The first and dominant encounter will be next year’s Budget.
Whatever the precise numbers Nicola Willis produces on December 17 when she unveils the Half-Yearly Economic and Fiscal Update, all the signs are that she will not meet her target of getting the country back to surplus by 2027.
Partly that will be the consequence of the recession induced by the Reserve Bank’s high interest rates with a consequent drop in tax revenue. And partly it will be a consequence of a huge cost blowout in health largely caused by Health New Zealand hiring a huge number of new nurses. This government is not going to fire nurses to make its fiscal numbers add up.
Otherwise, it has found the back office waste it claimed permeated Wellington difficult to identify and even more difficult to eradicate.
Already ministers are fighting their corners determined to resist any talk of austerity from the Finance Minister.
Willis herself has high hopes that the new Treasury Secretary, Ian Rennie, will do two things to make her budget-setting process easier.
She wants him to reassert the Treasury’s power within the Wellington bureaucracy so that its officials’ ruthless cost-benefit analysis dominates departmental thinking.
And she wants the Treasury to lead the thinking on how to grow the economy.
Government’s 2025 priorities
Growth and productivity will be the Government’s big priorities next year.
Plans are forming for a splashy launch of Sir Peter Gluckman’s review of the science sector along with the Prime Minister’s plans for a forum to discuss New Zealand’s opportunities for foreign investment.
Linked to this will be what follows the Select Committee Inquiry into banking.
This has been the product of agitation from Federated Farmers but follows the Commerce Commission’s inquiry into personal banking services whose results Willis highlighted in her address to the National Party’s annual conference earlier this year.
All the signs are that the Beehive will welcome even radical ideas from the committee on how to rein in the big four Australian banks and stimulate the growth of either new banks or an invigorated Kiwibank.
The other big leg of the growth agenda is in the resource management and infrastructure space, with a group of ministers led by Chris Bishop but including Simeon Brown, Shane Jones, and Act’s Under Secretary, Simon Court.
They have already produced a whole series of deliverables including reinstating the roads of national significance, repealing the Crown Minerals Act, using the Fast Track planning process and National Policy Standards to reinvent the Resource Management Act from obstructing developments.
Bishop expects his amended RMA Bill to pass early next year.
Then, he has promised the new rewritten Resource Management legislation will be introduced into Parliament before the end of next year.
Central to the government’s intention to get more order into infrastructure will be regional deals.
Invitations to submit a proposal for a regional deal will be sent to all councils this month.
The Government will then prioritise the regions that have the most potential to deliver on its economic growth agenda. Its intention is to have the first deal concluded by the end of 2025, with three deals expected to be in place by October 2026.
“Regional deals will support long-term collaboration between central and local government, delivering a joint long-term vision for regions that will be focused on economic growth and productivity,” said Bishop, unveiling the plan last month.
But it will take time for all those hopes to be realised so, for next year, the deficit blowout will be the loudest voice Willis will have to listen to.
Tensions over the Budget
That will probably mean there will be tensions within the coalition over the Budget.
Winston Peter’s criticism of the effectiveness of the tax cuts is an early signal of that and suggests that New Zealand First would be open to new revenue streams.
A windfall tax on the banks perhaps?
From the other end of the Cabinet table, David Seymour will probably take over as deputy Prime Minister a week or two after the Budget, assuming it is back to its usual time of mid-May.
So far it has been Act proxies like Richard Prebble and Rob MacCulloch who in recent weeks have begun to step up their commentary calling for a more aggressive approach to cost-cutting. But what they say in public is almost certainly what Seymour says to the Prime Minister and the Finance Minister in private.
Tensions within the coalition are likely to become more evident next year, particularly as 2026 and election year approach and the need for the two smaller parties to “brand” themselves become more important.
Resolving those tensions will be a test of Christopher Luxon’s political skills, which are hardly likely to be helped by Winston Peters telling an interviewer he was “struggling in the job, but not in a bad way”.
In the same interview, Peters said he was planning an 18-month election campaign once he relinquishes the deputy prime ministership in May.
That is unlikely to be welcome news on the 9th floor of the Beehive.
But Peters may find his day job as the Minister of Foreign Affairs more challenging next year.
He will have to deal with the international uncertainty provoked by the new Trump administration and navigate New Zealand’s relationship with China, which will be thrown into sharp focus when Luxon visits there to meet with Xi Jinping in the first half of next year. The Chinese Ambassador has made it clear any decision by New Zealand to sign up to Aukus would change the relationship with New Zealand.
Luxon has been notably non-committal recently about that possibility, but if (as looks likely) the Peter Dutton-led coalition wins the Australian election expected in the first half of next year, New Zealand could find itself under even more intense pressure from the country the Prime Minister calls “our only ally” to sign up.
But the immediate challenge facing Parliament is David Seymour’s Treaty Principles Bill which will be at the Justice Select Committee for oral submissions before the end of January.
The immediate worry is what sort of security threat it will provoke, given the likely protests at Ratana in January and Waitangi in February.
As far as Act and the bill’s principal opponents, the Māori Party, are concerned, the bill offers political opportunities. Act is using it to raise funds and entice supporters away from National, while the Māori Party is using it to encourage Māori to sign up for the Māori roll and thus boost its chances in the Māori seats.
In the longer term the Maori Party president, John Tamihere, has made no secret of his hope that more numbers on the Māori roll could lead to more Māori seats and thus his party occupying the balance of power.
But that is long term. The immediate challenge for the Government is next year’s Budget. As the former Australian Prime Minister Malcolm Fraser once famously said, “Life was not meant to be easy.”
