New Zealand budget expected to offer tax cuts and a worsening outlook

NEWZEALAND-ECONOMY/BUDGET (PREVIEW, PIX):PREVIEW-New Zealand budget expected to offer tax cuts and a worsening outlook

Reuters
First Published28 May 2024
New Zealand budget expected to offer tax cuts and a worsening outlook
New Zealand budget expected to offer tax cuts and a worsening outlook

By Lucy Craymer

WELLINGTON, May 28 (Reuters) -

Lower taxes are expected to be the centrepiece of New Zealand's budget on Thursday, the first under the centre-right National Party-led government, with worsening forecasts and falling revenue set to underscore economic challenges ahead.

The ruling party, led by Prime Minister Christopher Luxon, took the helm last October after campaigning to provide support for the “squeezed middle” of New Zealanders facing increasing living costs and higher mortgage rates.

The government inherited a worsening set of accounts with an economy in technical recession and a central bank worried about sticky domestic inflation.

"Our budget will read differently from budgets in recent years: instead of being a confetti of new spending ideas, you will see examples of careful reprioritisation in almost every area of government," New Zealand Finance Minister Nicola Willis said.

The government has asked most departments and ministries to cut between 6.5% and 7.5% of their operating allowances. Willis said government agencies had cut around 3,900 roles, around a third of which were vacant.

The budget is expected by economists to be a sobering read as Treasury economic forecasts worsen, forecast operating allowances are tightened and the government pushes out when it expects to return to surplus.

At the half-yearly update in December, the government said it would return the government accounts to surplus in 2026-27 after seven consecutive deficits, but Willis has since said this was “almost certainly not achievable.”

PROMISED TAX CUTS

Ben Thomas, a former National Party staffer and political analyst in Wellington, said the budget was not the austerity budget some expected but there would not be the big spending of COVID-era budgets.

"The government can’t actually deliver on the promise of solving the cost of living crisis in this budget but they can provide a little bit of a salve with the promised tax cuts," Thomas said.

A fall of NZ$1.63 billion ($1 billion) in government revenue in the nine months to the end of March suggested the deficit for the year ending June 2024 could be bigger than the NZ$9.32 billion deficit forecast in December, economists said.

Bank of New Zealand economists said in a note it will be worth keeping an eye out for any increase in capital investment spending.

“This would not add to the deficit (at least not directly) but would add to stimulus, debt and funding requirements,” BNZ said. ($1 = 1.6260 New Zealand dollars) (Reporting by Lucy Craymer; Editing by Lincoln Feast.)

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