National unveils Budget 2024, keeps tax cut promises

May 30, 2024

National has kept its tax cut promise in the coalition's debut Budget, laying out a relief package largely in line with the 'Back Pocket Boost' it campaigned on during the election.

Much attention had focused on the teased tax relief in the lead up to today's reveal, with many economists calling for it to be scaled back or more gradually phased in.

Unveiling her first Budget this afternoon, Finance Minister Nicola Willis declared: "I have kept my pledge".

Willis described the near $15b tax cut package as "fully funded" over four years, pointing to $23b in savings across the public sector over the same time.

The government expected to borrow an extra $12b during that same period.

Asked why she pushed ahead with tax cuts rather than reducing debt, Willis said doing otherwise would have meant breaking their commitment to New Zealanders: We chose not to do that.

Willis characterised her first Budget as a "clean-up job" which delivered on key coalition promises.

"This Budget wont fix all of New Zealand's economic challenges on its own and there is much more to do, but it does show what is possible with care and discipline."

'Back Pocket Boost' is back

The Budget documents stated 1.9 million households would benefit from the overall relief package by an average of $30 a week. Households with children would benefit by $39 a week on average.

A minimum wage worker could expect about $12.50 a week, while superannuitants would take home just $4.50 a week.

The key plank of the policy was an adjustment to income brackets, with tax rates remaining the same but the thresholds where they kicked in increasing.

The Independent Earner Tax Credit is also being expanded, with the upper limit for eligibility rising from an income of $48,000 to $70,000, with amounts reducing from $66,000+ instead of $44,000+.

National campaigned on enacting these changes at 1 July, but the start date has been pushed back four weeks after advice from Inland Revenue to allow payroll providers more time.

The in-work tax credit will also go up by up to $25 a week from 31 July. National had campaigned on that kicking in from 1 April.

The relief package also includes a childcare payment for low-and-middle-income households as already announced by Willis in March.

The original 'Back Pocket Boost' policy included an increase to Working for Families, but that promise was discarded during coalition negotiations.

During those negotiations, National also agreed to consider whether ACT's idea of a flatter tax system could be incorporated "subject to no earner being worse off than under its plan.

Willis said ACTs idea of reducing the number of tax rates had a lot of merit but was not possible this year or this term: It remains, however, an idea for the future.

The overall policy is costed at $3.7b a year which Willis said was fully-funded through specified savings and revenue initiatives.

Nip and tuck

Willis said a line-by-line review of government spending had identified an average $5.86b a year across 240 savings and revenue initiatives.

That included a baseline savings exercise across government departments which had raised more than $1.5b a year.

Most departments met or came close to their savings target of 6.5 percent or 7.5 percent with the notable exceptions of the Defence Force, Police, and the Ministries of Foreign Affairs and Justice.

The Ministry of Housing significantly exceeded its savings goal of $109m, instead cutting its baseline by $391m.

Initiatives in line for a funding shave include the NZ Symphony Orchestra, the Human Rights Commission, the Major Events Fund, and the Climate Change Commission.

The Warmer Kiwi Homes scheme is also being scaled back with the end of subsidies for hot water heating and an outreach programme to target hard-to-reach households.

Some savings have been recouped by shifting the first-year of Fees Free to the final year of study, taxing online casino operators, and increasing immigration fees.

Savings and reprioritisations will be a business-as-usual activity for all ministers so that we can put the books back in order, Willis said.

Not all promises kept

During the campaign, National pledged to give Pharmac an extra $70m a year over four years in ring-fenced funding to target 13 specific cancers.

The government regretted that it had not been possible in this Budget, Willis said.

She pointed to the major investment required in Pharmac and cited difficulties with the promise, given it would result in a significant shift to Pharmac's operating model.

Regardless, Willis said the coalition remained committed to following through on its commitment in future Budgets.

"We are determined to deliver it and we will."

Budget at a glance by Russell Palmer of RNZ

Tax and economy (spending on average $3.68b more a year in new initiatives):

$2.57b on tax cuts through bracket adjustments unchanged from what National set out in the election campaign
$155m on Independent Earner Tax Credit eligibility changes in line with National's election campaign
$182m on In-Work Working For Families Tax credit by $25 a week, in line with National's election campaign (the change to abatement thresholds was abandoned during coalition negotiations)
$729m on restoring interest deductibility for residential rental property
$45m on adjusting the brightline test