The correction Nicola Willis was forced to make over her tax cuts

Friday, 31 May 2024

Tova O’Brien is Stuff’s Chief Political Correspondent and host of the weekly political podcast, Tova. Listen to the latest episode, ‘Big Budget Special’, for all the Budget day action.

ANALYSIS: It would normally be considered an insult to describe a person’s pride and joy as beige, vanilla, middle of the road or unsurprising but Nicola Willis is taking the descriptions of her first Budget as a compliment.

“I think it's really good to deliver on your commitments and politics. And we campaigned on a series of commitments that we've kept in this Budget,” she told Stuff in a one on one post-Budget interview.

She’s been reticent to name it herself but under duress says she’d opt for the “Goldilocks Budget - just right. Not too little. Not too much.”

Besides the grimmer than expected economic outlook - debt’s $17b higher, tax revenue’s $28b lower, future spending allowances are a piddly $2.4b - there was little to raise the eyebrows or rub the mitts together over in Budget 2024.

In fact, one of the most surprising things to come out of the three and a half hour Budget lock up was the sushi that was served for lunch. Willis says she had nothing to do with the catering, it was not a tacit dig at David Seymour nor his distaste of woke food.

In an otherwise polished and predictable Budget Day delivery Willis made one unfortunate faux pas, getting one critical number wrong, in answering a question from Stuff.

When National announced its tax cuts, the ‘Back Pocket Boost’, last year the headline figure trumpeted by the Prime Minister was $250 a fortnight for average income households with young kids.

Here he is saying just that in September 2023: “it does give an average income household family with young kids $250 extra a fortnight”.

Turns out what they should have been saying all along was “up to” $250 a fortnight and after the Council of Trade Unions crunched the numbers and revealed it would actually only mean 3000 families got that maximum headline figure, Willis was forced to concede.

So in the Budget lock up, Stuff asked the obvious question now that the tax cuts were locked, how many households will get the full $250 per fortnight, will it be greater or fewer than the 3000?

Willis replied, “greater”.

It wasn’t long after the Finance Minister departed the lock up when a Treasury official approached Stuff with a folded sheet of paper.

“A message from the minister,” she said.

Inside, the headline: “Correction - Tova O’Brien”.

“You asked the Minister in the lockup today, how many households get the full $250 per fortnight through tax relief.

“The Minister’s answer may have been a little unclear. There are many numbers involved…

The answer to your specific question is likely to be less than 3,000 - although as the Minister outlined at the start of her answer, it is difficult to quantify exactly the number of families.”

Oops.

Put to her that there’s a vulnerability here, that the government keeps getting this particular stuff wrong, Willis says she disagrees, “Well, no, we didn't make a promise about how many people would receive that payment.”

“We were always clear that it was up to $250 and we encouraged New Zealanders at every opportunity to go on and check out our tax calculator.”

Labour has called this a Budget of broken promises, chief among them calling out the promise Willis made that she would not borrow to pay for her tax cuts - a promise she staked her job on in a campaign interview with the Tova podcast.

“The numbers are pretty clear,” Chris Hipkins says, “$10 billion worth of tax cuts, $12 billion worth borrowing, you don't need to have an abacus to figure that out.”

“I just say that’s wrong,” Willis retorts, “We've fully funded it in a responsible way.”

Sounds like she won’t be quitting then, “Absolutely no way. We've got more Budgets to do, more work to do.”

The political debate will rage on, not least the argument about whether now is the right time for tax cuts, whether what people are pocketing is outweighed by the overall costs to the taxpayer and if they’re really worth pushing out the surplus or having less money to spend on other important stuff.

The jury’s also split over whether the tax cuts could be inflationary but Treasury forecasts for inflation fall much quicker than the Reserve Bank, at this rate we’re heading back below 3% by the September quarter this year.

Willis doesn’t “think” her tax cuts will be inflationary, “I don't think we're going to be a problem for inflation, in fact, I think we're more friend to the Reserve Bank than foe.”

The culture of cuts we’ve seen the government impose on the public service is set to continue. With a much reduced operating allowance over the next few years - $1.2b less spending than had been set by Labour - Willis has given herself very little room to move.

Once you take out the $1.4b just to keep the lights on, it’s real tight.

“I was advised by Treasury that if we stuck to the spending path the last government had proposed, we wouldn't get the books back and balance until 2031. That would hugely, hugely grow debt for New Zealand. I think it would have been irresponsible,” Willis says.

If the government wants to make good on all of its other campaign and coalition promises, scrounging for more savings - cuts - will be the only way.

Every year Finance Ministers attempt to manage expectations ahead of their Budgets, to under promise so they can over deliver on the day.

Willis has bucked this trend. Managing expectations sure, but then delivering exactly what she promised, barely a dollar more.

She’s thus established her bespoke Finance Minister style - consistency, predictability and continuing exactly as she means to go on - walking a straight line, right down the middle of the road.