OPINION
Part of the fun of any Budget is engaging in pre-Budget speculation - informed, uninformed and ill-informed - as to what the Budget might actually include.
Collected below is a list of things that the Herald thinks just might pop up in the Budget today.
All will be revealed at 2pm.
Every budget is preceeded by industrial-strength expectation management, dampening speculation of anything truly amazing in the Budget only for the finance minister to emerge on Budget Day - usually sandwiched between the cliches, “found money down the back of the couch” and “pulled a rabbit out of the hat” - with a headline grabbing initiative to frame that year’s spending.
This year, a weakening fiscal position means a dollop of money additional to what was already signalled is probably off the table. All Grant Robertson has to play with is $4.5b of new money announced in December last year and $4b (over four years) of “reprioritised” money for elsewhere.
There will be a headline grabbing initiative for sure, but with money tight and an eroding social licence for the Government to embark on major projects, there’s some speculation the Government might actually live up (or down - depending on your political persuasion) to the expectations it’s set.
Treasury’s HYEFU forecast warned $3.7b in new spending would be needed simply to “maintain the existing level of services”, leaving aside very little new funding for saucy, potentially election-winning policies. Lots of this has already been soaked up by the nearly $1b cyclone recovery spend.
Another big question is who will benefit the most from any cost of living support.
Labour has made a virtue of targeting its budget spends at beneficiary households and people on middle incomes (remember last year’s cost of living payment). Swing voters, however, tend to be on higher than median incomes, meaning Labour faces a choice in election year between further targeting spending towards the less fortunate, or deploying the middle-class welfare it’s found to be so electorally successful.
There’s also likely to be a bit of jiggery-pokery to feather an election war chest and limit the impact of any big spending decisions on the forward forecasts.
Robertson will probably drop a bit of funding into his “unallocated contingency” - a pot of money which can be spent later, which will come in handy during the election campaign.
But he will not want this to be too large because it will also give National additional money to spend on its own election promises.
Robertson will also face pressure to make the forward forecasts look rosy.
At the last election, he promised new operating spending of $2.625b in each of this terms’ three Budgets, only to increase his allowances to $3.8b in 2021, $5.9b in 2022, and $4.5b in 2023 - adding huge amounts of ongoing spending to the Government’s books.
Robertson is likely to keep the forward allowances relatively small in this Budget, despite the fact he will almost certainly increase them if Labour wins this election.
This will make the forward forecasts look rosier than if the actual amount of likely spending were factored in and will also give National precious little money to spend in its own pre-election fiscal plan unless it decides to increase the allowances itself.
Health was the big winner in Budget 2022, given two budgets’ worth of funding in one, meaning its Budget 2023 money has already been allocated. This doesn’t mean more money can’t be tipped into the system or that last year’s money can’t be re-tagged and re-announced this year.
There’s been some speculation health might once again be the headline grabber of this Budget, with Labour looking at ways of reducing healthcare costs as a cost-of-living style initiative. The Government doesn’t have the money for anything truly transformational, but there’s a chance it could look to reduce the cost of GP visits or Pharmac prescription charges.
The Government has heavily teased its ambition to fund more infrastructure and close the infrastructure deficit, suggesting transport and infrastructure could be one of the big winners this year.
It also has a massive $12b multi-year capital allowance in this Budget, so expect to see some of that soaked up in the highly political transport sector.
The Government’s tight operating allowance leaves very little room for significant new spending on day-to-day items. By contrast, the massive capital allowance (which the Government doubled in December) leaves plenty of room for new spending. The Government could be plotting to disguise uncharacteristic election year parsimony on the operating side of the equation, with a massive capital spend up.
There are a couple of questions that look set to go unanswered in this Budget. The Government still hasn’t announced promised funding tools for Auckland light rail and mass rapid transit in Wellington and Christchurch (it says these tools are still being considered), meaning while Labour promises to build them, the full cost of these projects isn’t yet on the Government’s books. Don’t expect a change to that in the Budget, as the Government will want to keep its debt track unburdened by such projects heading into the election.
Robertson has said additional money will be available to Waka Kotahi for “regional resilience” investments like culverts, slip protection and water pumps.
Waka Kotahi’s transport budget is already under immense pressure thanks to rising building costs and diminishing fuel tax revenue. A taxpayer bail-out out of the fund, even in the guise of regional resilience, will allow more investment in things like maintenance and new road construction - things very much at the heart of the bread and butter agenda.
The Government may also need to top up funding for existing transport projects which are facing massive inflation-induced cost pressures.
Climate resilience is a massive theme of the Budget, so announcements in this area are likely. A report into Waka Kotahi’s climate resilience, tactfully published earlier this week, added impetus to this spend.
Labour got its big social development spend out of the way in the first Budget of this term, when it substantially lifted main benefit rates. A similarly big spend seems unlikely this Budget, but keep an eye on Working for Families (WFF).
The Government wrapped up a wide-ranging review into the wildly complex WFF and recommendations have been sitting with ministers for months. Ministers have not been commenting on the review, citing Budget confidentiality - a sure sign the recommendations are on the table, even if they might not be taken up.
One obvious change is lifting the abatement rate of the abatement threshold for the tax credits to $48,000, aligning it with the tax system (it is currently $42,700). Lifting the threshold is crucial, particularly as wage inflation is lifting poorer households’ nominal incomes, whilst at the same time eroding their spending power.
This was actually submitted as a Budget bid in 2020, but passed over that year. Back then, it was costed at $220m. It would cost more now, but still a relatively affordable change that would put cash in the hands of struggling families. It will also help make the child poverty metrics, published alongside the Budget, look better - particularly as some of the metrics will come under pressure thanks to the rising cost of living and slowing economy.
Education has become a major political issue for Labour and the Government has already announced funding to bring down class sizes (an initiative that looked suspiciously like it might have been included in the Budget but announced early to blunt a particularly vicious and effective National attack).
More money somewhere for education seems like a safe bet. This is Labour in election year after all, but we’re scratching our heads as to what it might be.
Housing has done very well under Labour, with big funding increases across multiple budgets. The current build public housing programme ends in 2024, and will almost certainly be extended, given Labour’s keenness to continue building public housing.
An increase in funding to keep the build programme going is almost certain, although whether it’s included in this Budget is up in the air. Leaving it off the books to be included in next year’s Budget will allow the Government to present better debt forecasts for the election.
The Government has already announced $300m of climate spending for this Budget with more to come. This will come from the Climate Emergency Response Fund (CERF), a hypothecated fund which dispenses the proceeds of Emissions Trading Scheme Revenue.
Hipkins has promised the Government will make up the roughly 1 megatonne hole in New Zealand’s looming emissions Budget, opened by his earlier policy bonfire. We’ll probably need this policy in this Budget, given the first emissions Budget ends in 2025.
There has previously been talk of topping up the CERF with additional Crown money, given the scale of the climate crisis probably needs more funding than simply whatever can be earned from the ETS. This is especially pertinent this year, when ETS revenue has crashed along with the ETS price. It wouldn’t be a surprise to see additional revenue topped into the fund. Climate Minister James Shaw refused to confirm or deny this speculation.
Foreign affairs has had a good few budgets and defence got lucky this Budget with $419m for lifting defence incomes and $243m for new assets and infrastructure, announced earlier this month.
Further big investments seem unlikely, although foreign affairs may have a hand in how the money to offset New Zealand’s emissions under the Paris agreement is spent.
The justice sector is a difficult one to pick. Justice was one of two sectors to be funded using the new “cluster” approach in the last Budget. This means the justice cluster agencies (Ministry of Justice, New Zealand Police, the Department of Corrections, the Serious Fraud Office, and the Crown Law Office) were funded for three budgets in the last Budget, giving the ministries involved certainty over what their funding looked like in the future and meaning they did not have to come back for money on an annual basis (the government wants more agencies funded like this).
This probably means justice is unlikely to get big flashy announcements this Budget, or at least it would mean that if justice were not at the heart of one of Labour’s most pressing electoral problems: law and order and youth crime.
Labour couldn’t be clearer - there are no big tax changes in this Budget. Anyone paying attention will notice this leaves the door open to minor tax changes. Alas, those hoping for a tax cut will almost certainly be disappointed. It appears the Government was musing about a tax change earlier this year (this will be revealed in the post-Budget information release) but dropped the plan. A tax hike on the rich paired with a tax cut for middle income earners is probably on the table at the election, but probably not today.
This probably refers to minor housekeeping adjustments like closing loopholes that occur in each Budget (Revenue Minister David Parker told the Herald these occur in every Budget - a nod they are surely to recur in this one).
One change we’re likely to see is the announcement of Parker’s tax principles legislation, which requires the regular reporting of how New Zealand’s tax laws stack up against principles like horizontal and vertical equity.
I would look towards Whānau Ora for any big Budget day spending increase.
Hard to see how this much maligned portfolio fits with the bread and butter agenda. Alas. One thing to keep an eye on is the Screen Production Grant, New Zealand’s rather expensive film subsidy regime. This has been under review with decisions expected before Cabinet by the end of June. The Government has been clear the subsidies aren’t on the chopping block, or even significantly pared back, however it is looking to keep a handle on their costs. At the same time, the sector has entered a small downturn, leading to less expenditure.
It’s possible the Government may book these savings, and whatever savings may be gleaned from the review of the regime, and reinvest them elsewhere in the sector.
Expectations tempered around return to surplus in 2027/28.