Who is responsible for $17b debt, when did Government drop cancer drugs, and changes in store for ACC and charities tax

Finance Minister Nicola Willis during her appearance before the Finance and Expenditure committee at Parliament on June 19. Photo / Mark Mitchell

Whose fault is it that the Government’s net borrowing will be $17.1 billion higher than expected in the next four years?

Did the Government even try to fund the 13 cancer drugs the National Party had promised?

And why is it that four years after backing the Zero Carbon Act, National and NZ First’s first Budget in Government together is set to increase emissions out to at least 2035?

These were the questions Opposition members put to Finance Minister Nicola Willis when her first Budget was put under the Finance and Expenditure Committee’s microscope during scrutiny week.

Members were feeling particularly pugnacious during the committee, with Willis’ answers occasionally including barbs directed at the former Government so pointed that Labour MPs asked for right of reply.

Cancer promise

Willis was quick to try to shut down attacks on the Government’s decision not to include Budget funding for 13 additional cancer medicines National had promised to fund by July 1 this year.

Facing questions from Labour’s Finance spokeswoman Barbara Edmonds, Willis was forced to explain how hard the Government had tried to fund the cancer drugs.

Treasury documents show the policy was analysed when the Government took office last year (unlike other policies, Treasury did not provide its own costing), but there are no further publicly available evidence of how hard the Government had looked at the policy.

“The bid was taken forward into the Budget process,” Willis said, confirming a Budget bid was made for funding in the 2024 budget.

“The policy did require more work. It was not resolved in time for Budget 2024... We agreed it would be a priority for Budget 2025,” Willis said.

She said the Government was still getting advice on the scheme this year.

Finance Minister Nicola Willis was flanked by Treasury deputy secretary Struan Little and chief executive Caralee McLiesh. Photo / Mark Mitchell

Willis confirmed there would be an announcement shortly that would mean the drugs being funded this year.

Edmonds asked why the Government hadn’t set aside a “tagged contingency”, which is money set aside in the Budget for something to be designed and announced in the future.

“A contingency still requires that you have policy framework and parameters,” Willis said.

“There was still a considerable delta... there was a very extensive range,” she said.

Debt blame game

Willis argued opposition members had conflated the reason why the Government is borrowing so much more than forecast prior to the election, with Treasury forecasts showing larger deficits and higher borrowing levels than under Labour.

The Opposition has slammed the Government for these forecasts, arguing the Government’s large tax package is partly to blame for the worsening fiscal situation.

Willis argued that the Opposition was “wilfully” conflating two issues: the Government’s decision to reduce revenue coming in by cutting tax, and the fact that overall forecast revenue had declined because the economy was forecast to grow less over the next few years.

She said that when taken in the round, the Government’s decision to cut spending and reduce spending growth would mean that it would borrow less than a re-elected Labour Government would have. The argument is that while the tax cuts would obviously hit forecast revenue, this was offset by the Government’s cuts.

Labour's Barbara Edmonds attacked the Government over a broken cancer drug promise. Photo / Mark Mitchell

Treasury’s Budget Economic and Fiscal Update found that about a third of the $28b hit to revenue over the forecast period was due to tax cuts, while the remaining two-thirds could be attributed to lower growth and economic conditions, particularly data “showing that business income tax payments have been significantly lower than previously forecast”.

“Yes, the fiscal forecasts have deteriorated but not as much as they would have,” Willis said.

“If the Government maintained the operating allowances of the previous Government, the operating balance would not have returned to surplus until at least 2031,” she said.

Budget contributes to emissions

Green Party co-leader and climate change spokeswoman Chlöe Swarbrick came to the committee with answers to written questions showing the impact of the Budget on the Government’s three emissions budgets stretching out to 2035.

The Budget has the effect of increasing New Zealand’s emissions in all three emissions budgets, although Willis said that the Government is still “on track to meet the emissions budgets”, however “there will be less headroom”.

A recent methodological change is partly responsible for forecasts showing New Zealand is likely to meet the Budgets.

Chlöe Swarbrick noted the Budget will increase emissions.

Written answers to questions from Swarbrick showed there will be emissions of 0.157 additional MtCO2e (Megatonnes) over the first emissions budget which lasts from 2022-2025; there will be 0.280 MtCO2e over the second Budget from 2026-2030, and 0.435 MtCO2e over the third budget which lasts from 2031-2035.

Willis was critical of this modelling, noting that it only looked at about 40 initiatives. She said it “highlighted the emissions impact of increasing the number of frontline police officers and or purchasing defence vehicles”.

Swarbrick noted that Wednesday’s failed auction of Emissions Trading Scheme units showed the market no longer believed in the Government’s emissions reduction promises.

Charities in the spotlight

Willis revealed the Government was looking at some big changes to help pull itself back into the black.

The first is work on taxing some charities. Currently, some entities that are probably better described as businesses claim charitable status, meaning they do not have to pay company tax. Willis said the Government was looking at this, but the challenge was separating out actual charities doing charitable work from entities that would be better described as businesses.

Changes to ACC and Crown Entity reporting

Another big change was the way the OBEGAL (Operating Balance Before Gains and Losses) was calculated. Willis said that things like Crown Entities were substantially contributing to the large OBEGAL deficit and she was getting advice on whether some of those entities should actually be excluded from the OBEGAL figure.

ACC was singled out.

Willis said ACC is ultimately “self-funding [through levies]... but it has dips over the years. That has a significant impact on our deficit position”.

The BEFU document highlighted this, saying ACC contributed $3.4b to OBEGAL deficits over the forecast period, although it warned “the expected ACC contribution to OBEGAL deficits largely reflects that ACC levies are not expected to fully cover costs (eg, insurance expenses)”.

“The full funding model for ACC also expects investment returns to contribute to claims costs over time, with this revenue captured in gains and losses rather than within the OBEGAL measure,” it said.

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.