Government Unveils $7.5 Billion in Savings to Boost Economy and Relieve Costs

New Zealand's new government has released its economic and fiscal update, outlining plans to tighten public finances and bolster the economy.

The country's inflation rate currently stands at 7.4%, while its debt has hit a record $61.6bn, prompting the coalition government, led by the centre-right National Party, to take immediate action. The government has announced $7.5bn in savings and additional revenue, hoping to deliver cost-of-living relief and safeguard public services.

Specific measures include adjusting benefits in line with inflation and changing the bright-line test on rental properties, with a view to increasing interest deductibility for rental properties from 2024. 

Furthermore, the government intends to upgrade the Public Finance Act and provide better oversight of major spending projects.

Finance Minister Nicola Willis stated that government spending had increased by 80% between 2017 and 2024, but that insufficient results were being delivered. The savings identified include $2.61bn from cancelling programmes such as Auckland Light Rail and a pumped hydro scheme at Lake Onslow, as well as ending subsidies to decarbonise industry.

The government will use some of the savings to support a reduction in income tax, and is also planning changes including enabling full cost recovery for immigration visa processing, replacing a fees-free policy with a final-year fees-free policy from 2025 and improving the cost-effectiveness of the school lunch programme.

ACT

ACT is claiming that its decision to issue stop-work notices on several major projects in the run-up to the election is already saving $7.5bn in the government's mini-budget. The party says it used its time in government to identify wasteful or ineffective projects that could be cut, including the Let's Get Wellington Moving transport scheme, Income Insurance, Industry Transformation Plans and the Lake Onslow Pumped Hydro project. In addition, ACT's decision to scrap Labour's Resource Management Act reforms and axe the ute tax have combined to save $352m. ACT leader David Seymour said the party was committed to reducing red tape and improving productivity as well as cutting taxes.

Public Service Association

The New Zealand government's decision to cut at least $6bn from the country's public sector over the next four years lacks clarity, according to the Public Service Association (PSA). While the association welcomes the suggestion that public bodies should find efficiencies through working more closely with employees who know their areas best, it argues that now is the time to be investing in public services, rather than cutting spending. The PSA also takes issue with the government's suggestion that the public sector workforce should be sized according to a 2017 headcount, given that New Zealand's population has since grown by 500,000 and is ageing, while the country also needs to plan for climate change and increasing infrastructure demands. The union representing 90,000 workers will now focus on defending public sector jobs and services over the next six months.

New Zealand Nurses Organisation 

New Zealand Nurses Organisation (NZNO) has expressed disappointment at Finance Minister Nicola Willis' mini-Budget, which prioritised tax savings over funding for the country's health service. In 2022/23, the health budget was $24.6bn, yet actual spending exceeded this, reaching $26.7bn, with a deficit of $1.0bn reported by Te Whatu Ora. According to the NZNO, the government's funding commitments fail to account for this existing deficit, as well as increasing costs due to changing demographics, population needs, and inflation. In particular, the organisation has called for increased funding to support nurses, midwives, healthcare assistants, and kaiāwhina.

Taxpayers' Union

New Zealand's fiscal reporting model has failed taxpayers, according to the Taxpayers' Union. The Half Year Economic and Fiscal Update (HYEFU) reveals that the country is on an unsustainable fiscal path, which was not disclosed to voters before the election. The Union is calling for an inquiry into Treasury's performance and transparency, and suggests that the HYEFU reveals a return to the fiscal challenges faced by New Zealand in 1990, which led to a controversial "mother of all budgets" in 1991. The Union's Executive Director, Jordan Williams, criticised Grant Robertson for dishonesty and called for him to apologise.