Minister Nicola Willis today delivered the much anticipated first budget of the National-ACT-NZ First coalition Government. Today's announcements represent a transition year where Minister Willis delivers on election commitments and looks to re-set the political narrative – it marks a transition away from Grant Robertson's Wellbeing Budgets. Since the Coalition Government did not drip-feed many pre-election updates, an air of anticipation has surrounded the announcements on Budget Day itself and what the Coalition Government's "moderate, responsible Budget" might look like in practice. Now we know. Budget 2024 was about tax relief for the "squeezed middle", "frontline" services including health, education, and law and order and fiscal discipline through reduced spending. In subsequent budgets we will watch to see how Minister Willis' narrative develops, especially as social investment moves to the centre of budgets.
Budget 2024 uses an operating allowance of $3.2 billion for discretionary new spending, a decrease compared with Labour's operating allowance of $4.8 billion in 2023, and in fact, the lowest in real terms since Steven Joyce's Budget in 2017. We can expect operating allowances of just $2.4 billion per budget in 2025/26 and 2026/27. Public service savings and retrenchment will continue. The reduced operating allowance shows just how little new money the Coalition Government can spend as the reduced tax take during a recession, the need to prioritise tax cuts, and a need to signal a return to surplus all combine. That said, Minister Willis is staking much political capital on a return to operating surpluses in 2027/28.
Budget 2024's focus on infrastructure, characterised as the key to economic growth, merits particular attention. As promised, the Coalition Government used Budget 2024 to reinforce the pipeline of state-supported infrastructure projects already underway. Notably, the Regional Infrastructure Fund will receive $1.2 billion over three years, prioritising flood protection and resilience projects which will receive initial funding of $200 million. Information on the assessment criteria for the fund will be announced at the end of June 2024 and applications will open on 1 July 2024.
Just as importantly, Budget 2024 covered the following:
- The Government will proceed with its commitment to establish a new agency – the National Infrastructure Agency – to deliver on procurement and delivery of complex projects, act as a "shopfront" for private investors and oversee the co-ordination and governance of infrastructure funds ($5.09 million is allocated to designing and establishing the new agency).
- The development of a 30-year National Infrastructure Plan to create a new consenting framework and utilise new funding tools such as tolls, Public Private Partnerships and value capture.
Given the tight purse-strings, we can expect the Coalition Government continue reaching for non-fiscal levers to try and move the economic dial. Simply, the money is not there to provide spending incentives. Examples of non-fiscal economic levers pulled to date look like regulatory reform with the Fast-track Approvals Bill, RMA reform, suggestions of reviewing the Overseas Investment Act 2005, and potentially the effects of work by the nascent Ministry for Regulation.
Finally, across the past 15 years, Russell McVeagh's Budget Day Insights' weather eyes always fall on the headline New Zealand superannuation (or pension) and healthcare costs. Both will increase significantly with an ageing population. New Zealand superannuation in fact represents our only universal non-means-tested benefit (for those 65 years and above). In Budget 2024, superannuation costs will total $23.3 billion (up approximately $1.8 billion more than last year) and healthcare costs $30.6 billion, or roughly 37 percent of all Government spending in the year ahead. We make no judgment as to the value of such spending. Rather, we highlight large and increasing figures which will almost certainly go unremarked by most commentators and probably all politicians, and which will inexorably constrain future Governments' room for policy manoeuvre as health and superannuation increasingly dominate state spending.
Please read on as we highlight some areas which may be of particular interest to our readers.
Infrastructure
Many of Budget 2024's infrastructure pipeline announcements draw different Budget Votes under one umbrella, for example:
- $1.2 billion to the Regional Infrastructure Fund;
- $5 million to design and establish the new National Infrastructure Agency discussed above;
- $2.68 billion for roads, rail, and public transport, including 17 new Roads of National Significance, funding for the Rail Network Investment Programme, and a $1 billion extra in capital funding for The National Land Transport Fund;
- $1.5 billion for school and kura property;
- $2.1 billion for law and order including the Waikeria prison expansion;
- $408 million for defence equipment and infrastructure upgrades;
- $140 million for 1,500 new social housing places; and
- $103 million to meet emerging cost-pressures in Health NZ’s infrastructure pipeline, which includes $11.6 billion of investments over the forecast period.
Budget 2024 also tops up the Multi-Year Capital Allowance by $7 billion, resulting in a total of $7.5 billion in the MYCA to be allocated for future investment ready projects.
Transport
The Budget has allocated $2.68 billion to roads, rail and public transport.
The National Land Transport Fund will receive $4.1 billion of Crown funding (an additional $1 billion to that previously signalled in the Government Policy Statement announcement on 4 March 2024), so that the New Zealand Transport Agency | Waka Kotahi can deliver projects including 17 new Roads of National Significance.
Other transport focuses and allocations include:
- $200 million for KiwiRail to maintain and renew the national rail network (tagged capital contingency);
- $266.9 million to upgrade and maintain the metropolitan rail networks in Auckland and Wellington;
- Confirming the previously-announced procurement of new trains for the Wellington-Wairarapa and Wellington-Manawatū lines; and
- Over $930 million to repair State Highways and local roads damaged in the North Island as a result of the severe weather events last year.
Health
Health is a priority, with increased funding and pre-commitments signalled for the next two Budgets. $5.72 billion will be allocated for the next four years, and a further $5.48 billion will be added to Budget 2025 and Budget 2026. This cumulative approach totals funding of $16.68 billion that will spread until 2030/31.
This will cover:
- Funding for Health New Zealand | Te Whatu Ora in hospitals, specialist services, and primary, community and public health;
- Increased security at emergency departments;
- 25 more doctors trained per year;
- An extension of free breast screening to an additional 60,000 women by lifting the upper age limit from 69 to 74;
- Requiring a $5 prescription co-payment with free prescriptions available for community services card holders, for people under the age of 14 and over 65, and high household users after 20 prescriptions.
Notably, the election-promised funding of cancer drugs has not been included in this Budget, but has been signalled for future budgets.
Low emissions economy and climate resilience
The ETS has been signalled to play a vital role in the reduction of emissions. It has been confirmed that ring-fencing of revenue raised through the ETS will end and any future investment proposals for emissions reduction or climate adaptation will be considered through the usual Budget process. Consultation will open later this year to plan for the second emissions budget period of 2026-2030.
$2.6 billion of the climate initiatives funded from the previous Government's Climate Emergency Response Fund will continue, including:
- A public network of electric vehicle charging;
- A grant scheme for clean heavy vehicles;
- Rerouting $59.7 million of existing funding over four years for decarbonising the public transport fleet, including zero carbon emissions buses and charging infrastructure;
- Public transport concessions for community service card holders;
- Development of an on-farm emission measurement scheme;
- Supporting New Zealand's International Climate Finance Commitment; and
- The Warmer Kiwi Homes programme.
Revenue from the Waste Disposal Levy will be used on environmental projects and climate change mitigation and adaptation. A bill will be introduced to expand the scope of activities that the levy can be used for under the Waste Minimisation Act 2008, for example, for restoring freshwater catchments. The proposed change would increase the collection of the levy from $1.02 billion to $1.19 billion over a four-year period.
Cyclone recovery continues to receive support from the Government. As mentioned above, $1.2 billion will be allocated to the Regional Infrastructure Fund to focus on flood protection and resilience projects. Although the Government "sees councils as responsible for flood protection" the fund will provide one-off support to address critical gaps. To strengthen emergency preparedness, $10.6 million will be invested over the next four years into a new National Emergency Management Facility in Wellington, to be completed in late 2026.
Social Investment
As a signoff of the future direction of travel, Budget 2024 establishes a new "Vote Social Investment" – a significant signal in government circles. A social investment approach will also be adopted by the public sector to improve performance and outcomes. $51 million has been set aside (tagged contingency) to establish the Social Investment Fund, support the devolution of social services to regional partners, and to establish the Social Investment Agency. The new department starts work on 1 July 2024. $6.252 million is allocated to revising the new department.
Māori Development
Budget 2024 provides funding of $48.7 million over three years for Te Matatini - the national kapa haka competition. Funding also now covers a regional kapa haka model. Meanwhile, the Whānau Ora model of devolved commissioning of social services remains unchanged at $182 million per annum. Notably the Whānau Ora approach complements the Government's increased focus on social investment.
Pre-budget announcements
The limited number of pre-budget announcements followed the low-key approach to Budget 2024 communications and included:
- $1.9 billion for Corrections officers and frontline investments including an 810-bed extension to Waikeria prison (partially funded through finding $442 million in savings over four years from Corrections);
- $571 million for the New Zealand Defence Force with $163 million for remuneration and $408 million for equipment and infrastructure (with $107 million of savings found over four years from the Defence Force and the Ministry of Defence);
- Education, with $67 million for structured literacy, $153 million for charter schools, $478 million for the school lunches programme and $53 million to support the training and recruitment of 1,500 teachers. $429 million in savings in education over four years has been found, mostly from the Ministry of Education;
- Pharmac's allocation of $1.77 billion over four years;
- $140 million in new funding for 1,500 new social housing places to be provided by Community Housing Providers (not Kāinga Ora), funded by ending the First Home Grant;
- Nearly $60 million in capital and operational investment for the renewal of New Zealand’s diplomatic post infrastructure in the Pacific; and
- Extra money ($63.64 million over four years) for Surf Life Saving New Zealand and Coastguard New Zealand, and $24 million over four years to the I Am Hope Foundation for mental health counselling.