New Zealand Budget 2024

31 May 2024

Yesterday, the New Zealand National Party led by Christopher Luxton delivered its first federal budget. The government has labelled this budget ‘fiscally responsible’, delivered amidst the most economically uncertain and turbulent times experienced by the country in the last two decades. This budget sees the government steadfastly delivering on their election promises and a commitment to shrinking national debt through harsh fiscal policies & public sector cuts.

The overall economic outlook in New Zealand has been pessimistic, with very little economic and productivity growth in conjunction with persistently rising interest rates and inflationary pressures – defying the Reserve Bank’s efforts to mitigate these pains. Moreover, there are record numbers of young people migrating from New Zealand, which is serving as an additional pressure to the economy and contributing to loss of productivity. New Zealanders are grappling with a cost-of-living crisis, while businesses face difficulties in stimulating economic growth due to regulatory barriers that have increased steadily in recent years.

The volatile conditions internationally are serving to exacerbate the lack of business growth and decrease in business confidence, as the international inflationary pressures continue in addition to rising geopolitical tensions causing international delays for trade routes and supply chains. New Zealand’s reliance on trade and its international networks is proving to be a weakness in these times, where there are global leanings towards increased nationalism- spearheaded by key power players.

The majority of the attention on this budget is on the announced personal income tax cuts, which were an electoral promise called the ‘Back Pocket Boost’ throughout the campaign. These tax cuts adjust income threshold brackets, as opposed to taxable rates. They are the centerpiece of the budget and will make around 3.5 million income earners better off weekly.

In addition to the $775 billion in savings created through the mini-Budget handed down in December, the government announced $1.5 billion dollars in savings per year to come from the public service. Publicly released details outlining  which of the 34 agencies and departments have met savings targets is a reflection of the government’s ongoing commitment to realising job reduction and saving targets across the public sector. Agencies have been told to cut spending by at least 7.5%, with more than 240 initiatives being shrunk or discarded with thousands of public servant roles being shed already.

This is the lowest annual operating budget per annum since 2018 at $3.2 billion, and the government has announced it is on a path back to surplus by 2027-28, which is one year later than initially anticipated.

RCSA has prepared a high-level overview of the most relevant budget measures below. Members interested in a more comprehensive overview of the budget can access Business NZ’s 2024 Budget Summary here.

Budget 2024 Economic and Fiscal Outlook

The Economic and Fiscal Outlook to 2028 suggests a generally improving economic outlook over the range of key economic and fiscal economic indicators.

Key Points

• Economic activity (GDP) is expected to increase from -0.2 percent in the current year to 1.7 percent next year, and 3.2 percent in 2026 before growing at a slightly lower pace out to 2028.
• Inflationary pressures are expected to continue to moderate from 3.4 percent in the current year, to 2.2 percent next year before levelling out at 2.0 percent per annum out to 2028.
• Unemployment is expected to increase from 4.9 percent in the current year to peak at 5.2 percent in 2025 before declining in the outyears to reach 4.4 percent in 2028.
• The current budget deficit is expected to increase from $11.1 billion (2.7 percent of GDP) to $13.4 billion next year (3.1 percent of GDP) before recovering in the outyears. A small surplus is forecast in 2028 of $1.5 billion (0.3 percent of GDP).
• Core Crown tax revenue will increase from $119 billion in the current year (28.8 percent of GDP) to $148.2 billion (29.5 percent of GDP). It should be noted that tax revenue is down currently, due mainly to minuscule GDP growth (negative on a per capita basis).
• Core Crown expenses will increase from $138.3 (33.5 percent of GDP) to $156.4 billion (31.1 percent of GDP) by 2028.
• Net Core Crown debt will increase from $178.1 billion (43.1 percent of GDP) to 209.9 billion (41.8 percent of GDP).

Overall, these figures represent a long-term improvement in outcomes. Notwithstanding, it should be noted that the operating allowances for Budgets 2025 to 2027 are very tight. Managing within future allowances will be particularly challenging unless significant future expenditure savings are made in the outyears.

Tax

One of the key aspects to the 2024 Budget are the changes to the personal income tax (PIT) thresholds, which begin from 31 July. The table below shows the current and new brackets.

The Government has also announced changes to both the independent earner tax credit and the in-work tax credit, which combined with the changes to PIT means around 83 percent of New Zealanders will receive some form of tax relief. The last time there were changes to personal tax rates/thresholds that benefited taxpayers was 2010.

The total cost of tax relief is estimated to be $3.68 billion, which has been more than offset by savings and additional revenue options to the tune of $3.71 billion.

The Government has created a tax calculator for the tax changes that can be viewed here.

The Government noted coalition discussions around the possibility of further changes to tax rates and thresholds to move more towards the overall flattening of the tax scale. However, it still remains a plan for the future once regular surpluses are achieved.

Also of note, the Government has increased funding for IRD tax audits and oversight work. While the total cost to Government is set at $29 million per year over the next 4 years, it is expected to bring in $99 million in its first year, then $201 million each year in subsequent years.

Infrastructure & Regional Development

The Budget has a focus on infrastructure and regional development, partly as a result of the Coalition Agreement with NZ First in respect to the Regional Infrastructure Fund (RIF), and partly as a need to fund the much needed infrastructure deficit in order to get NZ moving.

Key expenditure includes:

• $4.1 billion of Crown Funding for the National Land Transport Fund (an increase of $1 billion on the amount previously signalled) – to accelerate priority projects including the Roads of National Significance.
• $1.2 billion for the Regional Infrastructure Fund (RIF). The RIF will have two project categories for funding allocation:
  • Resilience infrastructure projects that enhance a region’s ability to withstand and adapt to stresses and shocks, such as flood protection works and energy security; and
  • Enabling infrastructure projects that support broader economic outcomes, such as increasing productivity in regional economies. The RIF will create Crown and regional assets, primarily through a mix of loan, equity, and other capital funding instruments, as well as some grant funding.
• More than $1 billion for the rebuild and recovery of communities affected by Cyclone Gabrielle and the 2023 Auckland Anniversary floods, including $939.3 million to repair roads.
• $200 million to support KiwiRail to carry out maintenance and renewals of the national rail network.