Promised tax relief was a key plank of National’s election campaign last year. And yet the government’s finances are in tatters. Health, education and infrastructure are creaking. We are in the middle of an economic recession, cost-of-living crisis, productivity slump, brain drain.
The centrepiece of this year’s Budget is tax relief, mostly in the form of raised income thresholds, returning up to $50 a week on average for most households with children. This relief is a long-overdue correction for the kleptomaniacal effects of inflation (fiscal drag).
Also, more is to be spent on the health and education sectors, and on law and order, infrastructure, transport, defence and disability services.
Usually, such a combination of revenue cuts and spending increases would increase the government’s deficit and debt — of us all, amounting to $90,000 per household — and put pressure on inflation. And it will.
But not nearly as much as it might have, had the government not embarked on a well-publicised programme of off-setting spending cuts and reprioritisations. This programme is committed to on an ongoing basis in the Budget.
Optimistically, the government plans to be back in surplus, where its spending is less than its revenue, in 2027-28. This will require further fiscal discipline involving more tough decisions — and luck.
It’s a tough balancing act, especially as many events affecting the government’s finances are beyond its control. Fingers crossed more natural disasters are not just over the horizon (pray that the Hikurangi subduction zone holds).
Missing from the Budget are specific policies for fixing New Zealand’s economic growth and productivity problems. That’s for future Budgets.
In my opinion, Ms Willis pulled a rabbit out of the hat by meeting most of her objectives. Yes, the rabbit is skinny and the hat is threadbare.
But magic is magic. Time will tell if it’s more than illusion.
• Paul Hansen is a professor of economics at the University of Otago.
