Prime Minister - elect Christopher Luxon heads back to his office after briefing media about the official election results on Friday.

Strip away the baubles and the nice-to-haves, and one bottom line will dominate the government formation talks.

National must, one way or another, get its tax cuts.

If it doesn’t, leader Christopher Luxon would almost certainly face the resignation of his Finance Minister, Nicola Willis and a caucus revolt.

His own leadership would be in peril.

But to preserve the cuts, National is highly likely to have to drop its proposal to allow foreigners back into the New Zealand real estate market.

During the campaign, National candidate after candidate took the flak over questions about the costings for the cuts all the time, insisting that regardless, they would go ahead.

Those costings included funding for the cuts coming from allowing foreigners to buy homes over $2 million and imposing a new tax on the purchase.

Luxon portrayed the cuts as the response to the cost of living crisis.

It was a constant theme throughout the campaign.

On the Thursday before the election, at his last media appearance at an early childhood education centre in Auckland, the tax cuts were foremost on his mind.

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He said he was focused on making sure people understood that parents of the children at the centre understood they would get tax relief for low and middle-income workers.

“Those are the things that I care about. That’s what I’m focused on,” he said.

But he faces a problem; both New Zealand First and ACT have issues with the tax cuts policy.

New Zealand First will always oppose any easing of foreign investment regulations, and ACT believes the cuts are fiscally irresponsible.

Of the two, New Zealand First’s position may be more easily mediated.

They are unlikely to give way on the foreign buyers’ ban.

Speaking on RNZ’s “First Up” programme last month, NZ First deputy leader Shane Jones argued National had written off the prospect of a lot of young Kiwi families owning their own home.

“The moment that you provide this exemption for foreign purchasers, then what you’re doing is you’re driving up the cost of property,” he said.

“I think it’s something deeply cynical that the best that can be offered is to continue to hock half the country to wealthy foreigners.”   

But stopping the proposal would require National to find another $715 million to fund its tax cuts.

That means they would have to consider alternative revenue-raising options.

That might include having the current review of the Emissions Trading scheme stopped so that proposals to limit the conversion of farmland to pine forest were dropped.

The Climate Change Commission and the Ministry for the Environment have indicated they want pine forests limited.

Climate Change chair Rod Carr has said that New Zealand cannot plant its way out of climate change.

So, dropping the review would be a bow to Maori forestry interests, who have been vocal in their opposition to the ETS review and whose land is mainly in the marginal classes more suited to forestry than livestock.

Jones’s son, Penetaui Klescovic, speaking on behalf of far north iwi, told a United Nations hearing in Geneva in July that the government’s ETS reforms were putting a $16 billion economic opportunity at risk.

The uncertainty provoked by the review has seen no ETS units sold at auction this year in contrast to 2022 when ETS unit sales gained the government $2 billion.

Dropping the review would (theoretically) restore that level of income to the government.

However, National has already booked $602 million from ETS sales as part of their funding of the proposed tax cuts. The balance would have to come from ETS revenue included in their overall fiscal revenue projections.

ACT has its own reservations about the proposed tax cuts.

The party leader, David Seymour, in a text to POLITIK last week, described any suggestion of dropping the corporate tax rate as impossible in the foreseeable future because of the Covid fiscal blowout.

He might well apply that scepticism about tax cuts to the National proposal.

ACT has its own tax cuts proposed for 2023-24, which it estimates would cost $2.99 billion but which would be funded by a wide range of cuts to existing Government programmes rather than by introducing alternative revenue sources, which is National’s proposal.

The party’s alternative Budget claims the cuts could add up to $5.66 billion.

But, the biggest item, restoring the public service to 2017 levels, would require firing at least 13,000 public servants over the next eight months.

National has been much more cautious about public service cuts, saying that it will ask agencies for proposals to save 6.5 per cent of their budgets.

POLITIK Outgoing Prime Minister Chris Hipkins talking to media about the official election results on FRiday

While National made a big feature of its tax cuts in its campaign, the outgoing Prime Minister, Chris Hipkins, suggested on Friday there may have been other reasons for its win.

Hipkins suggested this in part because Labour lost the election in Auckland after the 2021 Covid lockdown.

“Labour support started to really ebb away at the beginning of 2022,” he said.

Labour sources say the loss of the Auckland vote was reinforced by the overall hit the party took over the Michael Wood affair.

It would not be the first time that National over-promised during an election campaign and ended up having difficulties implementing those promises in government.

In 1990, then-leader Jim Bolger famously declared that a 20 per cent surcharge on other income of national superannuants would go “no ifs, no buts, no maybes.”

Instead, faced with a fiscal crisis on becoming the government, the surcharge was raised to 25 per cent.

Ironically, it was Peters and his new NZ First party who had the surtax repealed in their first (and so far, only) coalition with National in 1998.

Perhaps the strongest card Luxon holds is that he has asked both ACT and NZ First to think longer term than just the immediate negotiations.

“We started to say what are the areas where you think, fast forward three years from now,  what has been your contribution to this government and what is important to you,” he said on Friday.

That will likely be regional economic development for NZ First and a smaller government for ACT.

But one thing will be non-negotiable: National’s tax cuts.