The Coalition Government's mini-Budget delivers nearly $7.5 billion of savings as part of what Finance Minister Nicola Willis is calling a necessary "economic clean-up" as Treasury warns of slower-than-expected growth and just a "wafer-thin" surplus now expected in 2027.
Anyone looking for any surprises in the mini-Budget documents released on Wednesday will be disappointed, as the decisions for the most part reflect National's election promises.
While the mini-Budget includes pulling the Brightline test back to two years from July 2024, estimated to cost $180 million, there's no other immediate relief – that will come next year, Willis said. Notably, details of restoring interest deductibility for landlords won't be announced until next year.
The savings laid out include reversing the previous Government's extension of 20 hours free early childhood education to two-year-olds and repealing free and half-price public transport for those under 25. Other savings are found by ending Let's Get Wellington Moving, Lake Onslow and industry transformation plans.
The Government will also end the commercial building depreciation programme from April (about $2.3 billion in savings) and index benefits to inflation.
The Government will also create a 'climate dividend' by returning funding from the Government Investment in Decarbonising Industry Fund (GIDI), return uncommitted funding from the Climate Emergency Response Fund (CERF) and return uncommitted CERF funding from the National Land Transport Fund (NLTF).
So why is the Government pulling back on these programmes?
Willis said it's to strengthen New Zealand's currently "fragile" economic position, deliver cost of living relief in the form of tax cuts next year and restore responsibility to public finances.
"Today's half-year economic and fiscal update (HYEFU) lays bare the extent of Labour's economic and fiscal vandalism," she said.
The HYEFU, which was released by Treasury on Wednesday, includes forecasts finalised on November 24, so prior to the Government forming and without accounting for the new Government's mini-Budget decisions.
Most significantly, Core Crown tax revenue is expected to be $1.6 billion lower across the forecast period compared to the pre-election update, including due to worse corporate tax take, while expenses are up due to higher debt-servicing.
This means that while the Government's books will still return to a surplus in 2026/27, it will be by just $140 million compared to $2.1 billion forecast in the pre-election update.
Willis described that surplus as "wafer-thin" and "deeper deficits" will necessitate the fifth consecutive increase to the Government borrowing programme, up by $7 billion more over the forecast period. The net debt track will be higher over the forecast period, Treasury said.
Additional planned savings
The $7.5 billion in savings were just the beginning, Willis said, pointing to a Fiscal Sustainability Programme the Government had started to "embed a culture of responsible spending across Government".
"The first step in this programme is an Initial Baseline Exercise for Government agencies designed to find around $1.5 billion per annum in savings to deliver on our policy commitments and fund critical cost pressures," she said.
This would include $500 million per annum in baseline savings initiated by not completed by the former Government as well as previous promises to reduce consultancy and departmental spending.
Willis has also written to ministers asking that their agencies find savings ahead of next year's Budget, with each individual agency's target informed by their headcount growth since 2017.
This is part of National's coalition agreement with the ACT Party. It's unclear if it will meet National's pre-election target of finding savings on average of 6.5 percent across departments.
Other ways the Government plans to save money in the future include taxing online casino gambling operators, stepping up audit activities of IRD and replacing the current fees-free policy with a final-year fees-free policy.
'Financial time-bombs'
A lot has been made of the so-called "fiscal cliffs" and other "financial time-bombs" Willis apparently found when she took on the job as Finance Minister last month.
Willis said on Wednesday that to deal with capital project issues, she was asking ministers to undertake a "health check" on medium and high-risk capital projects in their pipeline to understand and respond to any cases of under-funding, cost blowouts or delivery risks.
Last week, Willis announced that the Government had declined future funding for the iRex InterIslander ferry project, which she said had quadrupled in forecast cost.
The "fiscal cliffs" Willis has spoken about refers to time-limited funding for some schemes and which the new Government will have to fund from new operating allowances if it wishes for them to continue. Essentially, these are initiatives that haven't been given continuous funding.
The former Finance Minister Grant Robertson has said there is often time-limited funding for projects and National left these in its last Budget before leaving office in 2017 as well.
Willis laid out 21 fiscal cliffs in her mini-Budget documents where the costs over the forecast period is more than or around $50 million, though some she has already spoken of. They include Pharmac funding, the school lunches programmes and the apprenticeship boost.
"I am advised that fully continuing funding for all of these programmes would come with an indicative fiscal cost of $7.2 billion over the forecast period," Willis said.
She said that just because some of these were well-known, that doesn't mean they are justified. They shouldn't be time-limited, she suggested, as Kiwis would expect them to be continually funded.
The Finance Minister said she had asked ministers to identify other fiscal cliffs in their portfolios which may come under the $50 million threshold. One example she gave was the funding for period products in schools, originally funded at $8.1 million per years, which ends in 2024/25.
She's also asked Treasury to improve transparency about fiscal risks for next year's Budget, with greater quantification of the risks where possible. These improvements could then be entrenched into the Public Finance Act.
