Finance Minister Nicola Willis has promised 83 per cent of New Zealanders over the age of 15 and 93 per cent of households would benefit from tax relief in the forthcoming Budget.  

That tax plan gave at least a small amount of income tax relief to all income earners by adjusting tax brackets. 

Willis’ speech this morning made clear there would be adjustments to income tax thresholds, but did not specify how much. The 17 per cent of New Zealanders left out of the benefits are those who do not earn traditional income, either because they are on a benefit or do not pay income tax. 

The detail was announced in a pre-Budget speech this morning, which set the scene for the Budget which will be delivered at the end of this month, on May 30. 

The speech was delivered to the Hutt Valley Chamber of Commerce. 

“I’m very pleased to announce today that our tax relief package will increase the take-home income of 83 per cent of New Zealanders over the age of 15 and 94 per cent 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,” Willis said. 

She said the changes would not be inflationary and would be funded from new revenue measures and reprioritisations. 

“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,” Willis said. 

On public service cuts, Willis made no apologies for trying to find savings in the back-offices which could be used for the front line. 

She said the Budget would do what she said it would do, which was shaving back on Government spending. 

She said government programmes had to deliver to New Zealanders and if they were not, they should not continue and the money should be used for programmes which were effective. 

Willis said the Ministry of Foreign Affairs had delivered some savings under its target of 6.5 per cent cuts, but would not specify whether it had reached the amount set. 

She denied there was an exemption for MFAT to make its cuts, but said some agencies had delivered on their targets, some had gone above them and others had not hit their targets. 

She said overall spending in some areas - including Defence - would increase, but there had been some cuts which were being channelled into the front line. 

Willis said that was because it was important the NZDF had the right equipment to be able to operate with its global partners and deliver on its responsibilities in the region. 

With the change of government last year, very little is known about what will be in the Budget. Willis has not published her operating or capital allowances yet, despite this being common prior to the Budget. 

In her Budget Policy Statement, Willis said, however, that the Government will be moving back to a traditional debt metric, net core Crown debt, rather than simply net debt, which was favoured by the last Government. 

The new Government has made three significant pre-Budget announcements: an investment of more than $60 million in rolling out mandatory structured literacy in schools; a $1.9 billion investment in Corrections; and a time-limited allocation of $478m for continuing the free school lunches programme. 

On Monday, the OECD released its most recent report on the New Zealand economy. The report included some recommendations the Government is unlikely to agree to, like the implementation of a Capital Gains Tax, and others that it might, like the return of more conventional fiscal discipline. 

The OECD criticised the way the last Government had a tendency to spend more than it had allocated itself. Willis made much of that criticism in the House this week. 

“The OECD report says that expenditure slippage, to use the OECD term, arose in two main ways: first, from 2021 onwards the Government set relatively high operating allowances in advance of its Budgets, and, second, when it came to the Budget itself, the actual amount of spending was higher still. 

“This is borne out by the relevant Budget documents. For example, the operating allowance for Budget 2023 was originally set at $2.6 billion then was successively raised to $2.7 billion, $4 billion, and, finally, $4.5 billion. The actual new spending in Budget 2023 was $4.8 billion. That is how spending overruns happen,” Willis said. 

The OECD also advised ensuring that any tax cuts were fully funded through spending cuts and revenue-raising measures. Willis said that the Budget will be consistent with this advice. 

This article was originally published on the NZ Herald here.