Balancing act beckons for Budget

Finance Minister Nicola Willis and her Associate Minister Chris Bishop share a lighthearted...
Finance Minister Nicola Willis and her Associate Minister Chris Bishop share a lighthearted moment in the debating chamber. PHOTO: GETTY IMAGES
Crafting her debut Budget has been all about striking a balance, Finance Minister Nicola Willis tells Otago Daily Times political editor Mike Houlahan.

"A fair balance" is what Finance Minister Nicola Willis says she has aimed for in her first Budget.

That means that on Thursday afternoon she somehow has to meet National’s campaign promises, keep to policies agreed to in the coalition agreement between her party and Act New Zealand and New Zealand First, and convince markets and commentators that a rookie finance minister has a safe pair of hands on the economic tiller.

No pressure then.

"I am looking forward to sharing our plans with New Zealand," she told the Otago Daily Times.

"I realise that the country is in a really difficult economic situation. We have had high inflation for almost three years, interest rates are really high, and it’s biting. It’s biting households and it’s biting businesses, and I think what people expect from us is not a Budget that solves all problems, but they are expecting a Budget that shows a plan to get us through this really difficult patch and get the books back in balance, to deliver some relief, to progress our commitments, and to ensure that frontline services that people depend on are getting the funding boost they need."

The well-signalled prospect of tax relief will be the centrepiece of Budget 2024 and will fulfil a long-standing campaign promise from National.

However, conventional economic wisdom is that providing tax cuts — and therefore giving consumers more money to spend — boosts inflation as more cash is being injected into the economy.

Doing anything inflationary runs counter to another campaign promise, to cut inflation, and would also seemingly contradict the government having restored a single mandate for the Reserve Bank — to get inflation back between 2% and 3%.

Hence, Ms Willis has a tricky middle ground to find: offer tax relief that does not feel tokenistic, but is not so much that it upsets the economic apple cart.

"I have been careful to communicate to New Zealanders that, yes, the tax relief will be meaningful but it is modest," she said.

"The most important [thing] that we can do for households that have been struggling is to give them the confidence that we have the economy under control so that they are not facing those rapidly rising prices, and that also that interest rates will come down, which are a massive cost for so many families with mortgages."

The last time Ms Willis was in the South she had a torrid time. Not only was she beset from all sides during the finance spokespersons’ debate she attended in Queenstown, she also had to endure a fiery grilling from the media as to whether the numbers in National’s tax plan really added up.

"I am looking forward to showing that our numbers do indeed add up," Ms Willis said.

"Now that I am the Finance Minister I see the forecasts and updates on GDP and whether the economy is growing and what that therefore means for the revenue coming in for the Crown and what we will need to be spending. What has been quite profound for me has been seeing how much a downgraded growth position degenerates the government’s books — billions of dollars of difference are made by our economy growing less.

"Now we have access to all the numbers and costings, it is pleasing to see that our tax plan adds up and that we can articulate very clearly with all of that data how we are paying for it."

Not only do the tax changes need to be regarded as meaningful, but Ms Willis will need the beneficiaries to act in a certain way. While many will simply spend it or pay down debt, she would be very grateful, economically speaking, if many chose to invest or save the extra money.

"I really believe that it is up to individuals to decide how best to use their money for themselves and their family — it’s not up to me to tell them," Ms Willis said.

"Because of the way we are funding our tax relief, which is through revenue measures, savings and reprioritisations, that is money that would have otherwise been spent on government departments or government programmes, on initiatives that our government is discontinuing.

"I imagine many taxpayers will spend it but some won’t, and that is why Treasury tells us that on balance they should be fiscally neutral and what we are doing is likely to take pressure off inflation and interest rates," she said.

"We are taking a responsible approach and making sure every dollar of tax relief is funded."

Doing infrastructure better has been a National Party mantra, and changes to resource management and consenting laws are already under way. However, someone has to pay for all that and keep the books balanced.

The biggest central government infrastructure project in the country right now is the new Dunedin hospital, and funding its ever-increasing cost. The budget is understood to have crested $2 billion and to still be rising, which is a difficult puzzle for Ms Willis to solve.

In the House a fortnight ago she said the rebuild had gone "terribly wrong", a statement which did not bode well given the twin buildings are still far from completion.

"This was promised to Dunedin seven years ago but it is demonstrably not complete and that in itself is a disaster, to have an infrastructure project take such a long time," Ms Willis said.

"There have been significant cost blowouts and we as a new government are grappling with that and looking to see how we can ensure that we are much more responsible in ensuring that what has become an ongoing pattern of cost blowouts do not continue in the future.

"New Zealand has to get much better at building hospitals and other major infrastructure projects," she said.

"Our interest as a government is to get some fiscal discipline in place so that when we embark on these projects that we get the design right, that we locate them in sensible ways, that we work with construction partners who have a really clear view of what the costs are and are managing those costs well, that we have thought through all of the implications of a build, how it will be serviced, [and] whether it will present the best value for money over its life course.

"There are all sorts of disciplines that ... are clear to me and my colleagues ... were not in place with the way the new Dunedin hospital project was managed."