Speaking to Newstalk ZB’s Mike Hosking this morning, Finance Minister Nicola Willis said she wants to stick to her $3.5 billion promise for her budget. 

”In terms of the economy, we’ve got the treasury forecasts still coming in. 

”In terms of discussions with coalition partners and ministers, I’m still having budget bilaterals.” 

Willis said the economy was very slow, and that makes things “tough.” 

”It’s fair to say the shape of the budget is shaping up, it’s looking good, I’m confident it’s all coming together well.” 

Hosking disagreed and said he thought it was looking dreadful because we are in a recession. 

”The budget is looking like a budget that will bring together the small crumbs we have at the back of the cupboard.” 

Willis said her priority was tax relief for “working people.” 

”We are a country that is finding it very hard for businesses to grow.” 

Hosking asked Willis if she was surprised by criticism of her government’s planned tax cuts. 

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“Some people just do not like tax reduction, they can see a long list of things they’d like to see the government spending money on and they think that’s more important than something I think is a basic principle, which is that New Zealanders get up, they work hard and they deserve to keep more of their own money.” 

Willis said New Zealand hasn’t “had any changes to tax brackets or thresholds in fourteen years.” 

This isn’t true, last year the Labour government introduced new top rate of 39%, but only on income earned above $180,000. 

Nicola Willis has conceded she won’t be able to get the Government’s finances back in shape as quickly as expected, while delivering tax cuts, which may not end up looking as attractive as National promised before the election. 

Hosking asked Willis why she wasn’t going harder on the surplus. 

”The numbers are the numbers,” she said. 

”We could choose to overreact to them, and do incredibly dramatic things... but we don’t want to be radical in that way.” 

Releasing her Budget Policy Statement yesterday afternoon - a preview of the May 30 Budget - the Finance Minister emphasised the extent to which economic growth is expected to be slower than expected in December. 

Consequently, the Government’s tax take is likely to underperform, meaning the Government won’t get its books back in surplus by 2026/27 as expected in December, and as National campaigned on before the election. In fact, the books are still likely to be in the red in 2027/28. 

While Willis highlighted her commitment to being a prudent manager of the country’s finances, she said she wouldn’t chase a surplus at any cost - particularly if that cost was borne by frontline public services. 

Willis didn’t do what finance ministers tend to do during Budget Policy Statements and unveil the likely size of the upcoming Budget. 

She didn’t include her expected operating allowance in the statement - the figure that’s typically seen to be the centrepiece of a Budget Policy Statement. 

Rather, she kept things broad, saying her operating allowance would be less than the $3.5 billion figure pencilled in by the previous Government. 

In other words, she will increase expenditure on day-to-day operating costs by less than $3.5b (net) in Budget 2024. 

As for capital expenditure, on things like infrastructure, Willis said the Government will top up the multi-year capital allowance by up to $7b, with the final number to be confirmed at the Budget. 

Coming back to the income tax cuts, Willis avoided confirming whether these would look the same as what National campaigned on ahead of the election. 

She said they would be targeted at lower and middle-income earners and take effect on July 1 - as previously signalled. 

Act Party leader David Seymour said the income tax changes hadn’t gone through Cabinet yet. 

“We’re always jostling with our coalition partners, but on the tax issue, I think we’re at a reasonable place,” he said. 

Willis assured the Government wouldn’t need to borrow more to deliver tax cuts. 

“Tax reductions will be funded by reprioritisation, savings and new revenue measures, and this package will not add to debt,” the Budget Policy Statement said. 

Willis didn’t believe the “new revenue measures” (which could include taxes, levies, fees, etc) would surprise the public. 

Taking a step back, the Budget Policy Statement said the Government aimed to put net core Crown debt on a “downward trajectory towards 40 per cent [of GDP]” over the next four years. 

In the year to June 2023, net core Crown debt was worth 39 per cent of GDP. In December, the Treasury forecast it rising to a peak of 44 per cent of GDP this year. 

Longer term, Willis said her goal was to ensure net core Crown debt sits between 20 and 40 per cent of GDP - a fairly wide range. 

Former Finance Minister Grant Robertson got net core Crown debt to below 20 per cent before Covid-19. 

Jenee Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.