New Zealand will continue with tax cuts despite a reduced budget

Finance Minister of New ZealandNicola Willis, Even as a stagnant economy limits government revenue, pressure will be on for tax cuts this year. The tax break was announced in the May Budget and will be delivered from July 1, Willis said in a budget policy statement in Wellington on Wednesday.

He declined to provide details other than reiterating that the adjustment would be in the thresholds where income earners fall into the higher tax bracket.. “Tax cuts will be funded within operating appropriations through savings, re-prioritization and additional revenue sources,” he said. “We will not have to borrow more to provide fiscal relief and will not add to inflationary pressures.”

Willis's National Party won the October election on promises of income tax cuts aimed at low- and middle-income earners. however, A tripartite coalition had to be formed to form the government, which has seen some changes in its policies, while the economy remains weaker than expected.

When pressed, Willis said the tax package would be “similar” to the national campaign plan.

The Treasury Department's projections in today's report showed a much weaker economy and less tax revenue over the next five years, meaning the previously projected budget surplus by 2027 would not be achieved. Average annual GDP growth for the year to June 2024 will be just 0.1% instead of 1.5% in the December fiscal update, the Treasury said.

As a result, tax revenue in the five years to 2028 will be $8 billion lower than previously expected. He promised. Willis said the revised projections show 2028 is “achievable, but not a given.”

The government intends to present its budget on May 30, aiming to reach a surplus by 2028. But not at any cost, frontline government services will not be put at risk, he said.

The budget's operating allocation, which will fund new spending plans and revenue initiatives, will be less than the NZ$3.5 billion outlined in the December update, but will not be released until the budget, he said. Willis said the government would aim to reduce debt, which would be part of an effort to reduce financing costs.

It will remove a new measure introduced by the previous government and return to a net debt calculation excluding assets and liabilities in state-owned investment funds. Debt under that measure currently stands at 44% of GDP, and the government's desire is to bring it to 20-40% of GDP over time, Willis said.