The Government lifted the lid on the Budget today, publishing previously secret papers that reveal Treasury Officials recommended trimming the Government’s tax cuts in a bid to save money.

Officials offered a number of suggestions, some of which would have meant only a very small number of high-earning individuals would have benefited from the tax changes. Those officials were overruled by Finance Minister Nicola Willis and the Government, which delivered a tax package identical in almost all respects to what National campaigned on.

Tax package cost concerns

A document from February presented three options for trimming the cost of the tax package by $740 million to $1.6 billion.

The options were to delay the implementation of the plan to October, reducing the expansion of the Independent-Earner Tax Credit (IETC) eligibility or completely dropping IETC from the package altogether.

Officials supported the objectives of National’s tax plan, but recommended Willis “consider progressing scaled personal income tax options”, alongside delaying the implementation of the tax package, and scrapping the IETC changes altogether.

That last change is hardly surprising - Treasury has a longstanding aversion to the IETC, and nearly succeeded in having it abolished in 2017. It is hardly surprising Willis kept the IETC, which gives people earning $24,000 and $70,000 and don’t receive other support, up to $10 a week, given it was central to the tax package’s claim to boost incomes for middle income earners.

Treasury analysed other possible changes but did not explicitly recommend them. These included lifting the higher tax brackets but retaining the bottom ones. This would have meant higher earners getting smaller tax cuts and people earning low incomes getting nothing. Unsurprisingly, this idea does not appear to have made it very far, despite it saving $1.16b.

Treasury also looked at reducing the whole tax package by 10% at each threshold, which would have saved $810m, and halving the changes for the $70,000 threshold, which would have saved $750m and meant people earning above $70,000 getting smaller tax cuts.

Winston wins reprieve for MFAT

In another document, Treasury notes its scepticism at Deputy Prime Minister Winston Peters’ desire to effectively exempt it from the Government’s savings exercise, which was meant to cut backroom spending from across the public service.

“There is not a clear rationale for exempting MFAT from the savings process and treating it differently to other agencies, many of which have not seen comparable recent baseline increases but have a greater direct impact on living standards,” officials said.

There also appears to have been a tussle between Willis and Peters over whether to subject the aid programme to cuts.

“We recall MoF [Minister of Finance] saying that she didn’t think savings should come from aid programme expenditure, as the Minister is proposing here, but we were unclear whether MoF held that view personally or whether it was something she didn’t think the Minister would find acceptable to put forward as a saving option,” said an official.

Justice cuts could impact services - officials

Cuts across the justice sector for Budget 2024 may impact the quality of services in the Serious Fraud Office and the Office of the Privacy Commissioner, while access to legal aid has been narrowed, and police will be “sweating some vehicles for longer”.

These are all are outlined in a March 19 Treasury briefing on the justice sector proposals.

A $3.144m cut to legal aid services over four years came from making it harder to get legal aid, which creates “equity risks around access to justice”, according to the Treasury.

“The Ministry proposes to reduce grants for criminal legal aid where the maximum penalty is less than six months imprisonment. This will be achieved by applying greater scrutiny to these applications to determine whether they meet the ‘interest of justice’ test, which is expected to reduce grants by 10%.

“The Ministry expects the policy change to be limited to fine sentences, but if the mix of sentences changes, this proposal may create costs for

Corrections management of community sentences.”

The Government also cut $18.868m over four years from the legal aid budget, “following lower demand for certain initiatives”. Treasury’s reservations about this are redacted.

A $2.124m cut over four years to the Office of the Privacy Commissioner’s (OPC) budget “may risk OPC’s ability to respond to major privacy breaches and undertake litigation or prosecution of key privacy issues”, though Treasury considered “these risks to be manageable”.

Reducing the costs of data storage, travel, and use of its prosecution panel amounted to savings of $1.6m in the Serious Fraud Office, half of which was chosen because it would “have the least impact on operational capacity”.

“SFO considers there is a risk of service degradation and inefficiency and some longer-term implementation risk, as data storage cost savings are

expected to diminish over time as the cost of this service increases with technological advancement.”

Meanwhile the $28.74m in more operating money and $33.97m in capital funding over four years to renew the police vehicle fleet is still short of the optimal amount, with police “sweating some vehicles for longer and not replacing some fleet as it reaches end-of-life”.

Less than optimal funding for asset management was also identified to save $68m in Corrections.

“The primary risk associated with this initiative is the risk to asset availability due to lower levels of maintenance. There may also be an impact upon frontline staff who work in these environments. These risks have been determined to be manageable.”

The savings drive in Corrections also saw the scaling back of the Hikitea mental health and addiction service at the Waikeria Prison, which could that some reduction in reoffending won’t happen.

In Courts, a $4.658m cut to the “lifting cultural capability” risked “an adverse impact to the Ministry’s ability to develop effective and

sustainable policy and its ability to foster meaningful and enduring relationships with Māori communities”.

There was also a proposal to cut $16.822m from Crown prosecution services, but this was rejected because it risked “a significant impact on the overall

performance of the justice sector through lower quality prosecution services and a reduction in court timelines”.

There was also a cut to a range of initiatives to support victims in the justice system, but the amount is redacted in the document.

“As these initiatives have not been implemented, returning this funding has no impact on users of the justice system. Given the funding is in a tagged contingency, it is not a baseline reduction but has been submitted given the difficulties for the justice sector to meet its target and deliver Government expectations.”

Earlier:

Further details of what is included in the papers will be published in this story as the documents appear on the Treasury website.

Each Budget is followed by a proactive release day, colloquially known as a document dump, where papers detailing the priorities of Finance Minister Nicola Willis and advice from officials are made public.

This proactive release is often anything but proactive. This one has occurred later than most, dropping in September, when others have tended not to stretch beyond August.

The defence of this is that this proactive release is two in one: it includes papers on the cuts undertaken by the Government, as well as the new initiatives put up for funding.

The 2024 Budget was built around a $14 billion tax cut package that adjusted income tax thresholds upwards delivering tax cuts to most working households.

The tax cuts were funded by trimming the baseline spending of most Government departments by 6.5% or 7.5% resulting in savings of about $1.5b over the period of the Budget.

Big winners from the Budget included the Defence and Health sectors. The Government and opposition are in the midst of a brutal argument on health spending, with the opposition arguing the Government failed to fund health adequately, citing the pleas of Health NZ bosses at a parliamentary select committee earlier this year.

The Government says that it has tipped in adequate funding, saying Treasury was happy with funding levels and noting that the multi-year funding given in this Budget is more than what Labour promised in its election manifesto.

A big question looming over the Budget is how hard the Government worked to fund its pledge of new cancer medicines. Some papers on this topic have already been released, but aspects of the plan, including whether National made more than a cursory effort to fulfil its manifesto commitment of funding the medicines this year, are still unclear.

The Government also made some tough political decisions about the future, including dramatically trimming the amount of new spending available for future Budgets to a level Treasury said would not be sufficient to fund existing service levels without further cuts.

The Government has also chosen to de-emphasise some of the “wellbeing” aspects of Labour’s Budget process. The Budget documents may reveal to what extent that changed how the Budget was put together.