This is despite finance minister Nicola Willis including “improving public services” as a priority in her Budget Policy Statement, which was announced on Wednesday.
A deteriorating economic outlook has prompted the New Zealand government to kick a surplus into the never-never and push on with a budget with tough cuts.
Willis unveiled the policy statement with a previously forecasted return to surplus of $NZ3.4 billion ($A3.1 billion) in 2027-28 now set to be a $NZ600 million ($A551 million) deficit.
Treasury’s statement concluded a lower tax take – tipped to shrink by $NZ13.9 billion ($A12.8 billion) in the next five years – made it “premature to identify a surplus date”.
Willis will deliver the coalition government’s first Budget on May 30. She was contending with twin challenges of ballooned government spending during the COVID-19 era which placed the budget into structural deficit, and a gloomy economy which produced less tax.
“The legacy of elevated, lazy spending requires correction over several budgets,” she said.
The worsening set of books means New Zealand – which last posted a surplus in 2019 – is likely to spend at least eight years in the red.
New Zealand is currently in a shallow double-dip recession, with gross domestic product (GDP) falling in four of the last five quarters, most recently by 0.1% in Q4 2023.
The revised forecasts tip GDP growth of just 0.1% this year and unemployment rising to 4.6%.
Despite the worsening projections, Willis said the government was pushing ahead with promised income tax relief from last year’s election, which will provide cost of living relief, but worsen the books further.
“It is the most responsible thing we can do to deliver for New Zealanders who have gone through a prolonged cost of living crisis, many of whom are struggling,” she said.
“The most effective relief we can get is allowing them to keep more of their own money.”
Willis pledged the tax cuts would take effect from July 1, but would not be drawn on how closely they would resemble National’s campaign promise.
The coalition – a triumvirate of the centre-right National, libertarian ACT and populist NZ First parties – is still negotiating the Budget, with pledges by all three parties in the mix.
Willis eschewed recent convention by opting not to reveal her operating allowance in the policy statement, saying instead it would be lower than $NZ3.5 billion ($A3.2 billion).
Labour leader Chris Hipkins attacked the finance minister for both her failure to commit to an operating allowance and continuing her path of tax cuts and public service cuts.
“They can’t even answer the most fundamental question, which is how much money they’re going to spend in the Budget,” he said.
“It shows the level of dysfunction that this government seems to be operating under.
“Tax cuts simply aren’t affordable. I think the reason that the budget policy statement is so unclear is because they simply can’t make the numbers add up.”
Willis said her five Budget priorities are tax relief, finding “enduring” savings, improving public services, funding “a limited number of high-priority” commitments, and laying a long-term pipeline for infrastructure spend.
Australian Associated Press
