Finance Minister Nicola Willis says the coalition government can afford its promised tax relief, having already carved out $7.47 billion of savings and extra revenue.
Treasury's Half Year Economic and Fiscal Update has reported the economy continues to slow under weaker conditions that have deteriorated the Crown's fiscal outlook.
Willis has now outlined how it plans to tighten public spending while simultaneously safeguarding the delivery of public services and delivering its promised tax relief in Budget 2024.
"The advice we have received so far gives the confidence that we can responsibly deliver the tax relief New Zealanders deserve," she said.
The documents set out $2.61 billion of savings that have already been made since the coalition took office that include scrapping Let's Get Wellington Moving, Fair Pay Agreements and Industry Transformation Plans.
Willis said this dealt with fiscal risks in the government books including the $15 billion liability of Auckland Light Rail and up to $16 billion associated with building a pumped hydro scheme at Lake Onslow.
The coalition was also making savings by stopping Labour's free childcare extension, half-price public transport, clean car discount, work on the RMA reforms, work on the income insurance scheme and half-price public transport.
The mini-Budget confirms the following changes: adjusting benefits in line with inflation (currently wage growth), bringing the bright-line time-period test for rental properties back to two years from 1 July 2024 and removing commercial building depreciation deductions.
It also confirms the coalition's intention to increase interest deductibility for rental properties from April 2024 and to "responsibly deliver income relief measures" in next year's Budget.
Willis said the government was progressing work to deliver "meaningful income tax reduction" in next year's Budget.
"This includes considering design and implementation advice for the delivery of our proposed Family Boost childcare tax rebate, and for delivering income relief to workers and their families."
The finance minister has directed government agencies to find $1.5b of savings per year, with individual agency targets informed by headcount growth since 2017.
"I have also asked to undertake a 'health-check' on medium and high risk capital projects in the investment pipeline for their agencies, to understand and respond to under-funding, cost blow outs and delivery risks that may exist," she said.
Further work is underway on enabling fully cost-recovery for immigration visa processing, taxing online casino gambling operations, replacing the fees-free policy with a final year fees free policy from 2025, improving the cost-effectiveness of the school lunch programme and stepping up the audit activities of the IRD.
The government will use $2.047b of forecast cash proceeds from the Emissions Trading Scheme as a 'climate dividend' to pay for income tax reduction.
This includes closing the Government Investment in Decarbonising Industry Fund (GIDI) which has been subsidising already profitable businesses to reduce emissions, Willis said.
The mini-Budget also sets out longer-term work to upgrade the Public Finance Act to provide better oversight of government spending, Willis said.
"The mini-Budget draws a line under six years of economic mismanagement," Willis said.
"Today our coalition government starts a new chapter for New Zealand's economy, with our focus on reducing cost of living pressures, delivering better value for public money and enabling public enterprise."
The next economic and fiscal update will be at Budget 2023 and will capture the new government's decisions and economic developments
