Nicola Willis is due to deliver the third and final Budget of this term of Parliament on Thursday.
Already, there are shades of the familiar and hints of something new.
Among the litany of pre-Budget announcements was a pledge to reform the public service, achieved through large-scale cuts to operating budgets and staff head counts over the next three years.
Though the scale of the plan is larger than in the past, the move makes this the third Budget in a row to involve large-scale cuts to the public sector and public spending. The money saved from those cuts will be invested in new policies and programmes, some of which have already been announced.
At the same time, the Budget lands during the fuel crisis, which is placing additional pressure on the costs faced by Government and prompting calls for greater support. Although Willis has been clear the Government won’t step in to directly assist household budgets, understanding the impact of the fuel crisis on the Budget will be one of Thursday’s key findings.
And, of course, it’s an election year. That means the picture of coalition unity – exemplified by Willis’ decision to bring the Act and NZ First associate finance ministers to her annual Budget photo-op for the first time – could be harder to preserve.
Newsroom will have a comprehensive portfolio of coverage of the Budget on Thursday, but here are the key questions we’re looking to have answered ahead of time.
Is there room for a big policy surprise?
Willis has been clear there’s no lolly scramble coming this year. Despite the looming election, she hopes Kiwis will reward the Government for keeping tight control of spending, even if households don’t see a direct financial benefit as a result. The indirect, longer term benefit of higher growth, lower spending and (maybe) lower taxes will be worth the wait, she has promised.
At the same time, there’s scope for some considerable spending which has yet to be announced. By Newsroom’s calculations, the original operating allowance of $2.4 billion of new spending a year has been significantly depleted by pre-Budget announcements and other decisions.
For starters, more than $1.4b was already committed for health and defence spending from this year’s Budget in last year’s Budget. Willis has also cut the spend by $300 million as part of the belt-tightening regime.
The roster of pre-Budget announcements, from a paediatric palliative care service to the Government’s fuel support payment, have eaten another $650m in annual spending from the allowance, consuming the rest. However, the Government is also slated to save about $145m a year from housing policy changes, including hiking Kāinga Ora rents, $600m a year from public service cuts and $245m from scrapping the fees-free programme.
That all adds up to leave Willis with something like $1 billion still to spend. There are suggestions that there could be a big education component in the Budget which has yet to be announced. There are also questions about new initiatives in law and order, a sector that hasn’t yet enjoyed a pre-Budget announcement. And at least some of the fees-free savings will go to trades training, according to strong hints from NZ First.
What is NZ building in this Budget?
While Willis cut her own operating allowance ahead of unveiling the Budget, she also hiked the capital spend – one-off expenditure on infrastructure and other big projects. Alongside Infrastructure Minister Chris Bishop and Regional Development Minister Shane Jones on Tuesday, she confirmed there’s a significant role for infrastructure in the Budget.
What could that look like? That’s a major question we’ll be looking to answer on Thursday.
New Zealand faces a significant infrastructure gap. That ranges from flashy projects such as new motorways to the humble but critical wastewater, stormwater and drinking water networks.
Then there are the aging health facilities – Health NZ has a $20b wish-list for hospital rebuilds, new wards and other construction work.
And, of course, schools are often a big winner in the capital expenditure portion of the Budget.
Whose Budget is it?
Speaking of winners and losers, applying a political or partisan lens to the Budget will be unavoidable.
With the election coming up in just over five months, will this be a National Budget, an Act Budget or an NZ First Budget?
Already, NZ First has given up one of its own priorities, with the axing of the fees-free policy. Jones made reference to alterations to the NZ First-National coalition agreement in his remarks on Tuesday, although it wasn’t clear whether this went beyond the already known fees-free cut.
Act will also have wanted steeper cuts to spending than Willis has permitted. Exactly how much further the cuts might go than what has been announced will reveal how much Seymour has to crow about.
For National, the path to walk to a successful Budget is a narrow one. Willis is operating on two axes: the political one, in trying to preserve a National Party flavour for the Budget, over those of the coalition partners; and the fiscal one, in balancing the need to return to surplus with her desire to avoid all-out austerity.
What will the hard numbers be?
Which brings us to the final question. In reality, there are a series of questions nestled under this one, about the state of the Government’s books, the trajectory to return to surplus and the impact of the fuel crisis on all of that.
At the half-yearly fiscal update in December, Willis had to push back her target for a return to surplus by a year. She is now aiming for the Government to be back in the black by 2028/29, under her ObegalX measure (operating balance before gains and losses, excluding ACC).
Back then, the Treasury forecast the Government would run a $900m deficit in that target year, but Willis pledged careful spending and saving could convert it to a surplus.
Since then, the Government’s economic forecasts have been battered by the fuel crisis. Expect projections of tax revenue to be down and costs to be up, potentially pushing even the 2028/29 date out of reach. But will Willis give in? Or will she double down? And can she chart a realistic path back to surplus?
On Thursday, we’ll find out.
