Government to make further public sector cuts, no surplus until 2029

Tuesday, 17 December 2024

Nicola Willis notes in Parliament that misses have become the norm.

Finance Minister Nicola Willis has outlined the Government’s main fiscal priorities in the Budget policy statement.

The Government’s operating allowance for the May Budget will be $2.4b but after its pledges, including to health, it’ll have $700 million left.

Treasury has also released its half-yearly fiscal update, forecasting It will take longer for Treasury’s books to fall into surplus - 2029 at the earliest - under a new measure.

Finance Minister Nicola Willis will make further cuts to government spending and more public servants may lose their jobs as she warns ministries not to expect any extra funding in the next Budget - of which a substantial amount has already been pledged to health.

It comes as Treasury paints a tougher financial picture with higher core Crown expenses, forecast to grow from $139b in the year ending June, to $162.9b in the year to June 2025. There will also be less tax revenue.

The HMNZS Manawanui ran aground while surveying a reef south off Samoa in October.

That’s down to increased spending on the jobseeker benefit as a result of higher short-term unemployment, as well as superannuation, higher debt servicing costs and new spending.

The government also has a number of looming costs, not limited to the abuse in state care redress scheme, the Manawanui sinking, strengthening the response to severe weather events, the roads of national significance programme and building a tunnel through Mt Victoria.

The update came in the half yearly fiscal update, an annual document which outlines what Treasury’s observations of the economic climate - and what it might see in the future.

At the same time, Willis released the Budget policy statement, which sets out the priorities for the next Budget in May.

The government has an operating allowance of $2.4b. But $1.37b of that has already been promised to health spending as a result of an ageing population, as well as fulfilling the government’s promise to fund 26 cancer medicines.

Willis also revealed the government had introduced a new financial indicator by amending the way it measures its operating balance excluding gains and losses, called Obegal.

Obegalx, the new measure, won’t include revenue and deficits related to ACC.

Treasury in 2023 expected the books to hit surplus in 2028, at the earliest. But Tuesday’s update shows the books will stay in deficit until at least 2029, even when it uses the new measure.

Under the prior measure, it will reach surplus after 2030. However, Willis said she was committed to reaching surplus sooner.

Governments seek to have Budgets in surplus because it means they have enough money to pay down debt and weather any future shocks or large expenses. It usually suggests the economy is performing well.

Willis said the forecasts were positive, although the economic pick-up was “later and slightly more subdued” than previously signalled.

She said there were several factors in the forecast revisions, but that none were a response to government decisions. The economic downturn was deeper and started earlier than previously understood, she said.

Redress package will come in May Budget

Willis said the government was committed to a redress scheme for victims of abuse in state care, the details of which would come in the May Budget. It would include a package of initiatives, including a redress scheme, a support scheme and work to strengthen the care and protection system.

“It is a pressure I expect to fund in next year’s Budget,” she said.

The Royal Commission of Inquiry into abuse in state care estimated at least 250,000 people were abuse while in state care.

Unemployment and superannuation

Treasury predicted unemployment would peak at 5.4% next year. It forecast a 12% increase in people on jobseeker support by mid-2025, to about 217,000 people, costing $600 million a year. This was forecast to reduce to 204,000 over the next four years, costing in average $200 million a year.

Willis said the jobseeker figures were reflective of the economic recession, which “has been both more protracted and deeper” than previously understood, she said.