Week in Politics: What will the government get out of Budget 2024?

2:58 pm on 31 May 2024
Budget 2024: Composite of Chris Bishop and Nicola Willis holding Budget 2024 with maths paper background

Photo: RNZ

Analysis - Finance ministers usually hope the Budget they have presented will give their party a boost in the polls, but Nicola Willis will probably be satisfied if she breaks even on this one.

It was, as Newshub's political editor Jenna Lynch said, a Budget that was delivered "as advertised".

The Herald's political editor, Claire Trevett, saw it in the same light: "It did what she'd put on the tin."

The tax cuts, front and centre in Willis' first Budget, were what had been promised during the campaign and talked about ever since.

Voters would likely have factored those in when they gave their responses in opinion polls, and nothing stood out in the Budget that could attract stronger rating when the next set come out.

Willis' goal of balancing the books - she intends delivering a budget surplus in 2027-28 - by doing more with less under a regime of "responsible fiscal management" is a worthy objective but it does not help pay the bills.

On the other hand, because Willis has done what she said she would do, she has increased spending on health, education and law and order, there is no reason to believe there will be a negative backlash from disappointed voters.

Changes to tax in Budget 2024

Photo: RNZ / Angus Dreaver

Details of the tax cuts dominated media websites, they are not that easily understood because the amounts depend on personal and family circumstances.

The Herald tried to keep it simple: "Tax cuts ranged from $4 to $40 a fortnight for all workers on more than $14,000," it said.

There is an official tax calculator on the Treasury's website, and RNZ has its own.

The cuts, which the government calls tax relief, have been achieved by changing the brackets which determine the level at which higher tax rates kick in.

Will they really make much of a difference?

"Tax brackets might have shifted but the savings are barely scratching the surface of the inflation that has hit households over recent years," said RNZ's money correspondent Susan Edmunds.

Economists and tax experts quoted by Edmunds backed that up.

Shamubeel Eaqub said the cuts were probably only taking households back to where they were three or six months ago.

Tax expert Terry Baucher said the change did not come close to covering recent inflation.

"At the lower end, where every penny counts, they'll be grateful but it will go straight away on just paying the bills or paying down debt," he said.

Infometrics chief forecaster Gareth Kiernan said the bracket shifts might unwind the impact of 12 to 18 months of price increases.

Shane Reti

Photo: RNZ / Samuel Rillstone

No funding for new cancer drugs

Willis said she had done what she had promised but there was a glaring omission - the Budget did not fund the 13 new cancer drugs which National said during the campaign would be paid for by scrapping free prescriptions for most people.

It was cruel for those who needed them.

"Cancer patient devastated that government won't fund new drugs" was the headline on RNZ's report.

"The injustice that you can make promises like that and then break them with total disregard for life is I think what upsets me the most," said Vickie Hudson-Craig.

She is currently paying $5500 a month for the drugs that keep her alive, thanks to fundraising and a supportive community.

"Not even one drug got funded, it's heartbreaking," she said.

Labour finance spokesperson Barbara Edmonds said it was "the worst type of promise to break".

Willis and Health Minister Shane Reti said the drugs would eventually be funded.

Reti denied a promise had been broken, saying the government was ending free prescriptions from July and that money would be put back into Pharmac.

Willis said on Newshub's AM Show the government had been forced to spend $1.77 billion towards Pharmac's budget after Labour left what she described as a "fiscal cliff".

She gave that as the reason for not funding the cancer drugs.

It would have cost $280 million over four years to fund the new cancer drugs and presenter Lloyd Burr asked her whether she was aware people were going to die.

Willis replied: "The situation we are in is if we hadn't found the $1.8b for essential medicines then there would have been New Zealanders who rely on medicines - things like asthma inhalers, things like diabetes medication - who would have found those medicines delisted next month."

Chris Hipkins and Barbara Edmonds on Budget 2024

Photo: RNZ / Angus Dreaver

Political reaction to the Budget

Political reaction to the Budget was predictable, as it always is regardless of which government delivers them and whatever is in them.

Newshub captured it nicely: "Mother of all disappointments, coalition of cowards, war on nature."

Opposition party leaders had plenty to say, but they struggled for space because the news is about the Budget itself.

"Today's Budget is not worth the paper it's written on," Labour leader Chris Hipkins said in a media statement.

"The country can now see the result of Finance Minister Nicola Willis' wrong choices and the government's broken promises."

Hipkins said a minimum wage worker would get 30 cents an hour in tax cuts while saving money had become harder with the loss of half-price public transport, free prescriptions and the First HomeGgrant.

"The funding allocated for health barely keeps the lights on … this budget has delivered piddly capital investment in the important areas … frontline roles protecting our biosecurity, customs staff gone … child poverty is also predicted to rise," he said.

The Green Party and environmental advocacy groups hammered the Budget.

Chloe Swarbrick speaks to media following the Government's budget release

Photo: RNZ/Samuel Rillstone

"This government has slashed and burned almost all climate and environmentally minded policy whilst pouring coal, oil and gas over the roaring climate crisis fire," said Greens' co-leader Chlöe Swarbrick.

Greenpeace said there had been cuts to environment-facing agencies and other green programmes had their funding slashed.

"Without enough funding, these agencies cannot respond to the anti-nature policies this government keeps throwing at them," said executive director Russel Norman.

Reaction from the Taxpayers' Union was scathing.

"Kiwis needed a blockbuster budget but all they've got is a hackneyed reboot of Grant Robertson's box office flop," said policy and public affairs manager James Ross.

Willis would have expected those reactions and they will not worry her, but there is one enduring issue which could damage her and the coalition - the impact tax cuts could have on inflation.

"The government is adding an additional $700m into the economy," said Labour's Barbara Edmonds in a media statement.

"The government is putting more stimulus into the economy when the Reserve Bank is trying to get inflation down. This will keep inflation higher for longer."

Some economists have previously said that giving people more money to spend inevitably pushes up inflation.

On the other side of that coin, the government is cutting its own spending. Because of that, the Treasury has said the Budget is, on balance, slightly disinflationary, Newshub reported.

Willis has always insisted tax cuts will not fuel inflation. She says they are fiscally neutral because they are counter-balanced by savings and cost-cutting.

That argument will continue to go round in circles but, eventually, reality will deliver the answer one way or the other.

Another argument that is going to go on for a while without getting anywhere is whether the government is borrowing money to pay for tax cuts.

Willis firmly says it is not, the cuts have been paid for from savings and new revenue streams.

But it is increasing borrowing by $12b, which equates to the bulk of the $14.7b cost of the tax cuts, Newshub reported.

"You don't need an abacus to figure out that this is a government borrowing to pay for tax cuts," said Hipkins.

As Stuff columnist Vernon Small pointed out last week, it does not really matter what you say you are borrowing money for - if you did not spend more, you would not have to borrow so much.

Under that logic, if the government had not delivered tax cuts it would not have had to borrow as much.

Te Pati Māori co-leaders Rawiri Waititi and Debbie Ngawera-Packer speak to media following the Budget announcement on 30 May 2024.

Photo: RNZ / Samuel Rillstone

Te Pāti Māori announces plans for own parliament

Te Pāti Māori's reaction to the Budget was unusual. Co-leader Rawhiri Waititi's speech is on Parliament's TV on demand for anyone who missed it. It is also on the Herald's website.

None of the party's MPs were in the debating chamber when Willis began her speech, they were outside with thousands of Māori protesters who had marched to Parliament.

"We continuously allow this House to assume that it has sovereignty and absolute superiority over Māori," Waititi said.

"Today, we made a declaration, in the name of our mokopuna, that we would no longer allow the assumption of this Parliament to have superiority, or sovereignty, over iwi Māori.

"Here is your problem. You have created the colonial trauma, the colonial violence, and what you do is then you reward yourselves by ensuring that you fund yourselves on the trauma that you created amongst our people.

"And then you have the absolute cheek to think you can rehabilitate us."

Waititi said that was going to stop.

"Today, we have started the revolution in regards to us organising ourselves."

The party also issued a media statement in which it said: "We now begin the process of establishing our own Parliament. Our people will design what it looks like, nobody else."

Waititi will need to fill in some details on that before the numerous questions that arise can be answered. One would be in which parliament he and his MPs would sit, or would it be in both? Another would be how its members are to be elected, and who would pay for it.

*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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