Source: New Zealand Government
Check against delivery
Good morning. It is a pleasure to be with you to outline the Coalition Government’s approach to our first Budget.
Thank you Mark Skelly, President of the Hutt Valley Chamber of Commerce, together with your Board and team, for hosting me.
I’d like to acknowledge His Worship the Mayor of Lower Hutt Campbell Barry and all the hard-working employers and small businesspeople who’ve given up your morning to be here.
Let me also acknowledge local MP for Hutt South and Associate Minister of Finance Chris Bishop. Bish can’t join us – he’s in the Mainland today talking about how our Government will deliver better infrastructure – but he let slip to me that he’d rather be in the Hutt.
I’m told this is the first time in at least 14 years a Minister of Finance has gone outside central Wellington for the first official pre-Budget speech.
I’m delighted to be taking a new approach with you today: not just because I lived my childhood in the Hutt, but also because I think it’s appropriate that our Government’s first Budget breaks from the past.
New Zealand in 2024 needs a different sort of Budget from those we’ve had in recent times. This year we simply can’t afford a Budget that runs long on good intention but falls short on delivery. As you well know, ours is a time when every dollar counts. Our Budget will reflect that reality.
You understand what we face.
New Zealand’s economy is in a tricky spot: inflation is too high and has been for almost three years, interest rates have soared and are biting homeowners and businesses alike, unemployment has risen and growth has stalled in four of the past five quarters.
This is all taking its toll on New Zealanders.
Everyday workers are hurting and the reality of your struggle is impossible to ignore.
As I’ve put together my first Budget the people foremost in my mind have been those I’ve called the ‘squeezed middle’. The everyday Kiwis who’ve soldiered on through a prolonged cost of living crisis, who work hard and yet experience a seemingly endless struggle to get ahead, who worry about your mortgage and the unexpected bill, and yet don’t ask much from the Government – you want decent health services, good schools, law and order and a fair go.
Our Government is clear-eyed about the raw deal experienced by too many Kiwis in recent times.
Workers have endured 14 years without any adjustment to tax brackets. For a median income worker that’s meant the average tax you pay has increased from around 15% in 2011 to around 21% today.
These tax increases helped fund a massive government spending-spree, with costs up 80 per cent in just six years. Yet even with these record levels of government spending, you’ve watched health waiting lists grow, educational achievement drop and violent crime soar.
Everyday New Zealand workers have been left to wait in line while beneficiaries, government agencies and consultants got a boost.
Today’s economic situation is also tough for the employers and businesspeople in this room and across the country. Many of you stoically kept your heads above water post pandemic, swallowing higher costs and doing everything you could to keep staff. You’ve hung tough while desperately willing inflation and interest rates to come down.
Our Government is on your side and we are putting our shoulder to the inflation fight. We know that for so long as you’re struggling, New Zealand will struggle. We’re determined to deliver you the economic conditions you need to succeed.
It goes without saying that today’s economic situation is also challenging for the government books: our coalition inherited a structural deficit, with government spending running far ahead of what New Zealand could afford. The last government was well and truly spending beyond its means.
In recent months that underlying imbalance has been made worse by significant downgrades in the country’s growth forecasts.
You only have to look at the government’s monthly financial statements to see the impact: core Crown revenue has been lower than expected with the corporate tax take significantly lower in recent months.
All of these factors add up to a more difficult fiscal situation than forecasters were picking when our Government came to office.
I won’t share figures with you today – Treasury has not yet presented me their final Budget forecasts. What I will share with you is that in my first six months as Finance Minister, each Treasury update seems to be worse than the last. Sadly, I’ve learned to dread what comes out of the forecasters’ mouths when they come into my office. Given this, I certainly don’t expect any windfalls before Budget day. Instead, our Government has taken the responsible approach of preparing for a world in which the books could get worse before they get better.
I need not dwell on the challenges. You understand the reality. I’d simply say this.
It is darkest before the dawn.
Our Government will not over-react to worsening forecasts. Instead, our task is to get on with making the economic changes New Zealand needs and that we were elected to deliver.
- Cost of living relief
- Fairer tax
- Better value from public spending
- Balanced books for lower debt
- A stronger more productive economy
Our first Budget will make progress on all these fronts.
The Budget won’t be an instant fix. Instead, it will lay the ground for steady progress, for today, tomorrow and the longer term.
The good news is that the opportunities in front of our country are far greater than the mistakes we leave behind us.
New Zealand’s economic fundamentals remain impeccable: incredible natural resources, a growing population, smart people, leading industries and exporters, secure borders and a global reputation as a safe-haven with great institutions and stable rule of law.
What’s more, we have a Government that’s on the side of wealth-creation, of innovation, enterprise, effort and industry. A Government with a credible plan to restore fiscal discipline, to close the deficit and pay down debt. If I could bet on any country in the world right now I’d bet on New Zealand.
So what can you expect from the Budget?
Well obviously it won’t be a big-spending Budget. This is not the time for the Government to sweep-up yet more of your income in order to redistribute it to a range of well-intentioned, but ill thought-through, initiatives. New Zealand has tried that approach and it failed you. This is a time for care, discipline and restraint.
But nor is it the time for an austerity Budget of the sort suggested by a few commentators seemingly enthusiastic to see the mistakes of history repeated.
Our Government knows how devastating it would be if we were to give up on overdue tax relief, to drastically cut-back on investment and public services, and to downsize our ambitions for growing New Zealand’s economy.
That approach would be bad for the Kiwi families depending on us and bad for your businesses.
Instead, ours will be a moderate, responsible Budget that charts a sensible middle course, laying the foundation for a stronger more productive economy while giving Kiwis a helping hand.
Let me comment on three immediate priorities you can expect to see delivered on in our Budget.
One, our Budget will prioritise investments in the public services that matter most to you.
Our Budget will prioritise targeted new spending for the essential frontline services you rely on. You can expect a significant funding boost for the health system and targeted new investment in other essential frontline services including education, disability services and Police.
Our approach is about more than new money. The investments we make will be resolutely focused on frontline service delivery, putting money where it will deliver results that matter for you.
Two, our Budget will deliver personal income tax reduction for working Kiwis.
We will be sticking with Kiwis through the economic rough patch and ensuring you get to the other side, stronger and better-off than you are today.
We have already announced the FamilyBoost payment where eligible households will get back up to 25 percent of their early childhood education fees – that’s up to $975 every three months.
And we have adjusted the bright-line test back to two years and begun restoring interest deductibility for residential rental property, to make the income tax system more consistent and coherent, and to put downward pressure on rents.
I can confirm that our Budget will deliver further tax relief. Its focus will be income tax relief aimed at middle and lower-income workers. The relief will be meaningful, but modest.
It is overdue. Unlike most developed countries, New Zealand has made no adjustments to tax brackets to compensate for rampant inflation.
Indeed, New Zealanders have not seen any changes to personal income rates and thresholds for 14 years, despite prices being 40 percent higher now than they were in 2010.
So I’m very pleased to announce today that our tax relief package will increase the take-home income of 83 percent of New Zealanders over the age of 15 and 94 percent of households.
We will responsibly deliver these lower taxes for low and middle-income families, by fully-funding them with a package of careful savings and targeted revenue measures.
This is the approach we campaigned on taking, it is the approach the OECD’s economists have advised us to take, and it’s the plan each of our Ministers has worked hard to deliver.
I am aware that there are some who think it’s never the right time for tax reduction and who will search for any excuse to oppose it.
So let me confirm two important aspects of our Government’s approach to tax relief.
One, our tax relief will be funded from within the operating allowance through a mixture of savings, reprioritisation, and additional revenue sources. This means funding our tax package will not add to net core Crown debt.
Second, Treasury modelling indicates that fiscally neutral tax relief – financed through reduced government consumption – reduces inflationary pressure and nominal interest rates. This is mainly because there is generally a lower multiplier on tax relief than for general government consumption. This means our decision to fund tax relief in the Budget will not add to inflation.
Increases to the current income tax thresholds will allow hard-working New Zealanders to keep more of what they earn, compensate for the impact of fiscal drag on average tax rates, and ensure there is a greater financial return from work. Tax relief will be good for our economy.
Three, our Budget will deliver durable savings, to support investments today and to get the Government books back into balance.
The last government was unable to control its spending and stick to the allowances it set itself. This led to a massive increase to Government debt and an unsustainable fiscal trajectory.
Our Government has set an operating allowance of less than $3.5 billion for this Budget.
That’s less than the previous government’s allowance and it will be adhered to – a first in recent years. That has been possible because of our Government’s willingness to redirect existing spending to a better purpose.
It may be a surprise to some, but certainly not to me, that we can and we should, always be looking for ways to work better, smarter and more efficiently with taxpayers’ money.
On taking office at the end of last year, we acted quickly with our mini-Budget to rein in government spending – banking $7.5 billion of immediate savings and quickly setting up a programme to find $1.5 billion of ongoing annual savings across government agencies.
I am confirming today that we have met that savings target.
It’s taken a lot of work to get there. We set every government agency its own target and tasked Chief Executives with putting forward proposals they thought made sense and that could be delivered without compromising quality public services. We then reviewed their proposals line by line. We said no to several of them. In other cases, agencies who went line by line through their programmes were able to uncover even greater opportunities for savings than we’d initially targeted.
The end result is that our Budget will deliver durable savings from government departments, delivered through reductions in back office costs, less money for consultants, and decisions to stop go-nowhere policies and well-intended but ultimately lower-value programmes.
This has meant that in the case of some agencies, including the Ministry of Health, the Ministry of Education, the Police, Oranga Tamariki and the Defence Force, every single dollar of savings found has been redirected towards improving the frontline services that agency is responsible for delivering.
To take one example, earlier this week we announced savings of just over $440 million over four years found in Corrections through our savings exercise.
That’s $110 million each year that is now working harder for New Zealanders, contributing to 685 new frontline staff, extending rehabilitation programmes to support more remand prisoners to turn away from a life of crime, and keeping New Zealanders safe by extending Waikeria prison.
I want to put on the record my thanks and appreciation to the many public servants who’ve made this savings work possible. I have been struck by the professionalism and integrity of the men and women who’ve gone about finding savings across their agencies. New Zealanders should know many of the people who serve you wholeheartedly share your impatience to see better results for the taxpayer dollar.
Our Budget also contains measures to generate new revenue: introducing user pays immigration services, stopping depreciation on commercial buildings, taxing online casino gambling, and empowering IRD to go after people who don’t comply with their tax obligations.
This responsible approach means our Budget will chart a path back to fiscal sustainability and progress our short-term fiscal goals and longer-term objectives of:
Putting net debt as a percentage of GDP on a downward trajectory towards 40 per cent.
Working towards a surplus via a steadily improving trajectory for the operating balance, and
Reducing core Crown expenses as a proportion of GDP
Achieving these fiscal goals will require more than one Budget. We won’t undo in one year problems that have built up over six.
The road ahead will require a continuous approach of careful spending, sensible reprioritisation and thoughtful policy decisions. With this “new normal” we will get our economy back in balance and back on track.
Investing for the Long Term
I’m conscious that in addition to dealing with the immediate challenges we face, every Budget must make its contribution to building the better New Zealand that we all want to see 10, 15, 20 years from now.
That means ensuring we invest in the long-term infrastructure needed to support a resilient and growing country, with an economy far less dependent on carbon emissions, better prepared for a warmer climate, better equipped to contribute to regional and global security and far better at maximising the potential of each New Zealander.
In this year’s Budget you can expect to see investments designed to further each of those goals.
I want to take a final moment this morning to explore one such critical area, a seed we will sow in this Budget and from which, in time, we expect great things will come.
That is social investment.
Social investment is about driving better results from social services – particularly for our most vulnerable New Zealanders who are too often failed by the status quo. It’s about intervening early to prevent a child’s life from veering off track. It’s about fulfilling human potential.
Because the sad reality is that despite the Government currently investing more than $70 billion every year into well-intentioned social services, we are not seeing the outcomes we want.
We can see the lack of appropriate support for the most vulnerable reflected in rises in welfare dependency, declining educational attendance and achievement levels and rising rates of youth and violent crime.
Social investment is a systematic way of using data, evidence and modern analytics to invest in earlier and better intervention that breaks these cycles of despair.
This year’s Budget will put in place the essential foundations to bring social investment to life.
Today I am announcing that:
We will establish a new Social Investment Agency to replace the Social Wellbeing Agency, effective from 1 July this year. This standalone, central agency will lead the development of social investment across government, helping us achieve better results from our social service expenditure with smarter use of data, evidence and analytics.
We will also establish a Social Investment Fund as a vehicle for future social investments, to be managed by the Social Investment Agency, with a brief to directly commission outcomes for vulnerable New Zealanders, and to work with community, non-government organisations and iwi providers. The fund will begin investing in 2025 but I am announcing it now as it will be a new way for the Government to invest and will take time to design. Over time I expect the fund to grow in partnership with other funders to deliver at scale with a wide portfolio of investments.
We will establish a Social Investment Board made up of real-world experts who will provide external challenge and guidance as we drive Social Investment forward.
This work is of personal importance to me and it’s important to many Ministers across our Government.
When I took the social investment proposals, I’ve just shared with you to Cabinet I suggested a small ministerial group could meet regularly to oversee the work.
I was happily overwhelmed with requests from Ministers asking to be added to that group: at latest count we will have 16 portfolios represented in the Social Investment Ministerial group.
I think this interest reflects how seriously Ministers take the challenge of doing better with the social services Government funds.
Conclusion
In closing, let me finish with my sense of optimism for New Zealand.
This year’s Budget is a critical step in our plan to strengthen the economy and deliver New Zealanders the cost-of-living relief, higher incomes and better public services they deserve.
We want our country to be a better place to do business, to invest, to innovate, to take risks, to build things, to make things, to hire people, to grow and to raise our children.
Our Government’s approach to fiscal sustainability will be continued through future Budgets. New spending initiatives will be targeted, effective and within our means.
Our priority areas will continue to be hardworking everyday New Zealanders, and the frontline services like health, education and Police you rely on.
Our plan will make New Zealand a much wealthier country, where our people can earn more, live better and we can expect greater opportunities for our children and grandchildren.
I am very much looking forward to sharing it in full on Budget day.
