NZ Budget 2024: ‘tax relief’ for the ‘squeezed middle’ – but who’s paying? 7 experts follow the money

Craig Elliffe: Small cuts, big consequences

Honestly, who would want to be Nicola Willis at this point?

Authors


  • Timothy Welch

    Senior Lecturer in Urban Planning, University of Auckland, Waipapa Taumata Rau


  • Anna Matheson

    Associate Professor in Public Health and Policy, Te Herenga Waka — Victoria University of Wellington


  • Craig Elliffe

    Professor of Law, University of Auckland, Waipapa Taumata Rau


  • Dennis Wesselbaum

    Associate Professor, Department of Economics, University of Otago


  • Hiran Thabrew

    Senior Lecturer in Child Psychiatry and Paediatrics, University of Auckland, Waipapa Taumata Rau


  • Julia Talbot-Jones

    Senior Lecturer in Environmental Economics, Te Herenga Waka — Victoria University of Wellington


  • Mark Barrow

    Dean of the Faculty of Education and Social Work, University of Auckland, Waipapa Taumata Rau

The effect of $14.7 billion of tax cuts is going to mean a dramatic rethink on expenditure in New Zealand in the long term, and about what sort of public services we expect as a country. The government’s cut-it-back strategy appears focused on the next four years, not a longer horizon.

From a broader economic perspective, the hope is the cuts will provide help for households. But that is not great relief if interest rates do not come down. So, the story for 2024 will be increasing job losses and a gloomier economy.

The tax cuts spread a little over a lot of people. And you have to ask, will $50 or $100 a fortnight really make a difference if interest rates stay high and the ability of the government to pay for core services reduces?

If the government keeps tightening the belt to pay for what are, in reality, small tax cuts, we’re going to end up with poor infrastructure, low wages and a struggling economy.

One positive thing about the tax policy, however, is that the government is facing up to the fiscal drag question. More than 14 years of inflation have moved people into new tax thresholds, eating away at the benefits of salary increases.

Taking a longer-term view, organisations such as the International Monetary Fund and OECD would have preferred the government to focus on paying down debt to get New Zealand to a surplus faster. To do that, those organisations suggest New Zealand introduce a tax on capital – but this budget avoids such big questions.

Dennis Wesselbaum: Prudent fiscal management

Fiscal budgets involve the crucial task of strategically allocating resources across various vital sectors, such as health, education and infrastructure.

The big-ticket items in this year’s budget are the tax relief – adjusting tax thresholds and the FamilyBoost childcare payment – and spending increases in health, schools and policing.

Tax relief is achieved by adjusting tax brackets for those on low and middle incomes. This should have a positive effect on the economy without creating inflation.

Spending is financed by redistributions, cuts in other areas, and by shrinking the public sector (by about 4,000 jobs), with fiscal surpluses predicted to return by 2027-2028. The underlying economic outlook from the Treasury looks reasonable, and we should see interest rate cuts by early to mid 2025.

Overall, this budget is a welcome return to focusing on outcomes and prudent fiscal management. Delivering a budget that simultaneously addresses many structural problems during a recession is always a difficult task, but this is a step in the right direction.

Timothy Welch: Infrastructure funding falls further behind

The 2023 budget was all about rebuilding and resilience: the extension of free public transport for children under 13 and half-price fares for under-25s; millions for rail and road restoration and resiliency; funding for more public housing and a clear emphasis on protecting the country from natural disasters and climate change.

All of that is gone now. While not exactly an austerity budget, it significantly cuts public spending, aside from on roads, as New Zealand falls further behind on funding critical infrastructure.

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