Analysis: Fair Go's Garth Bray on the unanswered questions that remain following today's mini-Budget.
Sorry kids, we’re paying off a mortgage. Rates are staying high so the banks are going to be taking more of our money for longer. Maybe next year for that PS5, and you know we’ll still be waiting for GTA VI anyway.
That’s the version of the Christmas spirit seizing our new Finance Minister Nicola Willis.
"In this mini-Budget we are bringing not just economic responsibility back, but we are giving [the public] the guarantee that, next year, they will get income tax relief," Willis told Parliament today.
Stopping Government funding for free childcare for two-year-olds; putting the brakes on funding for cheaper bus and train fares for under-25s; pegging benefit rises to whatever better wages people negotiate instead of whatever higher prices we’re all paying. These are among the things you need to cut to find $7.47 billion in savings.
But that’s over the next four years to 2028 and it covers about half the $14 billion cost of income tax cuts and boosted payments to families that National campaigned on delivering.
We heard a lot of this during the election. What exactly will go? Will it really cover the cost of what is promised?
'Meaningful income tax reduction'
Today, we’re still waiting to hear more about both sides of that equation. The Christmas stockings look a bit limp and the list of New Year’s resolutions remains long. That includes the "up to $250 a week" in tax cuts for a few families ― less for more of us ― that National promised in the election campaign.
"The Government is progressing work to deliver meaningful income tax reduction in next year’s Budget," said Willis, announcing that the centrepiece gift to voters will not be under the tree. It won't even be wrapped. Nor will it be on display so we can see how big it is and try to guess how heavy it is by shaking it when Mum isn’t looking.
The last lot copped plenty of fair criticism for making announcements about announcements to come. Seems like that hasn’t changed since election night.
Treasury has a bit to say about that in its half year update today.
"While overall the mini-Budget decisions will improve the fiscal outlook presented in the Half Year Update, it is anticipated that once combined with the other signalled commitments in the mini-Budget (eg, tax plans) expected to be agreed in the future, the overall impact would be broadly neutral over the forecast period."
Translation: The spending cuts today make the books look better now, but let’s see where you put those savings, Minister.
This is all in the HYEFU ― trying saying that aloud and not sounding like a cat coughing up a furball ― or the Treasury Half Year Economic and Fiscal Update, which was brilliantly explained by Anna Murray this week.
There is a big disclaimer in this years’ HYEFU, reflecting the election result and those five weeks of negotiations between National, ACT and New Zealand First.
On deadline ― running hard up against Christmas ― rushing to get things done but done well, like the rest of us, Treasury had to base its best guesses about where the economy is heading on the information to hand. But that was before coalition agreements had been signed or the Government’s 100-Day Action Plan announced.
So, "there is a risk that once decisions are fully reflected into the economic and fiscal forecasts, the overall fiscal impacts may not be neutral due to the indirect, or second order, impacts of the decisions. In particular, decisions may have flow on impacts to the economic outlook, which in turn have implications for forecasts of certain revenue and expense items, such as tax revenue and finance costs," as the Treasury put it.
A gift for investors and real estate agents
In other words, once you tell us how much you promised NZ First in extra prison funding or the extra cash for the IRD to chase up tax cheats; or the extra cuts you may have to agree with ACT; or the impact on Government revenue from less tax coming in, things could look very different.
For instance, what’s the ultimate impact of changing the rules around how soon you can sell a house and not pay an effective capital gains tax?
Simply put, anyone who bought a house in the past two years
That one was in the stocking for investors and real estate agents ― anxiously watching for any signs of life in the housing market after a couple of years selling well under CV.
Willis announced today that, from July, those 10 years would be slashed back to two.
Giving residential property investors about to sell a tax cut, while making the rest of us wait for ours might seem a bit Grinchy, but Willis says she’s keeping her word and taking time to seek advice on the tax cuts which are coming in the New Year.
“What New Zealanders care about is the size of the sausage, not how it’s delivered,” Willis told Parliament, capping off as she put it "a year of bad quotes from me" to much merriment in the House.
Saucy, but more sizzle than sausage seems more like it.
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