Act promises bigger spending cuts to drive debt lower, no income tax cuts

Act leader David Seymour has promised to balance the Government’s books if elected at this year’s election.

Seymour is pledging a return to an ObegalX surplus in the next fiscal year and leaving net core Crown debt $12.4 billion lower than forecast at the end of the forecast period, thanks to a series of larger surpluses.

That balance is achieved with several large cuts: abolishing “demographic” ministries, cutting non-welfare and non-frontline spending back to 2017 levels (adjusted for inflation) and reducing foreign aid to 2017 levels, excluding aid to Ukraine. Act also promises to lift the New Zealand Superannuation age to 67 by 2035.

Act is also promising big cuts to the Government’s operating allowance, the new money that is used to fund increases to cost pressures across the public service each year. The coalition currently has these set at $2.4b a year. Labour has matched that level of spending. Act, however, wants to cut the allowances back to $2b a year. Treasury, in 2024, estimated about $2.5b would be needed in each Budget to maintain public services at existing levels.

Seymour’s prioritising of fiscal consolidation comes with a big political concession: for the first time since Seymour has led the party, Act is not campaigning on broad income tax cuts.

The party’s fiscal plan, released in Auckland on Sunday afternoon, said: “Less debt gives New Zealand room to respond to the next earthquake, a financial crisis, pandemic or other disruption. We need the financial capacity to support recovery without placing an unmanageable burden on taxpayers.”

Potentially criticising the Government of which he has been a part, Seymour said it was “immoral” to cut taxes by borrowing.

He said once the books were in balance and debt was on the way down, then Act could return to its long-standing goal of flattening the tax system.

“Our priority is to balance the books with no new taxes, then deliver large-scale, broad-based tax relief. Lasting tax reductions must be backed by lasting spending control,” the plan said, adding this would lay the groundwork for “much lower, flatter taxes in the future”.

Act’s main tax cut is axing taxation on KiwiSaver investment earnings. The party also promised to return net revenue from Emissions Trading Scheme (ETS) auctions to New Zealanders, although recent auctions have failed to clear.

Act’s promised cuts are large: about $9.9b over four years will come from reducing spending to 2017 levels and axing demographic ministries.

Other savings come from clamping down on the granting of health and disability benefits.

Act promises to require independent medical certification against clear criteria for health and disability benefits, with phased reassessment of existing recipients.

People with genuine, enduring conditions will retain appropriate long-term support, the party said.

The party said implementing these changes would drive the number of people on these benefits back to pre-pandemic levels.

“People with genuine, enduring conditions will retain appropriate long-term support. Consistent assessment helps distinguish those unable to work from those who can work with support, protecting the safety net and reducing avoidable dependency,” the plan said.