The most uninspiring election-year Budget in at least a decade - Thomas Coughlan
Finance Minister Nicola Willis got a standing ovation from her colleagues after her Budget. Did she deserve it? Photo / Mark Mitchell
Finance Ministers and political commentators have tended to deploy two clichés before and after Budget day.
Before, you’ll hear commentary that there’ll be no “no lolly scramble” or no “rabbit out of a hat”. Come Budget day itself, you tend to find the truth is the opposite.
This is particularly true in election-year Budgets: 2023 included free prescriptions, early childhood subsidies and free public transport and 2017 included the family incomes package (2020 was a Covid Budget and doesn’t really count).
Finance Minister Nicola Willis, by contrast, has lived down to her pre-Budget expectation setting.
There really is no lolly scramble; the public health and education systems get a decent dollop of additional funding to cope with cost pressures and some politically attractive funding for new hospitals and schools.
There’s $1.8 billion funding for a Road of National Significance (although nothing confirmed for the other roads in that programme which are dangerously over budget and may get scaled back considerably). There’s a massive $880 million in operating funding for defence.
But apart from that, on the spending side, there’s really not much. This may be the most uninspiring election-year spend in a decade or more.
This isn’t because Willis is being strictly apolitical and putting together a Budget that puts macroeconomics and fiscal sustainability above the political interest of her own party.
Willis’ speech in the Budget lock-up would swiftly disabuse you of that notion.
She launched a broadside at Labour and New Zealand First’s reluctance to alter superannuation policy as a plan to “rob” every New Zealander under 50. Her presentation included a slide deck showing Labour’s allegedly profligate spending in red, and the coalition’s allegedly responsible alternative in blue.
This is a boring Budget – but its boringness is deliberate.
If there was a rabbit-out-of-hat moment, it was that these numbers show Willis delivering not just a surplus, but a healthy surplus of $2.6b in 2028/29 – in line with the Government’s target.
That is something of a reversal of fortune for Willis, who for three years has seen the fiscal goals National campaigned on shredded, first by economic forecast revisions from Treasury, then by lower global growth in the wake of Donald Trump’s tariffs and then again by Trump’s war in Iran (Treasury should probably consider giving Trump his own section in the fiscal risks chapter).
Finally, Willis has some good news to show for her efforts – something that looks a wee bit more like the “back on track” voters were promised in 2023.
Now this particular rabbit required some coaxing: Willis kicked her surplus target back a year in December and the December before that, she changed the way the surplus was measured (we won’t hit a traditional Obegal surplus until 2030). Treasury was also open about the extreme uncertainty in the forecast: there’s only a 50-60% chance that Obegal actually will get to surplus by the end of the forecast period.
Willis will try to make a virtue of the beigeness of this Budget. It delivers, to a debatable extent, on National’s campaign promise to preserve frontline public services, deliver tax relief and begin to rebuild the fiscal buffers by returning to surplus and bending the debt curve.
But there is a very real debate to be had about the extent to which the coalition has preserved frontline services and the speed of fiscal recovery. Every day, there are reports of creaking services in the health system and the three big ratings agencies have all voiced concerns about the slow pace of the Government’s fiscal consolidation. Net core Crown debt peaks at 46.1% in 2028 before tracking down, but the debt ratio will still be higher in 2030 than it is today.
By those yardsticks, the Budget is a success, but a modest one.
On the other side of the fiscal and economic ledger, things look worse. Growth is lower in the coming year. Unemployment is expected to rise to 5.5% this year and not fall below 5% until 2028. The economy is expected to grow just 1.2% this year. Inflation is expected to rise to 4%.
In fact, that high inflation number is helping the Government get to surplus – higher inflation means higher tax revenue, to the tune of $3.1b over the forecast period.
Those economic numbers suggest that broader economic sentiment is not going to help the Government in election year.
Willis has set aside $450 million for responding to any fuel crisis-related matters. It’s hard not to wonder whether that fund will turn into a fuel-related election fund if the polling winds blow ill closer to November.
The generally unfavourable economic conditions may help Labour, but it gets more difficult from there.
Willis’ reprioritisations have wedged Labour, making it very difficult for the party to promise anything without also promising new taxes or increasing debt.
Of a total Budget package of $3.8b a year on average, $1.7b has been funded by cuts and reprioritisations of some kind (a sum worth about two-and-a-half times, on average, what Labour expects to raise from its capital gains tax). It’s very, very difficult to see how Labour can match the public sector investments in this Budget without also committing to seeing through at least some of the cuts.
It’s also difficult to see Labour promising anything significant public service-wise without also committing to more taxes – and big ones. Labour has some big liabilities to fund. The party still hasn’t found money for its $12.8b commitment to reverse last year’s cuts to pay equity funding.
Beneath its surface boringness, Willis’ Budget is really a massive gamble.
She reckons that beyond a general fear that Labour will tax them more, voters will put the macroeconomic picture and fiscal interests of the Government above the interests of their own household. The next few polls will show whether that gamble pays off.