What you see is what you get. Mostly.
For all the coalition haggling, culture wars and “let me be clear” obfuscation we’ve seen in the first six months of this government, National has delivered a very National budget. It’s not so much the axe being swung in this budget as the pendulum – the centre-right is back in charge and is getting on with its core business – shrinking the size of government.
National has – as promised – knelt before its one true god – tax cuts. By changing tax thresholds, National has reduced personal income tax of the first time since 2010. A whopping $14.7 billion is going into tax cuts over four years, almost exactly the $14.6b Nicola Willis said it would cost during the Election 2023 campaign. The main change of tack we’ve known about since the coalition agreements were signed; a foreign buyers’ tax isn’t being introduced to help pay for the cuts. It was always a mythology anyway. Instead, cuts have been made – “savings” and “reprioritisations” if you prefer the government’s language – to deliver on National’s promise. And will borrow more.
Willis promised an operating allowance of $3.2b, lower than Labour’s promised $3.5b. She delivered it, relishing the fact it’s the lowest in real terms since 2017. She noted that in 2023 Labour’s operating allowance had reached $4.8b. For this government, size matters. The smaller the better.
What little new money there is, goes to health (more security, maintaining hospitals), education (more buildings) and law and order (more police, more pay), although most of that will do little more than maintain the status quo.
There are no surprises and little sleight of hand here. (We’ll get to that bits there are later). The good news for democracy is that New Zealanders will wake up the morning after Budget day to knowledge they will get almost exactly what they expected when they woke up the morning after Election day; which is the agenda the majority of New Zealanders voted for.
The political question is, now that National’s laser-like focus on tax has been delivered, will voters like what they’ve got? And what they’ve given up to get it. And what’s not on the list. Sometimes, the promise that’s delivered is not the promise that delights.
The harsh reality for the government is that voters have already psychologically banked their tax cut, well before they bank the actual cash. There will be little excitement – or poll movement – for a National government delivering tax cuts. It’s like summer sun or winter rain – just to be expected.
What’s likely to be more front of mind for many is that the government’s way of easing the cost of living pressure comes at the expense of other ways of easing the cost of living pressure. The subsidised bus fares, increases to benefits by indexing payments to wages rather than inflation, plans to increase the smoking age and ban smoking for future generations, free prescriptions, first year fees-free for students (moving to final year free), the clean car discount and so on.
Today, you can toss in cuts to the Human Rights Commission, NZ Symphony Orchestra, and the Warmer Kiwi Homes scheme. They’re all trimmed to pay for your holy tax cut.
What’s missing? How about plans to help GPs whose funding formulas mean many are barely hanging on? More state houses? Given that last year’s PREFU said any economic growth will largely be based on immigration growth and we already have an infrastructure deficit estimated at more than $200b, how about a serious commitment to infrastructure spending? The two big items in this year’s infrastructure budget are more roads and a new prison. Is that enough to prepare us for a rapidly changing climate, ageing population and record numbers of new New Zealanders?
But the bitterest of political pills is National’s failure to meet its promise of $70m in Pharmac funding for 13 new cancer drugs. This is what New Zealanders will remember in a week’s time, when the numbers and spin have faded. The stories of Kiwis who will die because of a broken promise will be brutal.
Place that alongside the changes to smoking and benefit policies and the government has made it very easy for Opposition parties to argue it is the most vulnerable who are paying for these tax cuts. When the government has also chosen to stick with its near $3b boost to landlords with the return of interest deductibility on rental properties, National has delivered a fiscal plan that is exactly what it promised, but also exactly what Opposition parties will have hoped for. Labour and co gets to shake its head sadly over the next year and say, ‘we warned you. The poor subsidising the rich, how predictably National’.
What’s more, National has – in what will be the most discomfiting move for its MPs and party members and is the other dirty – committed to a $12b increase in borrowing over the next four years. Willis insists she’s not borrowing to pay for tax cuts, because that’s at odds with her promise to return the government to fiscal discipline. But the truth is that the government couldn’t afford the tax cuts delivered today without BOTH cuts and borrowing.
So the bottom-line for Budget 2024 is that National (to ACT’s delight) has shrunk the government’s bottom-line. But here’s the real news from Budget 2024, and it’s all about Budget 2025 and 2026. After this year, the moderating influences of an election campaign fade into the rearview mirror. Prime Minister Christopher Luxon has called today’s budget a “careful budget”. But after this year, he’s not promising to be so careful. The shrinking government will continue to shrink over the rest of the term; down to what RNZ’s Business Editor Gyles Beckford called its “barest of bare bones”.
The government’s spending allowance for the next two years is a mere $2.4b a year. Half what Labour spent in 2023. And roughly half of that is already committed to health. The room for new spending, new programmes and ideas, or dealing with emergencies, is almost non-existent. This government is promising the status quo, but no more. What you see is what you’re going to keep getting. Or less.
And if you’re tempted to shrug and say Willis will spend more when the pressure comes on, remember how determinedly she has kept her promises this year. And hear her when she said of those $2.4b allowances, “we intend to stick to them”. Government cuts, she says, will be “business as usual”.
Willis is betting on a growing private sector to pick up the slack as the government withdraws. That just like the 2010s, house prices and immigration will be enough to satisfy voters as the government does less. The pendulum has swung, the era of the shrinking government is back and has only just begun.