Mini-Budget 2023: Finance Minister Nicola Willis unveils $7.4 billion in cuts and savings as Treasury releases Hyefu

Finance Minister Nicola Willis unveiled $7.47 billion in cuts and savings in her mini-Budget today, part of a drive to beat the books into shape as a gloomy economy weighs on the Government’s finances.

The savings over four years are made up of $2.61b by stopping work on initiatives including Let’s Get Wellington Moving and Fair Pay Agreements, $2.0b from the Emissions Trading Scheme, and $2.8b from tax and benefit changes. It includes $500 million in savings started by the previous government.

On top of these, Willis has committed to annual cuts of $1.5b of annual public service “savings”, which add up to $6b over the four-year period.

Willis said Treasury’s Half-Year Economic and Fiscal Update (Hyefu), released with the Budget, “lays bare the extent of Labour’s economic and fiscal vandalism”, and promised that an “economic clean-up” would begin today with the mini-Budget.

The forecasts are indeed gloomy: a weaker economy since the last update in September has seen the tax take fall by $1.6b over the forecast period, while expenses have grown, mainly because of more borrowing and higher interest costs.

Story continues after blog:

Kia ora. Finance Minister Nicola Willis has today announced her mini-Budget. If you're just joining us now, here is what you need to know.

Mini Budget and HYEFU at a glance

CUTS

$7.47b in cuts over four years

Made up of $2.61b by stopping work on initiatives including Let’s Get Wellington Moving and Fair Pay Agreements, $2.0b from the Emissions Trading Scheme, and $2.8b from tax and benefit changes

Includes $500 million in savings started by the previous government

Plus $1.5b of annual public service “savings”, which add up to $6b over four-years

TREASURY FORECASTS

•GDP growth - to average 1.5% over two years, compared to 3.2% in the year to June 2023

•Surplus - $140m compared with $2.07b in Sept forecast

•Inflation - 4.1% to June 2024, then 2.5%, 2.2%, and 2%

•Unemployment - 4.5% in current year compared to 3.6% to June 2023, peaking at 5.2% in June 2025 year then falling

•Borrowing - $7b more than previously forecast over next four years

•Net debt - 23.2% of GDP in current year, compared to 18% in year to June 2023, peaking at 23.3% in year to June 2025

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20 December, 03:10 am

'Mini budget' breakdown: Everything to know

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20 December, 03:03 am

PM's office have released costing of Te Reo Māori lessons

Prime Minister Christopher Luxon's office have released the cost of his Te Reo Māori lessons, saying they came to $4150 during his year as Leader of the Opposition.

The te reo lessons came under some scrutiny earlier this week after AAP revealed they were funded by the taxpayer, despite Luxon's earlier criticism of spending on te reo Maori lessons for public servants.

Asked about the cost on his trip to Australia, Luxon said he thought it was "a good thing" that MPs learned te reo Māori, and funding it was not something to be opposed to.

Luxon was sceptical about spending on te reo Māori lessons for public servants when asked on 6 December whether bonus payments were a good way to encourage people to learn the language.

"What I'd just say to you is people are completely free to learn te reo themselves, that's what happens out there in the real world - out there in corporate life, or in any other community life across New Zealand," he said.

"I've got a number of MPs for example that have made a big effort to learn te reo over the last five years and they've driven that learning themselves because they want to do it."

He was then asked if that was paid for by the MPs themselves or taxpayers.

"In the real world, outside of Wellington and outside the bubble of Parliament, people who want to learn te reo or want to learn any other education actually pay for it themselves. It's quite normal," Luxon said.

Several MPs have said they had introductory te reo Māori lessons as part of their induction to being an MP.

Pinned

20 December, 01:47 am

Parliament in stitches over Nicola Wilis' gaffe

During Question Time in August, Willis was grilling then-Finance Minister Robertson over the state of the books, accusing him of “spraying New Zealanders’ money around” and only now asking the public sector to “tighten its belt”, following reports of a meeting between Robertson and public service bosses and a larger-than-expected fiscal hole.

Robertson hit back, pointing to past and ongoing savings and arguing the real issue was Willis now “couldn’t pay for the promises that had already been made”.

In what was until then a tense exchange Willis then began to respond, “How big is his hole...?”, before pausing over the last word as she appeared to realise the potential interpretation of what she was saying.

What began with a few chuckles as the faux pas caught on - the crucial word “fiscal” missing - built up to full-throttled laughter across the House. 

Willis attempted to, very briefly, carry on before giving in to the moment. Her colleague Joseph Mooney could be seen behind her barely containing himself.

“That is not in the public interest, I assure you,” the typically quick-witted Robertson responded, only leading to further howls of laughter from MPs of all stripes.

Willis sought to compose herself and respond but had to give up several times.“How big is... the New Zealand Government’s financial hole?” she was finally able to ask.

Pinned

20 December, 01:39 am

Analysis: Mini-Budget and Hyefu show something’s going to have to give to get books back in shape

Jenée Tibshraeny: Govt faces tough trade-offs to improve books

NZ Herald

The work starts now for Finance Minister Nicola Willis.

Pinned

20 December, 01:37 am

Grant Robertson: 'Hang on, don't talk about my sausage'

Finance Minister Nicola Willis has admitted its been a long year after making another lewd Question Time gaffe.

Talking about her Government's tax plan to be announced next year, Willis told the House, "What New Zealanders care about is the size of the sausage not how its delivered".

The house erupted in laughter. Deputy Prime Minister rose with a point of order, trying to deflect the questioning to Labour's Grant Robertson.

Robertson interjected, "hang on, don't talk about my sausage".

Pinned

20 December, 01:36 am

'It's been a year of bad quotes from me' - Nicola Willis

Robertson tried to get Willis to answer in detail how the Government will pay for its tax package, but all Willis said was that there would be a series of revenue streams including the $7.4b in savings that was outlined in today's mini-Budget.

She said there would also be further baseline savings, cost recovery for immigration levies, revenue from increasing IRD audits, and taxing online casinos.

She then prompted hysterical laughter when she said it was about "the size of the sausage and not how it's delivered".

She then said: "It's been a year of bad quotes from me."

Earlier this year Willis prompted laughter throughout the House when she asked Robertson, referring to fiscal holes, "how big is his hole?"

Pinned

20 December, 01:30 am

'Screaming volatile mess': Question time chaos over Smokefree legislation

A comment about the Government's plan to repeal the smokefree legislation prompted a series of shouting exchanges from both sides, with Peters eventually saying "shouting won't help you".

Peters continued speaking even though Speaker Gerry Brownlee rose to his feet, which usually silences the House.

"You may not think you've finished but I do, and I don't mean that in terms of your career," Brownlee told Peters.

Raising a point of order, Peters retorted that it had become a "screaming volatile mess" and, while he enjoyed some interjections, "that clownest cacophony of behaviour doesn't work".

Pinned

20 December, 01:25 am

National and Labour trade jabs during Question Time over mini-Budget

During Question Time, Willis said inflation was forecast to drop below 3 per cent in the second half of next year but will remain a challenge in coming months.

Government spending was $15b higher than forecast two years ago due to "loose fiscal policy", she said.

Asked if there was a risk the Government's tax cuts would lead to New Zealanders being worse off overall, Willis noted Treasury's comments that the overall impact would be broadly fiscally neutral over the forecast period.

Labour's Grant Robertson countered that Treasury also said once all the policies are rolled out there may be some changes and there was a risk the overall fiscal impacts may not be neutral.

Asked about National's plans to raise revenue by taxing online gambling despite NZ First's 2023 manifesto saying that it wasn't credible, Deputy PM Winston Peters, speaking on behalf of PM Luxon, said: "They couldn't run the school tuck shop. In our case we ask good questions and we're still waiting for an answer."

Pinned

20 December, 01:09 am

Mini-Budget 'leave much still to be explained' - Council of Trade Unions

The Council of Trade Unions economist Craig Renney said the so-called mini-Budget left a lot of questions unanswered.

“Despite calling for clarity on existing spending, the mini-Budget today does not provide any analysis of the tax cut or spending programme of the Government.”

“The government is claiming that it is cutting $1.5bn of spending per year. Of that, $0.5bn is commitments made by the previous government. $0.4bn is cuts which have already been committed to changing Early Childcare support. So only $0.6bn is new. $1bn of immediate cuts is money that comes from cuts to the transport budget – which is paid for by fuel taxes.

“The Government has claimed that it is delivering fiscal responsibility but has taken money from climate change to deliver tax cuts for landlords and it’s taking $676m from welfare payments.

"It’s unclear how that will make delivering on the child poverty targets easier or make the cost of living easier for low income families.

“The announcements today leave much still to be explained. There appears to still be a debate within government about when key planks of the tax cut package will be delivered. Yet there is nothing in this package to help with the cost of living. New Zealanders have to wait until May next year to find out what the plan is. The Government should be making this clear today.”

Pinned

20 December, 12:59 am

'I'm proud of what we did as a government': Grant Robertson responds to Nicola Willis

"I'm proud of what we did as a government. We navigated through some very choppy seas. We kept New Zealanders in work, we kept our levels of government debt low relative to the rest of the world. We've seen the economy grow by about 7 per cent since Covid began. I don't apologise for that," Grant Robertson said.

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The Government bond programme has been extended by $7b since the last update in September. The country is expected to enter a real GDP per capita recession, with GPD per head of population going backwards for two consecutive years. The cumulative effect of this on the books is to shrink the $2.1b surplus in 2027 that Treasury forecast in September to just $140m.

The forecasts were finalised as the new Government was sworn in and do not take into account any decisions it has made in its mini-Budget.

Willis said the “culture of fiscal discipline has been degraded” under the last Government, and said there would be new rules drafted for Cabinet spending decisions, and the Public Finance Act, the overarching piece of legislation that regulates how the Government’s books are managed, would be amended.

Finance Minister Nicola Willis arriving with Treasury Secretary Dr Caralee McLiesh and officials for the Hyefu lock-up at Parliament. Photo / Mark Mitchell

Treasury costs new Government’s programme

Not all of the problems in the books can be laid at Labour’s door. Treasury’s costings of a couple of National’s campaign promises have hit a key campaign promise. National had wanted to save $2.3b over the forecast period by indexing benefits to CPI inflation rather than wages. As a result of changes to forecasts of CPI and wages, this policy will now save the Crown just $647m.

Ironically, this will mean beneficiaries do better than under the status quo in the next two years because CPI inflation will be rising higher than the measure of wages used to calculate benefits.

This comes at a cost of $36m over the next two years.

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Treasury did not seem convinced the cuts would have a significant impact on the books, saying once the new Government’s tax plan, to be announced in full at the Budget next May, was incorporated “the overall impact” of the new Government’s changes “would be broadly neutral over the forecast period”. Willis cited this as a vote of confidence by Treasury that the tax plan could be afforded, but it could also be read as undermining the Government’s claim to be running a starkly different fiscal policy to its predecessor.

Willis re-committed herself to the coalition’s tax plan, saying she could deliver it. The mini-Budget included the first such measure, returning the Bright Line Test (a form of Capital Gains Tax) to two years. Treasury also warned changes like increasing the prison population could weigh on the Government’s books, although National set aside additional funding for this in its fiscal plan.

Willis was right that this was a “mini-mini-mini Budget”, it was in fact just six pages of press releases, a far cry from the 1800 pages of a full Government Budget.

There are few surprises in the document, the most significant part of which is a list of 16 mini-Budget decisions, which will have an impact on the Government’s books to the tune of $7.4b. This was a list of campaign commitments, which will have a cumulative effect of saving the Government money. Killing industry transformation plans, for example, will save $127m over the next four years; killing the Lake Onslow project will save $64m; ending the RMA reforms will save $302m, and ending Let’s Get Wellington Moving will save $525m.

Finance Minister Nicola Willis at the Hyefu lock-up at Parliament. Photo / Mark Mitchell

The biggest saving comes from ending commercial buildings depreciation, promised by both National and Labour, which is set to save $2.311b.

Fiscal cliffs

Willis also unveiled her list of fiscal cliffs, something she had been teasing for weeks. This was a list of 21 things which have time-limited funding that expires in the forecast period. The new Government will need to fund these cliffs if it wishes them to continue. The cumulative total of the “cliffs” is $7.2b over the forecast period.

Most of the items on the list were forecast in advance, including the School Lunches Programme, an increase in the Pharmac budget, Covid-19 vaccinations, and film subsidies. Willis drew attention to the Geohazards Science Services funding, a budget line with is crucial for the country’s resilience to earthquakes and other natural hazards.

National has committed to funding an increase to Pharmac’s budget, school lunches, and the apprenticeship boost scheme. Willis also revealed that a “cliff” in funding for Te Matatini - a nationwide kapa haka competition - which runs out in two years, would also be funded.

Treasury’s list of risks to the fiscal forecasts - a list of things that could rock the Government’s books - makes uncomfortable reading. Treasury warns the increased prison population, growing demand for legal aid, and the cost of meeting New Zealand’s international climate commitments could weigh on the forecasts. The Government’s film subsidy regime may also need a top-up.

Willis drew attention to the former Government’s Transport Investment Programme, which had $85b committed, well short of the $288b needed to deliver it.

Economic gloominess

The economic forecasts made for gloomy reading. Economic growth is forecast to be slow, because of high interest rates. GDP growth is expected to be just 1.5 per cent in 2024 and 2025, rising to just 2.8 per cent in 2026 and 3 per cent in 2027. The country is expected to enter a prolonged contraction in real GDP per capita growth, indicating a decline in living standards. In 2024 real GDP per capita growth will be -0.7 per cent. The decline continues in 2025, with a decline of 0.1 per cent.

Unemployment is set to rise to 4.5 per cent next year, and 5.2 per cent in 2025 well above the 3.6 per cent of 2023.

Inflation is the ray of sunshine, falling to 4.1 per cent next year and 2.5 per cent in 2025.

‘Nothing-Burger Budget’

Labour’s former Finance Minister Grant Robertson said he would dub Willis’ mini-Budget the “Nothing-Burger Budget” and said there was “not a shred of evidence” how National would pay for its tax cuts.

Labour's finance spokesman Grant Robertson. Photo / Mark Mitchell

“No one is any the wiser today as to how National will pay for their tax cuts than they were yesterday. She is claiming they are self-funding. There is not a shred of evidence for that in what she’s put up today.

”New Zealanders were told several things about the mini-Budget. The first of those was that they would have certainty about how tax cuts would be paid for. That is not here. We were also told we would know the details of the cuts to public services that were going to be used to fund tax cuts. That is not here either today.”

Robertson also rejected Willis’ claim that Labour was irresponsible in leaving so-called “fiscal cliffs”, saying time-limited funding for various projects was a regular feature of Budgets that governments had used over the ages, including the former National Government.

“I don’t believe Nicola Willis has provided any great revelation today at all.”

Asked if he would apologise as Willis had called for, Robertson said the Government books had been resilient in the face of significant economic shocks over recent years.

“New Zealanders have done it tough over the last few years, including in the cost of living pressures they have been facing, but what these books show is that the previous government stepped up to help them and kept the balance about right.

“I’m proud of what we did as a Government. We navigated through some very choppy seas. We kept New Zealanders in work, we kept our levels of Government debt low relative to the rest of the world. We’ve seen the economy grow by about 7 per cent since Covid began. I don’t apologise for that.”

The Council of Trade Unions economist Craig Renney said the so-called mini-Budget left a lot of questions unanswered.

”Despite calling for clarity on existing spending, the mini-Budget today does not provide any analysis of the tax cut or spending programme of the Government,” Renney said.

”The Government is claiming that it is cutting $1.5b of spending per year. Of that, $0.5b is commitments made by the previous Government. $0.4b is cuts which have already been committed to changing Early Childcare support. So only $0.6b is new. $1b of immediate cuts is money that comes from cuts to the transport budget - which is paid for by fuel taxes.

“The Government has claimed that it is delivering fiscal responsibility but has taken money from climate change to deliver tax cuts for landlords and it’s taking $676m from welfare payments.”

It’s unclear how that will make delivering on the child poverty targets easier or make the cost of living easier for low income families.

”The announcements today leave much still to be explained. There appears to still be a debate within government about when key planks of the tax cut package will be delivered. Yet there is nothing in this package to help with the cost of living. New Zealanders have to wait until May next year to find out what the plan is. The Government should be making this clear today.”

For more political news and views, listen to On the Tiles, the Herald’s politics podcast.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.