ANALYSIS
Incoming Prime Minister Christopher Luxon has managed to bring two other parties into a coalition Government without seeming to lose anything substantive in his own party’s core election promises.
Whether the agreed-upon policy platform will go ahead without a hitch, however, is an entirely different challenge, especially when it comes to paying for National’s tax cuts.
As with any MMP election - with the exception of the outlier result in 2020 - the emerging Government was always going to have to make compromises in order to cobble together a parliamentary majority.
That means that what Luxon promised National would deliver to New Zealanders would always potentially be tweaked, changed beyond recognition or even scrapped altogether in post-election negotiations.
It’s no surprise that the policy platform for the National-Act-NZ First coalition swings the pendulum towards businesses rather than workers, farmers rather than environmental protections, landlords rather than renters, and towards a more punitive law and order system.
What was more interesting were the surprises, and there weren’t many. National gave zero room in terms of the tax relief it promised to deliver.
Bringing David Seymour and Winston Peters on board National’s tax-package express is no minor matter. They both questioned the credibility of the package before the election. They’ve now been privy to the inner workings behind the numbers that National refused to release in the election campaign, and have signed up.
In doing so they have given their implicit support that the tax relief can be implemented without borrowing, which would be inflationary, or cutting into frontline public services, which would hurt Kiwis in classrooms and hospitals.
That challenge is now more difficult, given NZ First - as expected - blocked National’s plan to open up the residential housing market to foreigners. That leaves a $740 million-a-year hole to fill.
Luxon appears to have stared down any attempt from NZ First to scrap National’s new online gambling tax, which NZ First also opposed in its 2023 manifesto. So that’s one less fiscal hole to fill, unless the tax fails to collect the $179m a year National says it will.
Making up for any revenue shortfalls will come from other means, Luxon said, given the savings and “reprioritisations” that could be dipped into.
Among those is the estimated $555m that National will no longer be spending to lift the Working for Families abatement threshold from $42,700 to $50,000 in 2026 (funded until 2028).
There is also the possibility of additional savings from a further shrinking of the public service. National had wanted a 6.5 per cent reduction from certain public agencies - generating savings of $594m per year - while Act wanted a far greater reduction by returning the public service to 2017 levels.
While stopping well short of Act’s wish to abolish a number of ministries and public service agencies - notwithstanding National agreeing to scrap the left-leaning Productivity Commission - National has agreed to look for efficiencies in the public service while keeping the 2017 levels in mind.
And then there’s the “buffer” of $9.9 billion in unallocated operating spending over four years in National’s fiscal plan.
Some bones were very easy for Luxon to throw to his partner parties.
Keeping the age of eligibility for superannuation at 65 for the next three years isn’t going to impact National’s policy to raise the age, given it wasn’t meant to start going up for another 20 years.
Supporting a Treaty of Waitangi Principles bill to select committee doesn’t bind Luxon to a 2026 referendum, which he has described as “divisive”, while allowing Seymour to say he tried to sway Parliament’s will.
Likewise select committee inquiries into the banking sector and into aged-care provision - at NZ First’s request - don’t commit Luxon to doing anything about either.
Agreeing to end all Covid-19 vaccine mandates is not hard given there are none operating, unless this applies to more general mandates in place for health and safety reasons - which isn’t specified. And agreeing to widen the Royal Commission of Inquiry into the Covid response doesn’t mean much without specific details about how it will be widened beyond what it is already doing.
Other concessions were easy to give as they were important to NZ First, but aren’t going to lose Luxon much, if any, face. This includes a national interest test before agreeing to any UN agreements, making English an official language of New Zealand, and having public service departments’ primary names in English.
Removing gender, sexuality, and relationship-based education guidelines in schools, and stopping sporting competitions that embrace gender diversity might hurt Luxon among some minority groups, but not enough for him to block these NZ First wishes.
In law and order, Luxon granting NZ First’s wish for “real consequences” for shoplifting isn’t a giant swerve from National’s law and order direction, while on other matters - a Coward Punch law and mandatory minimum sentences for assaulting first responders - Luxon has only committed to introducing, not passing, new legislation.
The list of concessions to Act includes many that wouldn’t have featured on a list of Luxon’s potential bottom lines.
National’s “taxpayer’s receipt” showing what you’ve paid in tax and received in return was always going to create a lot of bureaucratic costs and workload for minimal, if any, efficiency gains.
Its commitment to remove two farming regulations for every new one made no sense given the lack of any attention to what those regulations might actually do or have done.
And it means nothing that National now needs a cost-benefit analysis for its new medical school at Waikato University as well as its plan to expand the network of electric vehicle charging stations, assuming National was going to do those anyway (and it should have planned to do them if it wasn’t going to).
Luxon did not budge on Seymour’s wish to scrap the firearms registry but he agreed to reviewing it, as well as a rewrite of the Arms Act.
Another Act request - hitting pause on future changes to income tax beyond next year - is hardly a backward step for Luxon; future inflation adjustments to income tax brackets were only ever going to happen if it was “affordable and responsible”.
And granting Seymour his wish to be a check on government regulation might end up slashing red tape and saving the Government money on a long-enough timeline.
And it’s the Government’s money, or managing it, that remains one of the biggest question marks, given Treasury’s pre-election forecasts and the need for austere times ahead.
Luxon turned down some of Act’s pricier wishes that he might have been on board with in principle, such as a $250m-a-year teaching excellence fund.
He also turned down plenty of NZ First’s wishlist including a minimum wage of $25 an hour, a 50 per cent rates rebate for SuperGold cardholders, an additional $1.3b in the Government’s medicines budget, and a $925m-a-year “GP Waitlist Reduction Fund”.
Instead Luxon agreed to “modest” increases to the minimum wage, to “explore options” for rates rebates for SuperGold cardholders, and to “upgrade” the card, which could mean anything from a whole lot to not much at all.
Other costly items, such as a $1.2b fund for capital spending in the regions, or 500 more police, at least align with where National had wanted to head, though they’ll put additional pressure on government finances.
The former will dip into the $8b in unallocated multi-year capital allowance in National’s fiscal plan, while the latter into the aforementioned $9.9b in unallocated operating spending.
If there’s any of it left.
The incoming Government might have already spent it all, or most of it, to pay for its tax package or, God forbid, in response to a cyclone or natural disaster.
And that’s going to be the biggest challenge for this three-party coalition: how to walk the walk of delivering for all New Zealanders while walking a very fine fiscal tightrope.
Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery and is a former deputy political editor.
Expectations tempered around return to surplus in 2027/28.