Budget 2023 won’t necessarily be a lolly scramble and will not contain tax cuts like National is proposing despite $4 billion in savings being found, Finance Minister Grant Robertson says.
His opponents have labelled the savings “too little” and “simply embarrassing”, and argue Robertson should let Kiwis keep more of what they earn. He’s swung back at that by saying the money is needed to keep critical public services New Zealanders rely on operating.
The “bulk” of the savings has already been announced, coming from the Government’s earlier decisions to throw initiatives like the public media merger, social income insurance and multiple climate schemes onto the policy bonfire.
Other savings have been found by reassessing contingency allocations the Government’s now convinced are no longer needed and by returning underspends from existing initiatives.
“We owe it to New Zealanders as they are carefully considering their spending, and making trade-offs in their lives, that we do the same,” Robertson said.
The $4b in savings over four years was announced by the Finance Minister in a pre-Budget speech to the Wellington Chamber of Commerce.
He said total savings were “around where we thought we might get to” given the earlier shelving of some policies. However, the Government got more from taking a hardline on contingency funds than Robertson said he was expecting.
So where will these savings go now?
The Finance Minister said Kiwis shouldn’t necessarily be preparing for a lolly scramble, but instead a “balanced Budget”.
“It means that we’ve worked very hard to make sure we’ve got the resources we need, for example, to meet cost pressures.”
While inflation is having an impact on Kiwis’ wallets at the supermarket, it’s also affecting Government expenses. The Government also has to deal with the additional cost of Cyclone Gabrielle, estimated to be between $9 billion and $14 billion.
“Making sure that we deliver to New Zealanders the core services that they need, the health education, housing, the infrastructure, that is something that I think we need to put first, it’s also something that’s going to cost more,” Robertson said.
For that reason, he said he believes tax cuts “are not the appropriate economic strategy when we’re facing the recovery from a cyclone and significantly higher inflation than we had wanted”.
The minister said there is a balance between supporting Kiwis while also ensuring the Government isn’t exacerbating inflation by pumping more cash into the economy.
In his speech on Thursday, Robertson said promising tax cuts may be a “convenient political line to run”, but he doesn’t believe it’s an economic policy “appropriate to this time in New Zealand”.
“I don’t go around telling people that spending on public services will go up, public debt will go down and taxes will be cut, all at the same time. That fiscal Bermuda Triangle is the domain of the Opposition and I don’t believe it is either realistic or credible.”
He later told reporters that was a “pretty simple equation”.
“If you take revenue out, how are you going to make up for that? You’re going to cut services? You’re going to increase debt?
“That’s the issue that those who favour tax cuts right now have to answer.”
Robertson said the cost of living would be a priority for the Budget but “we’ve already done a lot in that area”. He pointed to the Government’s April 1 package, which included increases to the minimum wage, superannuation and benefits.
There was also the cost of living payment last year, he said.
The Prime Minister last month ruled out any major tax changes in the Budget, like the introduction of a capital gains or wealth tax.
Both the National Party and the ACT Party came out after Robertson’s speech criticising the savings for being too little, too late.
“In last year’s Budget, Mr Robertson sprayed the public money hose around with wild abandon, adding $38 billion in new spending over four years,” National’s finance spokesperson Nicola Willis said.
“Now he expects New Zealanders to be grateful that he’s cleaning up a small corner of the spending mess, having only been able to sacrifice less than 1 percent of overall Government spending.”
She said Robertson’s speech “read like a resignation letter” and she’d be happy to take over his job.
“A resignation letter from a Finance Minister who has resigned to the fact that he does not have what it takes to restore discipline to Government spending.
“What he should be doing in this Budget is finding the savings needed to ensure New Zealanders can keep more of their own money.”
National has a policy of indexing tax thresholds to inflation. However, how exactly that would be paid for is yet to be revealed – with the party only pointing to reduced spending on some large projects and consultants.
Willis said National “would want to” do that in a way “that didn’t add to inflation”.
“That means finding the savings to fund that package,” she said. “We would also want to ensure there is more funding going into frontline health and education services and that will require repriortisation of some things that are lower priority. Be that consultancy spending, be that money going into Government advertising.”
She said she was confident that “we will find the savings”. A fully-costed fiscal plan will be released by National prior to the election after the Pre-Election Economic and Fiscal Updates (PREFU) have come through, Willis said.
“It would be irresponsible for me to commit the details of our fiscal plan without first knowing what the growth projections are, what the inflation projections are, what the interest projections are. All of that data needs to be brought to bear on our plan.”
Meanwhile, ACT leader David Seymour said it was “simply embarrassing” Robertson could only find $4b in savings.
“Robertson is relying on people believing that $4 billion is a big number but in the context of the entire Government budget, it is minuscule. Labour increased core Crown spending by $48.75 billion between 2018 and 2023.”
ACT is preparing to release its alternative Budget on Monday.
The party said its Budget “is designed to raise productivity and wages, make the Government’s books sustainable and create a culture where work, savings, investment and innovation are rewarded”.
“It takes on politically difficult issues that others avoid, to secure our country’s status as a first-world country. It deals with the size of [the] Government and its debt, and the structure of our tax system.
“Kiwis need lower, flatter taxes, paid for by reducing wasteful spending. We need to scrap government departments that don’t add value.
“We need less red tape on hardworking New Zealanders.”