The new finance minister appears to be leading a financial bomb disposal squad as she takes control of the economy, detonating $7.5b in spending. Stewart Sowman-Lund reports from parliament.

The government is touting its new “mini mini mini budget” as an economic clean-up job, reiterating plans to follow through on campaign promises to cut the brightline test for residential properties, restore interest deductability for rentals and index benefit rates to inflation. 

And finance minister Nicola Willis is hoping she can save over $7 billion by 2028 from a spree of repeals, scrappings and stop work orders.

Timed to coincide with Treasury’s half yearly opening of the books, known as the HYEFU, Willis’s first major job as finance minister hasn’t involved pulling any fiscal rabbits out of hats. In place of any flashy – and costly – promises, she has instead opted to double down on her commitment to “restore responsibility” to public finances and increase transparency for the future.

“Today’s half-year economic and fiscal update lays bare the extent of Labour’s economic and fiscal vandalism,” said Willis. 

“The pre-election promise of a return to surplus in 2027 has shrunk from $2.1 billion to a wafer-thin $140 million, with deeper deficits necessitating the fifth consecutive increase in the government borrowing programme.”

Key pillars of today’s mini-budget include the decision to once again have benefit rates indexed to inflation from the start of April. The Labour government indexed benefits to wage growth. “This change will protect the real incomes of benefit recipients while putting the benefit system on a more sustainable footing,” Willis said. It’s estimated that $676 million will be saved by 2028 as a result of this (after an initial cost of $36 million between 2023 and 2025 due to high CPI growth).

The brightline test will be reduced back to two years from July, while the interest deductability scheme for rentals will be brought back in some time next year.

One thing missing from today’s budget: tax relief. The long-pledged tax cuts which formed the core of National’s election campaign haven’t been formalised as part of today’s budget, but they were mentioned several times by the finance minister and “first steps” for implementing them were laid out. 

There wouldn’t be a “tax cut by Christmas”, said Willis, but the government expected that the plan would be in place by July next year. 

Work was continuing on this and advice to the government from officials gave her “confidence” that it could be implemented as promised. “We will get New Zealand back on a sustainable financial footing… we remain committed to fiscally neutral tax relief,” said Willis.

“This includes considering design and implementation for the delivery of our proposed Family Boost childcare tax rebate and for delivering income relief to workers and their families.”

Treasury itself noted that the overall impact of the government’s mini-budget when coupled with “signalled commitments” such as tax relief would be “broadly neutral over the forecast period”.

A commitment made in National’s coalition deal with Act was also name dropped by Willis (though just in a written press statement supplied to media) as she revealed that work was ongoing to consider “concepts of Act’s income tax policy” – though this was “subject to no earner being worse off than they would have been under National’s plan”. 

Willis has been at pains since before October’s election to emphasise just how “mini” today’s budget would be, to the point where it slowly picked up two extra “minis” (and saw Labour’s Grant Robertson dub it a “nano budget” yesterday). 

Indeed, there are no obvious surprises in the budget itself. There are no cost of living payments or unexpected financial incentives, though it would have been remarkable if there were given the government’s emphasis on prudent economic management. Despite this, Willis said today’s budget marked an end to “an era of fiscal mismanagement” and clearly mapped out “concrete action” to deliver savings.

Willis took aim at “financial time-bombs” – or “unfunded fiscal risks” – that she claimed were left behind by the Labour government, including Auckland Light Rail and Let’s Get Wellington Moving. “Other time-bombs will take more time to defuse,” she said.

The government believed it could save $7.4 billion across the next four years from cutting back on projects such as this, which included Lake Onslow, the clean car discount and Fair Pay Agreements. 

These savings acted as a “down payment” for next year’s tax plan, said Willis. 

Willis’s excuse for keeping things on the straight and narrow at this point in time: the economy is “fragile”.

Treasury secretary Caralee McLiesh laid this out in black and white, saying there had been a “deterioration” of the economic situation even since the pre-election update just a couple of months ago. The economy was “weaker” than expected and was continuing to slow, McLiesh said. 

“Growth this year and next is driven entirely by population growth,” McLiesh said, adding that GDP per capita had fallen for four consecutive quarters and was at “rates not seen since the Global Financial Crisis”.

There has also been a lot of attention in recent weeks to so-called “fiscal cliffs”, a Willis-ism referencing government projects for which funding had only been provided for a limited period despite “clear public expectation” that it would continue. 

In total, 21 “fiscal cliffs” have been identified by Treasury, which included funding for Te Matatini, the NZ Screen Production rebate, the apprenticeship boost and transitional housing motels. 

Treasury indicated it would cost $7.2 billion over the forecast period to extend funding for the 21 projects it had identified.

“My concern is the nature and scale of time limited funding left to us by the previous government,” said Willis, citing services like Geonet’s seismic monitoring and the Civil Aviation Authority. Time limited funding for projects and services would be “one of the major challenges” to grapple with in next year’s budget, said Willis, who said the government would continue to fund projects it saw as essential.

While it’s not uncommon for government’s to leave financial potholes in place for a subsequent administration to fall victim to, Willis said she had advised Treasury to improve transparency around fiscal risks in time for next year’s budget. 

“This work will include greater quantification of risks where possible,” she said. Ministers, meanwhile, have also been directed to identify any major capital projects “at risk of cost blow-outs, delay or failure” so that the government can work to manage them.

The outlook for the next year is gloomy, but Willis remained determined that New Zealand was open for business – and the government was welcoming that.

“The job of delivering a surplus in 2027 has got a whole lot harder than it looked prior to the election. Our government needs all hands on deck to achieve the surplus goal,” she said.

“New Zealanders enduring a cost of living crisis have had to tighten their belts, now it’s time for us to tighten ours.”

Additional reporting Joel MacManus.