Labour's Finance Minister with the new Prime Minister, CVhristopehr Luxon and the former Labour Prime Minister Chris Hipkins in Parliament this week probably not discussing Labour's spending record.

Don’t expect any fiscal shocks or surprises when the books are opened on December 20 with the unveiling of the Half Yearly Economic and Fiscal Update (HYEFU).

That was the message yesterday from Westpac in an economic commentary. But the bank’s analysis did not include any changes to capital items like the inter-island ferries or the Auckland central rail loop.

“We expect the HYEFU to show very small adjustments to the fiscal stance compared to Pre-Election Economic and Fiscal Update (PREFU), and the borrowing programme will be unchanged,” said economist Nathan Penny.

That is in contrast to warnings last week from both Prime Minister Christopher Luxon and Finance Minister Nicola Willis who claimed there would be fiscal surprises in the HYEFU.

However, yesterday, Willis made some subtle changes to the language she has been using to attack what both she and Luxon say has been Labour’s profligate spending since Covid.

A so-called patsy question from new National MP Catherine Wedde threw the focus back on already published economic information rather than what might be in the HYEFU.

Wedde asked what state the Pre-election Economic and Fiscal Update might suggest the books would be in.

“Terrible shape,” replied Willis.

“The Pre-election Economic and Fiscal Update showed that New Zealand is expected to run a deficit of $11.4 billion this year.

“Since 2017, growth in Government spending has vastly outstripped growth in revenue, driving a very large deficit.


“Previous promises made by the outgoing Minister of Finance to reduce Government spending after the pandemic—those promises were broken, with Government spending this financial year substantially higher than at any time during the pandemic, including periods where large parts of the country were locked down, and businesses forcibly closed.”

Willis is on much firmer ground here by highlighting already existing spending projections and then the actual outcomes since 2019.

The table below shows that back in 2019, only two months before Covid struck, the HYEFU forecast spending for the current year 23/24 would be $109.2 billion.

HYEFU Spending projections


But the PREFU has now forecast that spend to be $139.4 billion; a 27.7 per cent increase on the 2019 forecast.

That is even though there is almost no Covid spending left on the Government books this year.

“Having inherited strong surpluses in 2017, the previous Government delivered years of fiscal deterioration, and our Government’s job will be to deliver the necessary repair,” said Willis.

According to National’s Fiscal Plan, published during the campaign after the PREFU, that will involve a squeeze on government expenditure with spending forecast to decline by 0.5 per cent in nominal terms by 2027/28, but that takes no account of inflation, so the decline in real terms will be much more.

Meanwhile Westpac is speculating that government revenue may be higher than previously forecast because of immigration.

“This will help offset some of the concessions the National Party made during the coalition negotiations; notably, the Foreign Buyer Tax, which National had expected to raise around $3bn over the five years to June 2028, did not make it through the coalition negotiations,” their report said.

“The key plank of National’s election promises – tax relief – has been retained.

“This was costed by National at $14.6bn over five years.

“Treasury will of course do its own estimates so this cost may shift a little either way.

“All up, we expect the HYEFU operating balance estimates to anchor roughly around the PREFU estimates, with a return to surplus clearly shown in the 2026/27 year.

“If there is any ground to be made up, we expect that government departments will be asked to do more in terms of baseline expenditure savings.”

In other words, Westpac is suggesting the government might bring the return to surplus forward by a year.

But the bank also suggests this may be mainly for appearances’ sake.

“The new government may want to distance itself from the previous one by showing a higher operating balance track.

“However, we would argue that this is largely for appearances given the likely small differences and the other constraints.”

Stepping back, we expect Minister Willis to signal a clear commitment to fiscal discipline over this term and that more detail will follow in the new year and at Budget 2024, the report concluded..

Finding the savings within agencies and making cuts in the 2024/25 Budget appropriations will all take time.

Headlines will be hard to produce.