New Zealand's budgets have a weak economic environment

New Zealand's Treasury on Thursday reported a bleak economic environment, high unemployment and a weak balance sheet, as the government cut new spending and provided some tax breaks as promised during last year's general election.

New Zealand Finance Minister Nicola Willis said, on the occasion of the budget's publication, that this budget alone will not solve all of New Zealand's economic problems, and there is still a lot to be done, but it shows what can be done with wisdom and discipline. Conservative government's inaugural budget statement.

Since its election last October, the centre-right coalition government has had to confront an increasingly difficult economic situation: New Zealand is now in technical recession, unemployment is rising, and domestic inflation remains stubbornly high. The Treasury expects negative growth in the second quarter before the situation improves in the second half.

If elected, Prime Minister Christopher Luxon's National Party has promised tax breaks to improve the lives of middle-income New Zealanders facing high costs of living, high mortgage rates and record housing rental prices.

The government has announced a change to personal income tax thresholds, which will give a small boost to people on low and middle incomes.

“Too many New Zealanders have fallen behind in recent years. Even as wages struggle to keep up with inflation, New Zealanders are being pushed into higher and higher tax brackets. Budget 2024 delivers the promised tax breaks,” Mr Luxon announced in a press release.

The government said the tax cuts would bring in NZ$3.7 billion ($2.3 billion) for New Zealanders, but would be offset by savings and new revenue, meaning the measures should be broadly inflation-neutral.

The government announced new spending, including NZ$2.68 billion for roads, railways and public transport, and NZ$2.1 billion to maintain public order, including funding for 500 new police officers and prison expansion.

He also announced significant savings in housing, higher education and environmental conservation, as well as more modest cuts at a number of agencies.

Willis said agencies and departments have focused on cutting back on administrative positions and those that do not align with government priorities.

“The goal of this exercise was definitely to move resources from the back of the store to the front of the store,” she said.

Ms Willis rejected criticism that funding has been unfairly cut for programs that benefit indigenous Maori, sparking protests across the country on Thursday.

The deficit is growing

The government stressed that new spending cuts would help contain inflation, which currently stands at 4.0% and exceeds the central bank's target of 1% to 3%.

It forecast a budget deficit of NZ$11.07 billion, or 2.7% of GDP, for 2023/24. This deficit is larger than the NZ$9.32 billion deficit expected in the semi-annual economic forecasts. The government now expects a return to surplus in 2027-2028.

“We are determined to make it happen,” Willis said at a press conference.

Net debt is expected to peak at 43.5% of GDP in 2025/26, a year later than December forecasts.

The Treasury expects the economy to contract in the first half before returning to growth in the second half.

($1 = 1.6375 New Zealand dollars) (Reporting by Lucy Cramer; Editing by Lincoln Feast)