24 May 2024

The Week in Politics: Willis sails against strong headwinds

6:00 pm on 24 May 2024
Nicola Willis at a National Party conference, May 2024, Palmerston North.

Nicola Willis at a National Party conference, May 2024, Palmerston North. Photo: Samuel Rillstone / RNZ

Analysis - Finance Minister Nicola Willis is preparing to present one of the most difficult budgets in recent times.

National MP David MacLeod gets himself into trouble over undeclared donations and the question is being asked: Where did the money go? The government scraps the First Home Buyers Grant and says the funding will be used for social housing.

Anyone who doesn't know by now that Thursday's budget will deliver "much-needed tax relief for low and middle-income families" just hasn't been paying attention.

The message has been pushed hard in pre-budget speeches and any other opportunity Prime Minister Christopher Luxon and Finance Minister Nicola Willis have had.

They say the tax relief - they never call it cuts - will benefit 83 percent of New Zealanders over the age of 15 and 93 percent of households.

It's going to be the centrepiece of one of the most difficult budgets a finance minister has presented in recent years.

Willis hasn't given much away about how she's going to handle the downside, what she describes as the "massive clean-up job".

The finance minister is facing some strong fiscal headwinds. Economic forecasts are gloomy and the Reserve Bank issued a warning this week that interest rates were likely to remain high for longer than had been expected.

The Herald's business editor at large, Liam Dann, said the government hadn't been shy about the fact that the Crown accounts weren't in great shape.

"They inherited a recession and argue that it's now worse than they expected," he said.

"This is a 'tightening up' budget. If you think of it like a household, this is the one where you've got to shave off your excess spending, sort out that gym membership that you're not using, all that sort of stuff."

There's a lot of detail on what Willis is facing in RNZ's article titled 'Five data points that show The New Zealand economy may be in worse shape than you think'.

In it money correspondent Susan Edmunds says economists are warning that the situation may be worse than the headline figures indicate.

How the government is going to pay for the tax cuts will be carefully watched.

Willis has said they can be afforded because of savings and extra revenue streams, and she's adamant there won't be any borrowing to pay for them.

Borrowing to pay for tax cuts is a very big political risk - it's what brought down former UK prime minister Liz Truss after 49 days in office.

Dann said the determination to still offer tax cuts had garnered criticism from economists from right across the political spectrum.

"They say they can balance these tax cuts with spending cuts and it comes out neutral, but if you didn't do the tax cuts you could either cut spending less or pay down debt faster," he said.

Sunday Star Times columnist Vernon Small said no budget was ever straightforward, but the one Willis was about to launch looked to be especially difficult as she was "caught in the vortex of campaign promises, coalition compromises, a serially weakening economy and fragile polling numbers".

Small said the latest fortnightly economic update from Treasury was "particularly sobering… the update saw a softer economy ahead in 2024 than envisaged in the Budget Policy Statement less than two months ago".

His column also dealt with tax cuts and how they'll be paid for.

"Willis and her fellow ministers are still running the line that savings and some revenue measures will pay for the tax cuts, and therefore they will require 'no extra borrowing'," he said.

"That is more a political than a fiscal statement.

"If your household budget was ticking along okay but you decided to raise a loan to buy a new car, you could convince yourself you are paying for the car out of your salary and that the borrowings are for groceries to feed the kids.

"But in the end, it is the overall balance that matters. Either way, if you didn't buy the car you wouldn't have to borrow."

Labour MP Barbara Edmonds

Labour finance spokesperson Barbara Edmonds. Photo: RNZ / Angus Dreaver

While this is Willis' first budget, it's also the first that Labour's Barbara Edmonds will deal with as the party's shadow finance minister.

How she does it will be important for herself and for Labour.

In her pre-budget speech this week Edmonds said she wasn't convinced Willis had yet learned "either the lessons of history or the obligations of public finance management", 1News reported.

She said the tax cuts did not meet the four tests set out by former finance minister, the late Sir Michael Cullen - they must not require borrowing, services should not be cut to fund them, they should not exacerbate inflationary pressures, and they should not lead to greater inequalities.

Edmonds gave an indication of what she would be looking for, and warned to watch out for "smoke and mirrors".

"Is it really a meaningful budget increase or just what was set aside by the previous Labour government, bundled together to make it look big, plus a little bit more that doesn't even meet inflation?"

Luxon had an unwelcome distraction this week from his pre-budget agenda.

National MP David MacLeod

National MP David MacLeod has been stood down. Photo: RNZ

He had to stand down New Plymouth MP David MacLeod for failing to declare 19 candidate donations worth $178,000 to the Electoral Commission, RNZ reported.

MacLeod said he thought the return was for the 2023 year only, so failed to declare the 18 donations he received when he became a candidate in 2022.

He also failed to disclose a $10,000 donation in 2023.

MacLeod said he never tried to hide any of the donations.

"I made a mistake with the return and I'm trying to be upfront and correct the situation," he said.

Luxon stood him down from his select committee roles, including as chair of the Environment Select Committee. He was also a member of the Finance and Expenditure Select Committee.

The Electoral Commission will decide whether to refer the matter to the police, who will then have to decide whether to prosecute MacLeod.

Otago University law professor Andrew Geddis said the commission was likely to refer it to the police and MacLeod could potentially be charged with committing a corrupt or illegal practice.

Geddis thought the large amount of money involved couldn't be ignored and the commission would refer MacLeod to the police.

Luxon said MacLeod had "stuffed up big time", 1News reported.

"I think he's very genuine about that he got this completely wrong," he said.

This is far from over, and Stuff ran a story on Thursday headed: 'Where did the money go? Unanswered questions about National MP David MacLeod's political donations'.

It said Luxon was facing fresh calls to outline where the majority of nearly $180,000 of political donations was spent.

MacLeod's new return declared $207,662 in candidate donations, and the report said the sum was more than any other candidate raised by a large margin.

Labour leader Chris Hipkins said MacLeod received a lot more in donations than he was allowed to spend on his campaign, which raised questions of where the money went.

Constitutional law expert Graeme Edgeler said MacLeod would have to give a really good reason why he made the mistake.

"It seems difficult to explain when all the other politicians did not make the same mistake," he said.

"It was a massive sum, what was the rest of it used for? Why was he able to raise so much? Has he still got the money?"

The government announced on Wednesday it was scrapping the First Home Grant, a day after Newshub reported the decision had been taken.

The grants were introduced by the previous National-led government.

They were $5000 per buyer for an existing home or $10,000 for a new build, so a couple could have been eligible for up to $20,000 for their deposit, Newshub reported.

Housing Minister Chris Bishop said the grant was an expensive and inefficient scheme, and it was ineffective because $5000 only amounted to about 4 percent of a 20 percent deposit for an affordable home.

"National promised to help the squeezed middle. Wednesday's announcement will feel like the complete opposite to the squeezed middle," Newshub said.

Bishop said scrapping the grant would save about $245 million over four years which would be used to fund 1500 new social housing places from July next year.

They would be delivered by through Community Housing Providers rather than Kainga Ora.

"We are now filling the hole that Labour left us and that gives them some pipeline certainty," he said.

"If we're honest about it, the First Home Grant started as a demand side measure to try and help some people into their first home ownership when the wider system was not being fixed.

"We need to open up land at the edge of our cities, we need to densify in our cities - and I've made a decision around that in the last couple of weeks… we need to fix our infrastructure settings and we need to incentivise councils."

In Parliament in 2021 National's then housing spokesperson Nicola Willis framed the scheme as one of National's success stories and urged its extension, RNZ reported.

Labour leader Chris Hipkins said the government was "shattering the dream of home ownership for an entire generation of New Zealanders".

He said while the government was giving $2.9 billion of tax cuts to landlords it was cutting a scheme a lot of people relied on to get their deposit together for their first home.

ACT leader David Seymour campaigned on ending the scheme and, like Bishop, said the grants did not solve the problem of the housing shortage.

"All it does is help some people while the shortage of housing remains for everybody else. The only solution to a shortage of housing is to build more homes."

Bishop tried hard to sell the decision as a sensible move, but it looked mean.

And every time the government cuts anything, it lays itself open to the criticism that it was able to find $2.9 billion for the landlords' tax break.

This week Newsroom discovered something no other media outlet did.

It said that buried deep in the cabinet papers released with Sir Bill English's review report on Kainga Ora, released on Monday, was a two-line table.

One line said the cost of the inquiry would be up to $500,000.

The other said it would be taken out of the Ministry of Housing and Urban Development's budget for the provision of transitional housing places.

"The urgent housing for people with nowhere to go, the budget for some of the motels that governments have had to use for years, the funding line to community providers to take in those on the edge," Newsroom's Tim Murphy said in his report.

He quoted the ministry's definition of transitional housing: "Temporary accommodation for individuals and whānau who don't have anywhere to live."

He said that as it turned out English and his team came in at half the amount provided for at around $274,000.

And the last word goes to Green MP Ricardo Menendez March: "Your party introduced this bill as it was, come on, f…, you voted for the bill without amendments."

Speaker Gerry Brownlee will discuss the MPs language with the cross-party business committee.

*Peter Wilson is a life member of Parliament's press gallery, 22 years as NZPA's political editor and seven as parliamentary bureau chief for NZ Newswire.

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