Fiscal update shows Kiwis paying price for government's austerity, critics say

The government's opening of the books has been met with derision from its opponents inside Parliament and out, and its new calculator formula questioned by a taxpayers' lobby group.

A big dent in the tax take and higher expenses have delivered continued budget deficits - rising more than expected in the Budget, with a surplus not expected in the forecast period to 2028/29, under traditional measures of the government's finances.

The Crown's financial position has deteriorated, with tax revenue estimated down $13 billion over a four-year period.

Ahead of the big reveal of the Half-Year Economic and Fiscal Update (HYEFU) on Tuesday, Prime Minister Christopher Luxon told Morning Report the government was committed to getting back to surplus after inheriting a tough situation.

"Continuing the track we were on isn't acceptable, equally we don't want to put the country into hard austerity... I think we've done the right thing by finding the balance."

But that was not the view of the Council of Trade Unions, which said it showed the economy was "heading in the wrong direction".

"Higher levels of debt, a higher deficit, and deeper cuts programmed in the future… the government's policies are hurting working people, and they're not working for Aotearoa," chief economist Craig Renney said.

"These books paint a picture of a government without a plan. The only solution the minister of finance is planning is to double down on an already failing strategy."

Renney also criticised the 1.5 percent minimum wage hike, saying it was a cut in real terms, at below inflation.

The delay in getting back into surplus was no surprise, according to Infometrics chief economist Brad Olsen, who said the government would be forced into further spending cuts to make ends meet.

"The budget surplus is being pushed out quite a way still, now into 2029 - that's still half a decade away that we will be spending a lot more than we're earning as a government and that means again, some very tough fiscal choices are going to have to come through."

The Green Party said the government's "tough choices" had done nothing to stimulate growth. Co-leader Chlöe Swarbrick said the government's approach was not working.

"Christopher Luxon is choosing to prolong the recession and kneecap productivity through merciless cuts. Today's HYEFU shows the government's trickle-down decisions come at the cost of the very 'economic growth' they crow so much about. It doesn't add up and it doesn't make sense, and they clearly don't care…

"The government is redistributing wealth upwards with their trickle-down tax cuts, while gutting public services and infrastructure spending, and shifting costs onto regular people.

"This is the austerity play book: Defund public services to failure, watch them fail, then privatise; take the so-called 'cost' off the government's books and watch those costs rise for regular people."

The Public Service Association (PSA) accused the government of "brutal austerity".

This reckless drive to cut costs shows the government is prepared to put dollars ahead of the lives of New Zealanders," acting national secretary Fleur Fitzsimons said. "International evidence proves austerity costs lives."

Mixing up the formula

Labour accused the government of moving the goalposts to make the finances look better than they are.

The government will now remove ACC finances from the Budget calculations, which will mean lower deficits. Under the new measure the deficits for the next three years would rise less than forecast in the May budget and see a surplus posted in 2027/28.

Finance Minister Nicola Willis said ACC's books were not relevant to the government's short-term tax and spending decisions.

Labour leader Chris Hipkins called it creative accounting and spin.

"The decisions that they're making are taking the country backwards, things are getting worse not better under this government's leadership. It's well and truly time for them to stop blaming everybody else, to start accepting responsibility for the consequences of their own decisions."

Olsen said there was a logic to the move, but it did not change the reality of big deficits for longer.

The Taxpayers' Union, which typically leans toward National and ACT in its views, accused Willis of "cooking the books".

"The fact is, despite the government being elected on a platform of cutting spending, Nicola Willis continues to spend even more than [former Labour Finance Minister] Grant Robertson, and kick the fiscal can down the road," said spokesperson James Ross. "Changing measures, or banning those pointing out the elephants in the room, doesn't avoid the fact Nicola Willis is not doing what she was elected to do."

RNZ political editor Jo Moir said "big questions" remained around how Willis would plug the gap.

"The government has its work cut out for it over the next six months making everything add up. A defence capability plan is due before May, the sunk Manawanui may need replacing, and there's an undisclosed redress fund for state care abuse survivors - all of which are big ticket items.

"Willis insists no new programmes will be funded unless essential, and while she wouldn't commit to $6b in savings being found this time round, it's clear cuts to public services will be expected to do a lot of the heavy lifting."

High-profile economist and blogger Bernard Hickey said the government's "austerity policy has driven the economy into a deeper and longer recession that means it will have to borrow $20 billion more over the next four years than it expected just six months ago"

"Treasury's latest forecasts show the National-ACT-NZ First government's fiscal strategy of trying to reduce the size of government to reduce public debt is clearly counter-productive, increasing public indebtedness and unemployment at the same time as crunching economic growth and public services spending lower."

ACT leader David Seymour, who will take over as deputy prime minister next year, said the books looked "grim", but were "worse" under Labour.

"The figures are bad, but at least we've got a government that gets it. We must continue to cut waste, keep to tight operating allowances, and climb out of the hole. The government's commitment to a $2.4 billion spending allowance is far less than the effects of inflation and population growth on its operating spend.

"The tight spending allowances mean the government must make real per capita spending reductions every year. It must become more efficient every year to keep up with demand for its services, just as every business must do."

Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.