aggregating all of those “small” amounts into an overall saving program that is pretty significant.
Has the, uh, front office been protected?
Genuine efforts seem to have gone in to ensuring that the cuts are aimed at “the back office” which we should define as roles and functions not directly serving members of the public. Health, police, education, infrastructure and so on all see overall increases in funding. Whether or not the increases are going to be sufficient is a trickier question, of course.
All non-controversial stuff that people won’t notice then?
No, some hard decisions have been made. National’s cancer drug promises has been put on hold for now, a casualty of the cruddy economy and weaker than hoped for government revenues.
Nicola Willis is adamant that National will deliver that promise (eventually) but it will be a real blow for cancer patients.
Is the government going to bring in more money somehow?
All over the place, funding cuts are going to go hand in hand with revenue measures. In other words, fees and levies are going to go up.
For example, the NZ Symphony Orchestra is expected to make do with less against an expectation that it will increase its revenues (not sure if this means they’ll be sent out busking). Companies are going to have to pay extra when they file an annual return to help fund Insolvency and Trustee Services note: this is (annoying for me personally as someone who operates a number of corporate trustees). The online gambling tax is going to bring in more money for the government.
When does New Zealand get back into surplus?
All things going well, the (financial) year of our lord 2027/2028.
Does it all add up?
According to my law school maths – yes. But with three caveats:
First, it’s worth noting that the reductions in revenue are likely to be very certain in the context of a weak economy, even if it’s meant to improve as the year goes on.
Second, the savings are in many cases projected or contingent.
Thirdly, the government is allowing itself very little room for things to go wrong. In short, we’re banking on not having a Christchurch earthquake or Cyclone Gabrielle type disaster that blows away the thin margins for error the government has allowed for itself.
How will people react?
I think Willis has earned a solid B+ here.
Here’s a quick prediction on the likely reactions from other people.
Expect lots of media stories along “women and minorities hardest hit” because demographic-targeted agencies and programmes have not been spared (even if they haven’t been particularly singled out).
Journos are definitely going to track down cancer patients to declare how disappointed they are in the government.
Expect the Taxpayeer Union and other small government types to offer grudging thanks but to grumble about the modest nature of the cuts.
On the other side of the coin, expect Labour and surrogates to strongly denounce National for laying waste to the state while not doing enough
Out in the real world, nobody is going to be particularly impressed or outraged, which is probably as good as can be expected in the circumstances, which would be challenging for any government.
Post Script:
I’ve never been to one of these briefings before. Given the opportunity, I thought I might like to give it a go. I am grateful for being let in because apparently it was oversubscribed – even if the rules meant I couldn’t call my KiwiSaver provider to adjust my plan using the inside information.
I am surprised that some people couldn’t get in because it really felt to me like half of Wellington was there. The whole banquet hall was filled. How many more people were there to go?
The other thing – a related issue but not quite the same – was that half of Wellington was there. As a cool kid, I instinctively sought a seat at the back of the hall and looking out over the attendees was like looking at the ocean. So many light blue shirts over slightly darker blue jackets!
I was not in my Hallensteins best, wearing slacks and a flannel shirt. I actually felt a little self-conscious looking like a too-old extra from 90s hipster sensation My So-Called Life. So despite also being a bearded white guy, it was hard to fit in.
Maybe that’s why Marc Daalder snubbed me on the way to the bathroom?
"Maybe that’s why Marc Daalder snubbed me on the way to the bathroom?" Or could it be that he thought you shouldn't be there at all, as you're a part-time commentator with a day job and not a 'real journalist' as he would consider himself?
Good comment. A fiscal catastrophe could be managed, as has been done before, by reducing the $1billion taxpayer contribution to Kiwi Saver. While there is still pain paying the interest on bank loans we are still getting capital gains. This past month I observe a number of the landlords in Gisborne are cashing up following the PM's lead, which is gold for the local conveyancers in Gisborne and REINZ