Budget 2024: We already know what’s in it, the focus will shift to what’s been cut to pay for it

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.

OPINION

It’s been a long time since we’ve had a Budget that’s been as comprehensively trailered as this one.

href="https://www.nzherald.co.nz/topic/labour-party/" target="_blank">Labour didn’t campaign on big fiscal promises in 2020. The expensive benefit increases that formed the centrepiece of its 2021 Budget weren’t a feature of the campaign and weren’t even singled out in the party’s social development policy beyond a commitment to implement the reforms of its welfare expert advisory group.

Budget 2018 was late to the party; Labour had already implemented its spendiest campaign promises in the $5 billion 2017 mini-Budget.

Not so the current Government. National has been promising tax relief in some form since 2022 (the inflation-adjustment commitment arguably goes back as far as 2019, four leaders and five and a half finance spokespeople ago). The promise was made explicit last August. Finance Minister Nicola Willis and Prime Minister Christopher Luxon have repeatedly said tax cuts are in the Budget, as promised.

Today, at 2pm, New Zealanders will discover to the surprise of no one that the Budget includes... tax cuts.

It’s unlikely to include much else.

National’s whole tax cut package was costed at $14.6b. Two big parts of that, the reinstatement of interest deductions and a tax credit for childcare, have already been announced leaving the centrepiece, a $10b inflation-adjustment tax thresholds and expanding a middle-income tax credit, for Budget day itself.

Willis and Luxon have followed the frustrating habit of their predecessors in not giving any detail about the shape of these cuts prior to Budget day. Questions are answered with the Father Christmas routine: “just X more sleeps”.

The risk the Government faces is that the tax cuts have been so heavily teased that the focus on Budget day is on the ways in which they differ from what has been promised, and whether they can justify the 200-odd programmes Willis has axed to afford them.

The tax cuts come with a hefty price tag.

Few expect the Government to surprise on the upside by offering people more – it simply can’t afford to. Some reckon it might try to penny-pinch by offering even less. Tax cuts that trigger on July 1 could be a headache for payroll systems. Blaming payroll providers for a delay until October, or even April, the beginning of the tax year, might give the Government a way of saving a billion dollars.

The Reserve Bank is watching too. A recent Cameron Bagrie column in BusinessDesk noted the Reserve Bank will be watching the timing of the cuts to test their inflationary impact. Labour’s finance spokeswoman Barbara Edmonds has twigged to this too, pressing Willis on it in the House on Tuesday.

The inflation impact of the cuts hits the second the cash enters the economy – whereas the savings made to pay for the cuts may take longer to have a balancing, disinflationary impact. That could put the Reserve Bank off course in its battle to fight inflation in the short term, just when the 1-3 per cent target band is in sight.

A Government that was swept into office on a mandate to fight inflation would be in a pretty difficult spot if its first Budget (and central campaign commitment) made the problem worse. Labour could run its 2026 campaign on a four-word manifesto: We told you so.

The other challenge for the Government is the intrigue that will naturally surround the 200 programmes axed to fund the tax cuts. Some, as Willis has said, are unlikely to be mourned by the public, others, like the end of First Home Grants, will be.

There’s an element of ripping the bandaid that comes in publishing them all at once, but there’s a risk that they might dominate the story tomorrow.

Then there’s the fiscals. After mercilessly attacking Labour for not sticking to its operating allowances in Government (leading to a growth in spending – even the OECD agrees), Willis looks set to do the same thing.

Finance Minister Nicola Willis is saying the operating allowance will simply be 'less than' $3.5 billion. Photo / Mark Mitchell

She campaigned on reducing net new discretionary spending, better known as the operating allowance, from $3.5b to $3.2b and reducing subsequent operating allowances accordingly.

The net effect of this was to reduce spending by $3b from what it would have been under Labour over the four-year forecast period, leading to downward pressure on inflation and less borrowing.

Now, however, Willis is saying the operating allowance will simply be “less than” $3.5b and it appears it will be closer to $3.5b than $3.2.

If that’s the case, it’s a fairly embarrassing broken promise, given how vigorously National prosecuted Labour for doing the same thing. It shows this National Government is more like the former Labour Government than some of its National predecessors, ditching promises of fiscal restraint, not for a massive spend-up, but for a slightly gentler ride back to black.

That bodes well for this Government’s electoral prospects, if not so much for the fiscals. New Zealand’s most deficit-busting Budgets of the early 1990s saved our fiscal reputation, but they nearly brought about the first single-term National Government in history.

Willis’ choices tomorrow may decide whether that unenviable accolade belongs to this Government, or some Government of the future.