Budget 2024: All hat and no rabbit - Andrea Vance

Thursday, 30 May 2024

Andrea Vance is National Affairs editor of The Post and Sunday Star-Times.

OPINION: After the tumult of a pandemic and economic crisis, it was probably the drama-free Budget we all needed.

All hat, no rabbit, and a distinct lack of magic. `

But it’s wizardry Nicola Willis will need if the economy is to recover. Because while there are few surprises, there are a number of alarm bells.

Much of the detail was well sign-posted. The tax cuts (Willis prefers ‘relief’) are as promised in the election: according to Willis they’re worth about $60 a fortnight to around 2 million households, and $78 per fortnight, on average, to households with children.

More scratchcard prize than Lotto jackpot, particularly if you are a pensioner or minimum wage earner.

It will cost $3.7bn, including the interest deductibility for landlords, and come into effect from July 31st.

For households already stretched thin, the relief will be eroded by other budget measures such as the removal of free prescriptions, a bin tax increase (up from $20 to $25 a year), and no relief (yet) from interest rates or inflation.

There is no extra help for the jobless, who are expected to grow in numbers until next year (up 5.2 percent, an extra 27,000 beneficiaries).

To offer genuine benefit (by getting inflation and mortgages down), Willis badly needs the economy to recover. But it continues to under-perform.

Forecasts show weak growth will keep the Crown accounts in deficit until 2028. Treasury predicts the Government will take in less tax than expected, and spending cuts are not as drastic as they could have been (or that fiscal hawks would have liked).

It adds an extra $50bn to national debt (that’s nearly $20bn more than forecast) despite National’s promise to borrow less.

So, it’s difficult to accept Willis’ assertion that she isn’t borrowing to pay for the tax cuts. Likewise, with an extra $700m injected into the economy, it’s hard to reconcile her claims that it won’t be inflationary. Overall, the markets and credit rating agencies will be the judge.

There will be further cuts to public spending in order to meet surplus by 2028, tricky to balance with a growing and ageing population, and a massive infrastructure deficit without dramatically affecting services.

Treasury warns the Government will have to make “choices and trade-offs” to meet cost pressures to maintain existing services next year.

The fine-print shows the operating allowance has already been cut by $5.5bn from pre-Christmas forecasts.

Taxes might be falling, but debt isn’t coming down and we’ve yet to beat inflation. Willis is going to need a magic wand if future Budgets are to deliver rabbits.