The government has announced it will set itself a smaller Budget allowance than the previous government did, with no new borrowing, but will reveal the exact amount in the Budget.
The Treasury is expecting growth to be $42.8 billion lower in the coming years than was estimated in the Half-Year Update (HYEFU) in December, with core tax revenue tracking about $4b lower by the 2027/28 year compared to that estimate.
The HYEFU had also estimated a 2026/27 return to an operating balance before gains and losses (OBEGAL) surplus, but that $4b lower revenue figure pushed the $3.4b surplus estimated for the 2027/28 year down to a $600m deficit instead.
Changes to spending in the Budget would inevitably affect the final figures, but Willis acknowledged that "on these particular forecasts, achieving a surplus in 2026/27 is almost certainly not achievable, a surplus in 2027/28 is still achievable but not a given".
Finance Minister Nicola Willis said her Budget Policy Statement, released on Wednesday, put the government on a more sustainable track while delivering "urgently needed tax relief to hard working New Zealanders".
The statement sets out the government's priorities for the Budget due out in May, including:
- meaningful tax reductions
- enduring savings across government departments and agencies
- improved public services with new spending focused on priority areas in health, education and law and order
- tight control over spending, with limited new policy commitments and cost pressures unable to be funded through reprioritisations
- a long-term sustainable pipeline of infrastructure investments.
Willis said real GDP showed the economy was performing worse than was advertised in recent years.
"Across the whole forecast period ... Treasury has downgraded its expectations of the level of GDP," she said.
"This downward revision is because of revisions to past data and weak GDP results last year show the economy was performing worse in the past few years than was apparent at the time.
"Real GDP is forecast to grow in the future but it comes off a lower base, and the lower real GDP forecast flows into a lower forecast for tax revenue."
However, she said tax cuts would be funded entirely through reprioritised funding, savings, and new revenue, which "means we won't have to borrow extra to provide tax relief and we won't be adding to inflationary pressures".
"Our first Budget will deliver," she said.
"The coalition government will deliver tax reduction responsibly and affordably. Tax reduction will be funded within the new operating allowance for Budget 2024, and that allowance will be lower than the one indicated in the half-year updates.
"That means we will not be borrowing extra to pay for tax reductions, and tax reductions won't add to inflationary pressures."
However, she also warned "we won't fix in one Budget problems that have been created in six," signalling a slower pathway to economic prosperity.
She said it was the most responsible thing the government could do for low- and middle-income New Zealanders, who had seen no decrease to the tax they paid since 2010.
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