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Act releases alternative budget: Public service, KiwiSaver cuts propel Govt to surplus

Author
Thomas Coughlan,
Publish Date
Thu, 21 Sep 2023, 2:17pm

Act releases alternative budget: Public service, KiwiSaver cuts propel Govt to surplus

Author
Thomas Coughlan,
Publish Date
Thu, 21 Sep 2023, 2:17pm

Act leader David Seymour has promised an alternative budget that would propel New Zealand to a larger surplus in 2027, thanks to cuts to the public service headcount, cutting some KiwiSaver subsidies, and privatisations.

The party is also promising large tax cuts of $2.9b this year and next and rising to $4.4b in 2025 and $5.7b in 2026. This comes from a sweeping harmonisation of the tax system, moving from six rates currently to just four rates by 2027. Act will no longer abolish the 39 per cent top threshold as it had planned to do earlier this year. Deteriorating fiscal conditions in last week’s Prefu mean Act has had to scale back this promise. It will instead reduce the 39 per cent rate to 33 per cent and leave the threshold at $180,000.

There are large tax cuts at the bottom end of the income tax scale.

Income up to $60,000 will be taxed at 17.5 per cent, the next $10,000 will be taxed at 30 per cent, and remaining income up to $180,000 will be taxed at 33 per cent.

The plan is ‘hypothetical’ according to Act, meaning one year of the four year plan’s changes cannot be relied upon. The Herald spotted that the budget begins in the 2023/24 year, which began just under three months ago on July 1 this year. By the time Act could form a government in October, about a quarter of that year will have passed, meaning Act could not make savings or spending changes on the scale it had promised.

Act confirmed this alternative budget is actually “hypothetical”, meaning should be read as if the party were in now government now and had delivered its own budget in May. The 2023/24 year is out the door, but changes could be made in Budget 2024 to affect the 2024/25 year. It means the promised savings in net debt cannot be delivered because some of the money is already out the door. It also raises questions about when its tax cuts can be delivered, given this plan says the first tax cuts have started.

Under the plan released today, the first tax cuts should already be in force.

The changes are paid for by large cuts and savings totalling $6.7b a year by 2027. The public service headcount goes back to 2017 levels, saving $1.2b a year by 2027. The Climate Change Commission goes, saving $18m, first year free tertiary fees go, saving $340m, Kiwisaver subsidies become “targeted”.

Members of KiwiSaver will be eligible for a subsidy of up to $521.43, based on the same 0.5:1 match ratio used now. However, the subsidy will be capped at 5 per cent of a participant’s taxable income. The maximum subsidy amount will reduce by 3 per cent per dollar of income above $48,000, reducing to zero by around $65,000.

Callaghan Innovation would go, as would R&D tax credits, and subsidies for the film and video game industry.

What Act labels “demographic” ministries would be abolished. That means the Ministry for Women, Ministry of Māori Development, Office for Crown-Māori Relations, Ministry for Pacific Peoples, Ministry for Ethnic Communities, and the Human Rights Commission would all go.

School lunches would be gone too, saving $158m this year (if Act were able to implement the change retrospectively) and $165m next year.

Act proposes re-using the “mixed-ownership model’ of the John Key years to privatise 49 per cent of AsureQuality, New Zealand Post, KiwiRail (and the Railways Corporation), Transpower, Kordia, and Kiwi Group Holdings (i.e., Kiwibank and its subsidiaries).

The party also wants to privatise the entirety of state-owned farmer Landcorp. It said this would likely be “in chunks, rather than wholesale”. The funds from this would be used to fund conservation on private land. LandCorp has about 365,527 hectares under management or 1.4 per cent of New Zealand’s total landmass, about twice the size of Stewart Island.

There are some spending increases too.

Defence gets a boost. Act wants to get defence spending to 2 per cent of GDP by 2030. Act also wants to increase prison capacity costing $210m a year next year, rising to $457m by 2027.

GP capitation payments are increased too, meaning GPs get a larger subsidy for taking on patients. The capitation payment costs $177m next year and rises thereafter. A quarter of a billion dollars a year has been set aside to create a teaching excellence reward fund to reward good teachers.

Act is also going to share 50 per cent of the GST cost of building new homes with councils to encourage new homebuilding.

The changes mean savings of about half a billion dollars next year, reducing the deficit to $5.7b next year and the year after and reaching a $2.7b surplus in 2027 - a much larger surplus than the Government currently expects.

Act has also published net core Crown debt figures, although these are produced as if Act were currently in government making savings, rather than starting if it were in government after the election.

Act would have Core Crown debt $5.7b lower by 2027 than under the Government’s current forecast of $184.6b.

National leader Christopher Luxon would not say yesterday whether he might make room for Act’s tax policy in his own planning. He simultaneously said National’s tax policy was what had already been released.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.

 

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