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Budget 2022: Despite red hot economy, big spending Budget delivers higher debt, delayed

Dear Supporter,

Louis and I are just back from the 2022 Budget lock-up inside the Beehive. We’ve spent the day trawling through what is the biggest spend up (in terms of locking in permanent operating spending) we’ve ever seen. As we worked through the 24 Ministerial media releases and the hundreds of pages of Treasury forecasts and appropriations, the word front of mind is ‘overwhelming’.

While households are tightening their belts, Wellington is feasting: Grant Robertson and Jacinda Ardern have not read the room.

New Zealand is in a weird situation where the economy is red hot, but households are hurting.  Don’t be fooled by the gimmicks and flashy names for business-as-usual funding politicians want you to focus on. As we find in every year’s budget, the devil is always in the detail.

This update covers what the Government wants you to look at (its key announcements listed below), the economic updates by Treasury officials, and the boondoggles we’ve noticed immediately.

Key Budget 2022 announcements at a glance:

  • A new temporary “cost of living payment” for people earning up to $70,000 not already eligible to the Winter Energy Payment. The payment is $27 per week per person for three months from August. (This looks to us like a 'last minute' measure by Ministers)

  • A new Ministry for Disabled People.

  • 26,500 more insulation and heating retrofits for low-income earners.

  • Two-month extension to the half price public transport scheme.

  • Two-month extension to the fuel excise duty and Road User Charges cut (which your humble Taxpayers’ Union has been campaigning for!)

  • The various climate change "Emissions Reduction Plan" measures that were announced on Monday – see the summary on our website.

The Government’s political cover for the cost of living crisis: blame the supermarkets

The Government knows that its measures won’t be enough to paper over the financial pain that middle New Zealand is feeling with the highest inflation in 30 years.

So instead of tackling its spending problem, Grant Robertson has announced “emergency legislation” to tackle the supermarkets.

Tonight, the Government will ram through a new law to remove the ability of supermarket companies to put restrictive covenants over land as a barrier used to stop competition.

We welcome the move, but it does nothing to tackle the real problem pointed to by the Commerce Commission: it’s the Government’s own regulatory taxes – specifically land use and resource management restrictions – that make it virtually impossible for competitors to get started on the scale necessary to compete with the two big operators.

Government is growing quickly as a proportion of the economy (and it's fueling inflation)

If you received David’s email this morning, you’ll know that Mr Robertson had indicated he would increase new spending (the ‘operating allowance’) for ongoing annual spending by $6 billion (or $3,209 per household).

First the good news: Grant Robertson restrained himself by 1.6%, increasing spending by just $5.9 billion.

But this is offset by an increase in next year’s operating allowance from $2.7 billion to $4.5 billion.

Despite the GFC and the Christchurch earthquakes, Bill English averaged new operational spending allowances of just $660 million per year over his time as Finance Minister.

Core Government expenditure now amounts to 35.3% of the total economy. When Jacinda Ardern became Prime Minister, the figure was 27.3%.

A better-than-expected economy means record Government revenues, but Grant Robertson’s pushed back the return to surplus

The economic forecasts are better than they were in December's half-year update. But the Government’s forecast debt will now peak $10 billion higher, and a return to surplus now isn’t expected until 2024/25. This is incredible when economic growth is forecast to hit 4.2% over the next year, and unemployment is forecast to drop from the current 3.2% (which is already the lowest in recorded history) to 3.0%.

Spiking inflation is a short-term windfall gain for the Government coffers – it drives up GST revenue and PAYE and taxpayers are driven into higher tax brackets.  Payroll costs for Governments tend to lag behind.

For the first time since the Fiscal Responsibility Act came into force in 1994 a Minister of Finance is projecting a deficit in “an overheated economy”. Despite the record tax take, and one-off COVID expenditure winding down, Budget 2022 forecasts a deficit of $6.6 billion.

Put another way, Grant Robertson will borrow $3,528 for every Kiwi household to pay for non-capital spending (i.e. he's still borrowing for day-to-day expenses) over the next 12 months.

So where is all this money going?

Louis was with me listing the big, the mad, and the interesting spending items that jumped out:

Grant’s headline Budget sweeteners

First, a victory for the Taxpayers’ Union: fuel tax and road user charge relief has been extended by another two months, expected to save motorists another $235 million (or $124 per household). This is matched by an extension of half price fares for public transport.

The next big sweetener is a bit of a fizzer: New Zealanders who are not eligible for the Winter Energy Payment and who are earning less than $70,000 will receive a temporary $27-per week “cost of living payment”, for the three months from August.

As for tax relief: except for two months at the pump, Budget 2022 delivers nothing to lighten the load. We say this is borderline criminal considering the way inflation has stealthily pushed New Zealanders into paying higher rates of income tax, even when we’re no better off. (We'll have a lot more to say on this next week!)

As is usual in a Budget, the bulk of the paperwork dumped on our table covered a laundry list of spending announcements across almost every area of government. This year's barrage of spending items is almost overwhelming. What follows is a non-comprehensive list (note some spending is spread across multiple years):

Corporate welfare:

  • $100m for a new “Business Growth Fund” to invest in small-medium businesses that banks aren’t willing to lend to – i.e. taxpayer funding for Dragon’s Den dropouts. Government representatives of the Fund will even get seats on SME the company boards!

  • $118m in “advisory services” for farmers and Maori land owners

  • $40m on “Transformation Plans” for forestry, wood processing, food and fisheries businesses

  • $350m “Affordable Housing Fund” for housing developers

  • $15.5m for “Pacific economic development” (i.e. funding for Pasifika-run businesses in New Zealand)

  • An extra $26m (now $155m in total) for “Progressive Procurement” – i.e. favouring Maori-owned businesses as government contractors

  • $349m for a Kiwirail bailout

Health:

  • An extra $3.1 billion (one-off) for the new co-governed health system ($1.8 billion of this disappears immediately: it wipes off existing DHB debt)

  • $580m for “Maori Health and wellbeing” including $188m for the new Maori Health Authority

  • $20m establishing new “Iwi-Maori Partnership Boards” (i.e. introducing co-governance to the new health system)

  • $70m for Pasifika health providers

Special interests:

  • $185m in arts and culture grants “to help build a resilient cultural sector as it continues to adapt to the challenges coming out of COVID-19”

  • $327m in funding for the new RNZ/TVNZ merged media entity

  • A $1 billion “Maori Budget” including: $91m on Maori trades, training, and cadetships, $3m for “marae connectivity”, $5m for iwi/Maori teachers

  • $200m for Maori education

  • $28m for Maori “language, culture and identity”

  • $162m for Maori organisations to reduce emissions, including $36m for “matauranga [traditional knowledge]-based approaches to reducing biological emissions” and $30m for “Maori Climate Action”

  • $38m for Pasifika training, education, and bilingual schooling

  • $14m for an "historical account of the Dawn Raids"

Miscellaneous:

  • $2 billion in extra spending on education (to smooth over the end of the decile system)

  • $662m for Defence

  • More Police ($562m), initiatives focused on organise crime ($94m), and on reoffending ($198m)

  • $100m establishing a new “Ministry for Disabled People” ($100m) – of which only $11m is allocated to providing services

  • $178m for councils dealing with RMA reform, plus a new “National Maori Entity” to co-govern resource management

  • $40m to research RNA vaccine technology

  • $114m on family violence initiatives

  • More taxpayer money pumped into the housing market via more generous First Home Grant and First Home Loan rules

Some of this spending is uncontroversial. A lot of it is mad. But what really hit me was the share scale: spending items costing tens of millions were treated like minor bulletpoints by Ministers.

And New Zealanders didn't want it!

New Zealanders weren’t even asking for this new spending. You may have heard Newstalk ZB cover our recent poll revealing that, by a margin of four to one, New Zealanders did not want to see increased spending in the Budget.

In other words, Kiwi households taking prudent financial measures in the face of a cost of living crisis hoped to see the Government doing the same, but were instead delivered a classic Labour-style spend-up, but on steroids.

You can read for yourself the full Budget 2022 material that just went online at www.budget.govt.nz.  You can also read our initial commentary to the media below.

In a few moments, I’ll be sitting down with economist Cameron Bagrie, who was also in the Budget Lock Up.  We’ll be recording a special edition of Taxpayer Talk streamed live to our Facebook page.

As is usual, our team will spend the next few weeks trawling through the detail and will no doubt uncover far more boondoggles and examples of questionable spending to hold to account those who spend your taxpayer money.

Thank you for your support.

Jordan Jordan_signature.jpg
 Jordan Williams
 Executive Director
 New Zealand Taxpayers’ Union

MEDIA RELEASES:

Budget 2022: The Worst Budget Since Muldoon

Budget 2022: How Are We Still Responding To COVID With Arts Grants?

Fuel Tax Relief Extension: A Small Victory For Taxpayers

WTF? Stu Nash Starts A Bank?

Budget 2022: How are we still responding to COVID with arts grants?

The New Zealand Taxpayers’ Union is almost – but not quite – lost for words over Budget 2022’s announcement of another $185 million in arts and heritage grants. 

Union spokesman Louis Houlbrooke says, “We were amazed when the Government decided it was appropriate to respond to a novel coronavirus with more than $300 million in grants for art projects. We were amazed again when they topped that up to $495 million. Now they’ve topped it up again by another $185 million, and are still calling it a COVID response!” 

“The Government boasts that this spending will ‘strengthen and complement’ the Arts and Culture COVID Recovery Programme –the same programme that saw taxpayer money allocated toward ‘indigenised hypno-soundscapes’ and interpretive dances about the impact of COVID.” 

“The $18 million specifically set aside to ‘celebrate Te Ao Maori’ seems especially indulgent – Maori face very real problems in housing and education that will not be solved with arts, crafts, and theatre.” 

Fuel tax relief extension: a small victory for taxpayers

Responding to Budget 2022’s two-month extension of fuel tax and road user charge relief, New Zealand Taxpayers’ Union spokesman Louis Houlbrooke says: 

“This is a small but significant victory for taxpayers and will save the average household an extra $124 over two months.” 

“We campaigned hard for the reduction in fuel tax by presenting commuters with the shocking truth that for many Kiwis, half of the money spent at the pump was going to Grant Robertson. However, the plan to hike the tax back up again was always questionable during a cost of living crisis.” 

“Robertson deserves credit for seeing sense on fuel tax – at least for now. If he doesn’t get the cost of living under control in the next two months, he’ll just have kicked his fuel tax problem down the road.” 

WTF? Stu Nash starts a bank?

The Taxpayers’ Union representatives choked on Treasury’s budget lock up sausage rolls when they discovered Stuart Nash’s announcement that he’s launching an investment bank for business rejected by the banking sector and to appoint government workers as directors of SMEs.

Jordan Williams, spokesman for the Taxpayers’ Union, said: “$100 million for an investment bank, run by politicians and bureaucrats, to take equity and even board seats in businesses that can’t borrow from the banking sector. What could possibly go wrong? 

“According to Minister Nash, a feature of the fund is to exclude equity financers who ‘push for aggressive growth plans, and short term results’.  He says the fund will have ‘more modest return expectations and no hard exit deadlines.  No kidding.”

“Coming from the Minister who back in 2014  wrote a foreword to the outstanding Taxpayers’ Union corporate welfare report, Monopoly Money, it seems Mr Nash has lost his mind.”

“Mr Nash claims these funds are common overseas. What he fails to mention is that they are not led by Government officials.”

“If Mr Nash wants to play investment banker, he should do a Simon Power and play banker with Westpac’s money, not ours.”

Budget 2022: The worst budget since Muldoon

Grant Robertson is the first Minister of Finance since Muldoon to fail to deliver a budget suplus during a time of economic boom, says the Taxpayers’ Union, commenting from today’s Budget 2022 Beehive lockup.

“With Government revenues booming, it is stunning that Grant Robertson has failed to deliver either tax relief or a surplus,” says Jordan Williams, the Executive Director of the New Zealand Taxpayers’ Union

“The spike to inflation has seen record revenue flooding into the Beehive due to workers paying higher income tax rates and more GST. But despite the inflation, the lowest unemployment since records began, the end of COVID lockdowns, and better than expected economic numbers, Grant Robertson has actually pushed back the return to surplus.”

“It is stunning that, during a cost of living crisis, Grant Robertson has failed to give back any of his windfall gain to the workers who earned it.  His failure to deliver either income tax relief or a balanced budget beggars belief: while households tighten belts, Wellington balloons.”

“With Government revenues as strong as they are, the Finance Minister could have today announced both income tax relief and a surplus. Instead, he’s decided to feast on the revenue with a laundry list of spending commitments.” 

“The temporary $27-per week ‘cost of living’ payment is a cruel joke. Unlike genuine tax relief, it fails to improve productivity incentives. It’s just a three month handout, and an ineffective one at that. At current prices, it wouldn’t even buy two blocks of cheese!” 

“The only silver lining is pushing back by three months the hike to petrol taxes and Road User Charges. With inflation running at 6.9%, the hike to petrol taxes should have been squashed permanently”

The Emissions Reduction Plan: What taxpayers need to know

On Monday James Shaw unveiled his long-awaited Emissions Reduction Plan (we’ll call it the ERP).

The good news is that it’s far from the radical plan of central economic control proposed by the Climate Change Commission’s “big kahuna” report. We opposed that plan very loudly and helped thousands of New Zealanders swamp the consultation process with opposition.

The bad news is that it’s simply more of what we’ve come to expect from this Government: big politically-driven spending announcements wrapped up in the rhetoric of “climate action”.

The ERP raids $2.9 billion in revenue from the Emissions Trading Scheme (ETS) and spends it on handouts to big business and fat bribes for middle class households buying electric vehicles. For context, $2.9 billion is about $1,500 of spending for every Kiwi household.

The elephant in the room is that because of the way our ETS works, most of this spending will do nothing to reduce our emissions. More on that below, but first, the headline announcements from today:

Cash for Clunkers

A new “Cash for Clunkers” scheme will see buyers of EVs or hybrids get a big subsidy in return for scrapping their old petrol vehicles. In fact, during the policy’s trial the subsidy works out (on average) as more than $12,000 for every scrapped vehicle!

This is classic middle class welfare dressed up as climate action. The policy will primarily benefit New Zealanders who are already in the market for an EV – and these buyers don’t tend to be low-income. In fact, scrapping petrol cars will drive up costs for the poor due to reduced supply in the used car market. And of course, the new subsidies and costs come on top of the “feebate” scheme (i.e. the ute tax) which already hammers the less well-off.

James Shaw also announced a target for New Zealanders to drive less in total – 20 percent fewer kilometres by 2035, to be exact. Question: if we’re all expected to be driving non-emitting vehicles, why do we also need to drive less?

Boilers for Big Business

Shaw has announced he’s sloshing another $650 million into the ‘decarbonising industry’ corporate welfare fund.

This is the same pot of money that we exposed in a recent Taxpayer Update, which has handed millions to the likes of Silver Fern Farms, ANZCO, and DB Breweries so that they can upgrade their heating systems. Smaller competitors never seem to get a look in.

Regardless, as we have previously pointed out, the funding is redundant: based on the Government's own numbers, big businesses already have a strong enough incentive to replace coal boilers and avoid ETS levies.

The fund (also known as the GIDI fund) is a classic case of a left-wing Government cosying up to big business under the pretence of “green” policy. Browse the handouts so far: Round 1Round 2Round 3.

The Elephant in the Room

The vast majority of interventions announced this week will fail to reduce emissions.

That’s because, outside of agriculture, our emissions are governed by the Emissions Trading Scheme – not by ad hoc government interventions.

The ETS caps total emissions and allows private businesses to bid for the right to produce emissions by purchasing carbon credits. Each year the cap shrinks, so fewer carbon credits are released to the market and in practice it becomes more costly for businesses to buy the right to produce emissions.

While the scheme itself may sound complicated, the upshot for New Zealanders is simple: energy and fuel becomes more costly each year, and households and businesses are free to decide for themselves how to cut emissions in ways that are most affordable for their circumstances. Left to their own devices businesses will, for example, replace coal boilers with electric heating systems to save on ETS levies.

When the Government then comes along with expensive additional policies to reduce emissions in say, the transport sector, total emissions remain unchanged. People switching from petrol to electric vehicles simply free up carbon credits for the rest of us to burn. It’s called the “waterbed effect”: if you try to lower a waterbed by pushing down on one spot, it’ll just pop up somewhere else.

The beauty of the ETS is that it’s designed to limit the Government to using a single tool – reducing the overall cap on carbon credits – to cut emissions. The problem is that this Government is wilfully ignoring the way the ETS works so that it can give handouts to middle class households and big businesses, and encourage “behaviour change” that appeals to its supporters’ ideological instincts.

As the United Nations’ Intergovernmental Panel on Climate Change put it: if a cap-and-trade system has a sufficiently stringent cap then other policies such as renewable subsidies have no further impact on total greenhouse emissions.

Of course, James Shaw knows how the ETS works, but he’s exploiting confusion over the policy to maximise his number of feel-good announcements and photo-ops with electric vehicles, cycleways, and school children.

Will National at least be honest with taxpayers?

We know that Christopher Luxon understands the ETS. His new economist Matt Burgess wrote extensively about the waterbed effect in his previous role at the New Zealand Initiative think-tank.

The risk is that Luxon will support the Government’s Emissions Reduction Plan anyway, locking a future National-led Government into a path of wasteful, pointless climate spending. He might think that New Zealanders are too simple to understand the ETS – and he might just be wary of being seen to oppose “climate action”, even when that action is costly and completely ineffective.

At the Taxpayers’ Union, we feel it’s our duty to be up front with New Zealanders. When we already have an ETS, a separate “Emissions Reduction Plan” is the emperor’s new clothes.

It’s not enough for National to quibble with the details of the ERP. They need to reject outright the entire approach of intervening in sectors already covered by the ETS.

Exclusive poll: Four to one, Kiwis don't want more spending in the Budget

The New Zealand Taxpayers' Union can reveal that, by a margin of more than four to one, most New Zealanders oppose increasing Government spending in this week's Budget.

A new scientific poll of 1,000 respondents was conducted by Curia Market Research and asked, Given the current levels of inflation, do you think the Government should continue to increase overall spending in this year’s budget, or keep it about the same?

Only 15% support increasing spending, versus 65% who support keeping it at the same level. 20% are unsure.

Headline result

Majorities favour spending restraint in every age group, area, gender, and deprivation level.

Even among Labour and Green voters, only 27% favour increased spending. Among undecided voters, only 8% want an increase in spending.

Poll by Party

With $6 billion of new operational spending earmarked for Thursday's Budget, it appears Grant Robertson has badly misjudged the public appetite for big spending. New Zealanders understand that one driver of higher living costs is Government spending bidding up the prices of goods and services.

Moreover, Kiwi households are responding to higher costs by making prudent sacrifices, and they expect the Government to do the same.

New Zealanders know that a big reason the Finance Minister has so much money in his fiscal envelope is because inflation has pushed workers into higher tax brackets. The best thing Grant Robertson could announce on Thursday is to return these ill-gotten gains to productive New Zealanders via income tax relief.

Taxpayer Talk: Greg Murphy on why the Government's Road to Zero stratergy is spin with no substance

In February, the Government launched its road safety strategy called Road to Zero. The strategy hopes to reduce road deaths to zero by 2030. The Government has allocated $85 million on advertising this strategy alone. Join Louis and motorsport champion Greg Murphy, as they discuss why this unrealistic strategy is purely spin, which will not reduce the number of deaths on New Zealand's roads. 

Subscribe to Taxpayer Talk podcast via Apple PodcastsSpotifyGoogle PodcastsiHeart Radio and wherever good podcasts are sold.

Taxpayers' Union Curia Poll: May 2022

Exclusive to members and supporters, we can reveal the results of the ninth Taxpayers’ Union Curia Poll.

The polling period was 4 May - 11 May 2022.

Here are the headline results:

Poll graphic 1

Party

Support

Change from last month

National

36.8%

↓1.0

Labour

34.2%

↓2.6

Greens

9.7%

↑0.3

ACT

10.9%

↑2.5

Māori

2.4%

↓1.2

NZ First

1.8%

↑0.1

Other

4.2%

↑1.9

For the first time since the Taxpayers' Union Curia Poll began in September last year, National and ACT have the numbers to form a Government. This means the Māori Party are no longer kingmakers.

From experience, the less frequent TV polls have tended to closely follow the monthly Taxpayers' Union Curia Poll. This is the first mainstream scientific poll (i.e. the three public political polls that subscribe to the Research Association’s “New Zealand Political Polling Code”) to show that together National and ACT have enough support to form a Government since Simon Bridges led the National Party. Put another way: ACT have supplanted the Māori Party to hold the balance of power.

Here is how these results would translate to seats in Parliament (assuming all electorate seats are held):

Poll graphic 2

The shifts in party support result in National retaining its number of seats, ACT gaining four, the Māori Party losing two, no change for the Greens, and Labour losing two, resulting in 61 seats for the Centre-Right, versus 56 for Labour and the Greens.

The continued trend toward the Centre-Right could be explained by the changing priorities for voters. The Cost of Living now easily rates as the most significant voting issue, while Covid-19 has become insignificant.

Poll graphic 4

Finally, voters increasingly believe New Zealand is headed in the wrong direction. 48% believe we are headed in the wrong direction versus 34% who believe we are headed in the right direction. This is a massive change from this time last year.

Poll graphic 5

In fact, the "net direction" (right direction minus wrong direction) now sits at a 14 year low.

For the full polling report, including preferred Prime Minister ratings, favourability ratings, and the detailed insights the Prime Minister and Leader of the Opposition are used to receiving, join our Taxpayer Caucus – our club of most generous financial supporters who make our work possible.


The scientific poll was conducted by Curia Market Research and commissioned by the New Zealand Taxpayers’ Union. The full polling report is being released exclusively to members of our Taxpayer Caucus. As is well known, but for full disclosure, David Farrar is a member of the Board of the Taxpayers' Union and also a Director of Curia Market Research Ltd.

The Taxpayers’ Union Curia Poll was conducted from Wednesday 04 May to Wednesday 11 May 2022. The sample size was 1,000 eligible New Zealand voters who are contactable on a landline or mobile phone (700 respondents) or online panel (300 respondents), selected at random from 20,000 nationwide phone numbers. The results are weighted to reflect the overall voting adult population in terms of gender, age, and area. Based on this sample of 1,000 respondents, the maximum sampling error (for a result of 50%) is +/- 3.1%, at the 95% confidence level. This poll should be formally referred to as the “Taxpayers’ Union Curia Poll”.


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