Prime Minister Chris Hipkins has ruled out an additional levy to pay for the recovery from Cyclone Gabrielle and the Auckland floods, and says the upcoming Budget will be "no frills".
He has also ruled out major tax changes like a capital gains or wealth tax from the 18 May Budget - but this leaves open the option for Labour to campaign on such a move at this year's election.
In his pre-Budget speech at the Employers and Manufacturers Association offices in West Auckland, Hipkins laid out some of the government's thinking ahead of unveiling its spending decisions on Budget Day.
He said he had made cost of living one of his top priorities in his time as prime minister.
"The government previously was doing too much, too fast, and the effect of that is that we've been tied up on those issues, taking up time and taking time and money away from where our focus needs to be.
"I want to be really clear I acknowledge that times are pretty tough for a lot of new Zealanders right now. I get that and I hear that from my local community in the Hutt Valley. Family budgets are tight and a lot of people are now going without. It puts a lot of stress on families and on parents."
Hipkins said he knew it had not been easy and the government probably had not acknowledged it enough.
"There does come a point where businesses have no choice but to increase costs."
The government will have to be weighing its spending priorities carefully this year, with the cost of living continuing to rise and the costs of Cyclone Gabrielle likely putting a real dent in Hipkins' and Finance Minister Grant Robertson's ambitions.
The speech also follows the release a day prior of a tax report by Inland Revenue and Treasury which found the country's wealthiest were paying tax at a much lower rate of their total income than most New Zealanders.
The median effective tax for those with a net worth of $50 million was calculated at 9.4 percent - well shy of the 20.2 percent paid by "middle wealth New Zealanders".
While Revenue Minister David Parker insisted the report was not an excuse to attack the rich, the report has prompted speculation Labour was preparing to revive a campaign to bring in a capital gains tax.
Asked to clarify the government's position on tax post-Budget, Hipkins said the commitment to no new taxes would last right up until election day, but kept his cards to his chest on campaign policies.
"We'll be very clear what our tax policy is well in advance of the election so that people will know that when they go to the ballot box and they know what they're voting for. The election is zooming up fast so you won't be having to wait very long to get those answers."
Cyclone recovery
Hipkins said Treasury had put the cost of asset damage from the Auckland floods and Cyclone Gabrielle at between $9 billion and $14.5b but - despite some suggestions a levy could be brought in to pay for this - the costs could be largely met within the Budget's operating and capital allowances.
However, some borrowing would also be required.
"While Auckland and the eastern parts of New Zealand have had it pretty tough lately, you have demonstrated your resilience time and again," Hipkins said.
"In a cost-of-living crisis, now is not the time to be asking Kiwis to pay more though a levy for cyclone repair costs.
"The government has taken the decision to fund the recovery from here on through a combination of the annual operating and capital allowances we set each year for the Budget, savings and reprioritisations, and some debt as we invest in infrastructure repairs."
He said the expected cost of the recovery was higher than for the Kaikōura earthquake, but significantly less than the Canterbury quakes.
"Half of that total cost estimate relates to 'public infrastructure' - that's assets owned by central and local government such as our roads. While we know that we need to rebuild quickly and more strongly than we did before, we also know that the rebuild could add inflationary pressures across the economy, particularly in areas like construction.
"If you think of it like this: when you have to do major repairs to your house you usually have to borrow a little and cut back on expenses elsewhere to pay for them. Households generally can't just increase their income to pay for repairs, and it is not the right time for the government to either."
He said in the past three months the government had extended the fuel excise subsidy and half-price public transport, and increased support for superannuitants and minimum wage earners.
'No frills' Budget
Hipkins ruled out any major tax changes in the upcoming Budget, saying while Wednesday's report on the tax paid by high-wealth New Zealanders had highlighted gaps, the government would stick with the tax policy announced at the last election.
"The government will not be introducing any major new taxes like a wealth tax or a capital gains tax in this Budget," he said.
He highlighted "restraint" as a key message of the upcoming Budget.
"We are taking a balanced approach that reduces our spending while also delivering core services," he said.
"This will be an orthodox no-frills Budget focused on funding the things most important to New Zealanders like support with the cost of living and cyclone recovery. There will also not be any major new tax changes like a wealth tax or capital gains tax," he said.
Speaking to reporters afterwards, Hipkins said it was important to seek a mandate from the public on potential changes to the tax system.
"If we were going to make any changes they would be outlined in our manifesto. We haven't put out our manifesto for the coming election just yet but we will do that well ahead of the next election.
"The research that was released yesterday provides and evidence base. People can argue about the facts all they like - some people seem to be trying to come up with their own alternative sets of facts."
He also acknowledged there would need to be some adjustment to tax thresholds at some point.
"There will need to be adjustments to tax income thresholds as the overall incomes of New Zealanders rise, I'm not outlining any specific plan about that today but I do acknowledge ... from time to time there does need to be adjustment."
"But now is not the right time to do that when we have a high-inflationary environment because we know that tax changes like that - that put more money back into the economy - can also lead to any additional value that people get to get through tax [cuts] being quickly eroded by inflation."
In his speech he said he wanted the government to do "a small number of things very well" focused on growing the economy, rather than carrying out "a long laundry list of worthy ideas".
Non-cyclone spending priorities would include investment in skills, science and infrastructure, he said.
"They are areas I have a personal interest in and reflect where I think there are real opportunities to lift our economic performance."
'I do worry we talk ourselves down too much'
Hipkins also made a point of talking up the government's work so far, saying they had listened to business leaders' calls for more workers to fill shortages.
He said adding jobs to the straight-to-residency path, the special visa to assist with cyclone recovery, and boosting allocations for working holiday visas and Recognised Seasonal Employer spots had made a difference.
"You asked the government to take steps to attract more labour to New Zealand, and we have, and those actions are working.
"In March, the number of arrivals on work visas exceeded pre-pandemic levels for the first time. It was also the most arrivals on work visas in the month of March since MBIE began collating that particular current data series back in 2012. Our provisional annual net migration gain for the past 12 months of 52,000 is up there with pre-Covid levels."
"A recent report from the OECD has ranked New Zealand as the number one country in the world for attracting highly skilled workers. We're also in the top five for attracting entrepreneurs."
He said the survey also measured quality of life, inclusiveness, family environment, income and tax, and "New Zealand came out very well ... considering those sorts of results, I do worry that we sometimes talk ourselves down too much."
Inflation should continue to fall
Hipkins said it was the Reserve Bank's core job to bring down inflation and it would have been a relief to many to see headline inflation figures drop to 6.7 percent last week, now lower than Australia, the UK and the EU-zone average.
"It appears that we are now past the inflationary peak, and inflation is trending down here and globally. We expect that should continue, and inflation should continue to fall domestically this year although we also have to acknowledge that the impact of the cyclone rebuild could mean that the inflation number moves around a little bit on its trend downwards."
Hipkins said Treasury had found government spending was set to fall by the largest amount since at least 1987 due in part to the rapid rollback of Covid-19 spending.
"So despite what you might hear in political circles, the fact is that government spending is actually trending down towards the low 30s as a percentage of GDP and that's about where we intend for it to settle."
He said getting to the lower level of spending would require some dramatic cuts to services, which would likely impact the cost of living as well, "so we're taking a balanced approach that reduces our spending while also delivering core public services".
'My plan is for NZ to be the best little trading nation in the world'
Hipkins also looked to the future, saying there was no point getting through the here and now without a longer-term plan. That would involve investment in skills, science and technology and infrastructure.
"In broad terms, my plan is for New Zealand to be the best little trading nation in the world. I want our exports, our people and our way of life to be the envy of everyone else around the world."
He said this would mean supporting exporters and entrepreneurs, allowing young people to reach their potential, making the environment as clean and green as the marketing suggests, keeping communities safe and caring for the elderly, disabled and youth.
To start with, targeted investments in helping achieve improvements in growth and productivity, starting with a plan to expand trade opportunities.
He said one of the most impressive things about his recent conversations in Australia was the desire to work even closer together on trans-Tasman trade, which he said was considered the gold standard of trade agreements internationally.
Prime Minister Anthony Albanese had told him he wanted Australia to be a "renewable superpower" and envisaged opportunities for New Zealand startups and research."
The relationship between our two countries has rarely been better than it is now. There is a very pro-Kiwi caucus within the Australian Cabinet."
Hipkins said education was the single biggest way people could change their lives and outcomes, and was a bedrock of New Zealand's egalitarian society.
"I'm not sure that aspiration holds true these days to the same extent it once did though, which is why investment in skills and trades training has been such a focus for the government over recent years and will continue to be," he said.
"If we've got the investment in science, and strong and resilient infrastructure - and the skilled workforce to carry all that out - then that supports every area of the economy be it agriculture, manufacturing and tourism, small to medium enterprises. It can make the greatest gains in growth and productivity for the country."
Infrastructure also needed more investment.
"When we came into office, infrastructure spend by government was averaging about $5 billion a year and that simply wasn't enough to keep up with the pressure on our infrastructure system and on the level of investment that is required. That explains some of the deficit in infrastructure that we're experiencing at the moment."
Hipkins said the government had since boosted infrastructure investment to about $9b a year, rising to about $12b a year in 2023-2027 - not accounting for cyclone recovery investment.
There had been something of a cyclical pattern of roading investment being either focused on maintenance or building new roads - when really, both were needed. This was particularly true when increasing rain was leading to more potholes, he said.
In terms of funding the health sector, Hipkins said moving to a more predictable funding cycle would allow for more certainty and a more strategic approach.
