A leading economist says the country is going on a "spending diet" for the next few years as the Government gets the fiscal accounts from the red into the black.
While public service cuts and scrapping of Government initiatives have dominated news headlines for the past few months, independent economist Cameron Bagrie warns the country "ain't seen nothing yet".
"In the next couple of years, we're going on a diet of epic proportions," he said.
The Government revealed in its Budget on Thursday that its operating allowances will be less than expected, with the Treasury warning this could leave the Government without enough money to meet cost pressures to maintain existing services.
This Budget's operating allowance was $3.2 billion per annum - the lowest since before the COVID-19 pandemic - which is how much additional money a Government has available to spend.
Willis has lowered the operating allowance for future Budgets to $2.4 billion in Budgets 2025 to 2027. It is considerably lower than the allowances set in Treasury's Half-Year Update which had an operating allowance of $3.25 billion for 2025 and $3 billion for 2026 and 2027.
Operation allowance should have enough to cover cost increases to existing services, such as building costs and wage rises, and leave headroom for other investments.
The Treasury is forecasting that the Government's future Budget allowances are unlikely to cover future cost pressures, falling short $0.1 billion.
"This means any shortfall and spending on new initiatives will need to be offset by expenditure savings, reprioritisation or revenue raising policy changes for each of the next three Budgets for the Government to manage within the signalled budget allowances," Treasury said.
"This will involve difficult choices and trade-offs for the Government which are likely to become harder over time."
Willis has acknowledged managing the future allowances will be challenging and savings and reprioritisation will be a feature of future budgets.
Appearing on AM on Friday, independent economist Cameron Bagrie said Budget 2024 was a taste of what's to come.
"By the time you take off what's already allocated [in its allowance], through your allocations to health, you've got a billion dollars left for the 2025/26 budgets - it's chicken feed," he said.
Bagrie said the tough economic environment and difficult fiscal conditions require tough decisions.
"The economy has been beaten up and when the economy's beaten up you don't have that economic base that wellbeing is premised so the Government doesn't have the tax revenue," Bagrie told AM co-host Lloyd Burr.
"[When] you don't have the tax revenue, you don't have the lollies to throw around in regards to spending on the other side so it's going to be difficult."
During her post-Budget speech at ANZ on Friday, Willis said the Government has three economic goals: To get back to surplus in 2027/2028, reduce net core Crown debt to between 20 percent and 40 percent of GDP, and reduce core Crown expenses towards 30 percent of GDP.
"I would like to achieve those goals faster than the projections currently show, but the Government is not planning an aggressive fiscal consolidation, instead we are taking a deliberate, medium-term approach and we will not overreact to movements up or down in the forecasts," she said.
"We will be making difficult decisions and trade-offs to turn the financial situation around to get back to surplus and reduce debt, but I am determined that we will also look after New Zealanders on the way through."
Some of the difficult decisions the Government has been slammed for include scrapping the First Home Buyers' grant, cutting public service 'back office' spending and cutting funding for environmental programmes. Opposition parties have heavily criticised the Coalition's priorities as it has simultaneously provided tax cuts and restored interest deductibility for landlords.
"When you throw money around, like we have for the past five years, and don't see outcomes on the other side, you've got to look at things and now we are taking a bit of a look," Bagrie said.
"What we've seen to date is you can slice off a bit of fat. The next couple of years that balance between fat versus muscle is going to become increasingly interesting."
When asked whether the tax cuts were worth it, Bagrie said he doesn't think they are a top five priority and was concerned the funding of those cuts over the next few years will go head-to-head with core Government services and infrastructure.
"If you pay for one, you've got less money to pay for the other," he said.
