Week in Politics: Treasury's grim forecast doesn't deter Willis

Analysis: Treasury's latest forecast shows the extent of the economic challenges facing the government, but Nicola Willis isn't backing down on delivering tax cuts; Christopher Luxon goes to Sydney, vowing New Zealand will be a "bedrock partner" in regional security; and Parliament adjourns for the year after another burst of repealing zeal.

Finance Minister Nicola Willis is facing a difficult year balancing her tax cuts against deteriorating economic conditions, but there's no way she's going to back down.

The Treasury released its Half-Year Economic and Fiscal Update on Wednesday as Willis presented her mini-budget.

"The government says it has started a multibillion-dollar repair job as a new set of forecasts showed a worsening economic outlook," RNZ reported.

"The Treasury forecasts generally showed an economy facing two years of sluggish growth, but supported by strong migration and tourism."

All the details and key figures are in business editor Gyles Beckford's report.

The New Zealand Herald said the forecasts were "indeed gloomy", showing a weaker economy since the last update in September.

The mini-budget revealed the government had achieved $7.47 billion in cuts and savings, and the report showed where it came from.

"The savings over four years are made up of $2.61 billion by stopping work on initiatives including Let's Get Wellington Moving and Fair Pay Agreements, $2.0 billion from the Emissions Trading Scheme, and $2.8 billion from tax and benefit changes," it said.

"It includes $500 million in savings started by the previous government. On top of these, Willis has committed to annual cuts of $1.5 billion of annual public service 'savings' which add up to $6 billion over the four-year period."

One of the most anticipated items in the mini-budget had been an explanation of how Willis would pay for tax cuts, estimated to cost more than $14 billion, but it wasn't there.

"The advice we have received so far gives the confidence that we can responsibly deliver the tax relief New Zealanders deserve," Willis said.

Labour had plenty to say about that, RNZ reported.

"New Zealanders were told several things about the mini-budget," said finance spokesperson Grant Robertson.

"The first of these is that they would have certainty about how the tax cuts would be paid for, that is not there. We were also told that we would know the details of the cuts to public services that were going to be used to fund tax cuts. That is not in here either."

Robertson scorned the mini-budget as "a nothingburger… a litany of distractions, delays and diversions which leave the country without any certainty or coherent economic plan".

Willis was adamant the tax cuts would go ahead despite the grim news from Treasury, but she indicated the form they take could change.

"We're going to make sure people get the tax relief we promised, we're just going to look at some different ways of delivering that," she said.

"The ACT Party have a view about the way tax relief can be delivered in terms of thresholds and credits. National campaigned on a different policy. and together we're taking advice on what's the best way to get the cash we promised into people's bank accounts."

Stuff's political editor Luke Malpass said the mini-budget and the Treasury update made clear the size of the fiscal challenges facing New Zealand.

"The mini-budget itself was modest," he said.

"A one-page list of well-telegraphed changes that will pare back government spending a bit over four years to make some fiscal room for a tax cut package to be delivered in the May Budget."

Malpass said it was more importantly a political statement from Willis about the government's intent and its approach to getting the country back into surplus.

"That was the key role it had to play - setting expectations for the coming six months. It succeeded in that regard."

When she released her mini-budget, Willis didn't let up on her attacks against Labour's handling of the economy, which she has frequently blamed for the "mess" she now has to clear up.

Treasury's update, she said, "lays bare the extent of Labour's economic and fiscal vandalism".

Robertson took her on.

"She's the finance minister now, it's time she actually tells us what she's going to do instead of baseless attacks on me," he told Mike Hosking on Newstalk ZB.

"I think we need a lot less of the hyperbole from Nicola Willis."

Robertson said the consistent view from international experts was that New Zealand's economy had been well-run in difficult circumstances and Willis had no evidence to back up her claims.

The Herald felt sufficiently strongly about Willis' behaviour to refer to it in an editorial.

"The outlook for the next year is genuinely tough. We may well be in a recession now and in the year ahead we will see unemployment rise while inflation and interest rates continue to put the squeeze on living costs," it said.

"But with accusations of 'economic vandalism', Finance Minister Nicola Willis risks straying into hyperbole that will only serve to undercut her credibility in the long-term."

The editorial said the paradox in negative rhetoric was that "if things are really as bad as Willis suggests, then we surely cannot afford tax cuts".

The finance minister's determination to deliver tax cuts in the face of what she herself has described as a "wafer-thin" surplus has caused unease among economists, Stuff reported.

Independent economist Cameron Bagrie said it would be "a pretty delicate balancing act" over the next three years.

"It is surprising to see the finance minister double down so much on tax relief because for me it wouldn't be top of the pops for what I would be arguing," he said.

Brad Olsen, an economist and chief executive at Infometrics, questioned whether the savings would be better put towards achieving a surplus sooner.

But, he added, there was no way Willis could renege on her tax cuts without damaging her credibility.

Rush to meet international partners

Since the election the government has set a blistering pace with Prime Minister Christopher Luxon's "energised" foreign diplomacy.

Trade Minister Todd McClay is in India, Foreign Minister Winston Peters has visited Fiji, and on Wednesday Luxon flew to Sydney to meet Australian Prime Minister Anthony Albanese.

These were trips that would normally be expected early in the New Year, but Luxon is really pushing it during the run-up to Christmas.

After meeting Albanese, Luxon indicated New Zealand would take a stronger role in regional security.

"We are determined to work together as bedrock partners in the region," RNZ quoted him as saying.

"We have a region that is increasingly contested and competitive, we have countries within the region that are increasingly investing in military capability. How we ensure peace in our region, and stability, and security, is actually really important."

And Luxon was less cautious than the previous government about the possibility of New Zealand joining AUKUS Pillar 2.

The security partnership between the UK, the US and Australia includes helping Australia acquire nuclear-powered submarines.

New Zealand obviously can't be part of that, but Pillar 2 is about sharing technology. The previous government skirted around it without ruling it out, but Luxon appeared a little more receptive.

"At this stage, for us it's about exploring what's in Pillar 2, how it can be shaped, and when there's opportunities for New Zealand to participate," he said.

Massey University Centre for Defence and Strategic Studies director William Hoverd said working closer with Australia made perfect sense. But joining AUKUS carried a risk of getting drawn into a Pacific power struggle between the US and China.

"The question is, should New Zealand engage in an independent foreign policy and balance in that space? Or should we almost kind of move closer towards taking one particular side?" he said.

"And the argument that we've seen from the prime minister today is that the world is more threatening, and he's sort of suggesting that we start moving that way and take a position."

Wasting no time

The government went into Parliament's final week with no less reforming and repealing zeal than it displayed the previous week.

It opened by extending 90-day trials to all businesses, taking the bill through all its stages under urgency.

Workplace Relations and Safety Minister Brooke van Velden said the change would make a huge difference to the labour market and encourage businesses to hire people they otherwise might not.

Labour and the Greens argued it would take workers' rights away.

Labour's Workplace Relations and Safety spokesperson Camilla Belich said research commissioned by the Treasury had shown there was "no evidence that the ability to use trial periods significantly increases firms' overall hiring".

The next bill passed under urgency repealed the Natural and Built Environments Act and the Spatial Planning Act.

They were introduced in August, after years of planning, to replace the Resource Management Act (RMA). The aim was to streamline consenting processes and improve environmental standards.

National and ACT opposed the bills at the time and vowed to repeal them, which it has now done.

The old Resource Management Act is back in place, with the addition of a fast-tracking provision retained from the repealed legislation.

Government speakers said Labour's replacement legislation made processes even more complex and bureaucratic, and would make it even more difficult to build infrastructure than under the old RMA.

The government is going to work on an entirely new bill to replace the RMA.

The last piece of legislation to get the repeal axe was the Taxation Reporting Principles Act. It required IRD to report annually on tax measures against a set of tax principles, with the first report due on 31 December.

The previous government introduced it following the report it commissioned which showed wealthy families paid tax at a much lower rate than the others.

The tax principles included income distribution and income tax paid, the distribution of exemptions from tax, perceptions of integrity of the tax system and compliance with the law by taxpayers.

Revenue Minister Simon Watts said the work it would have involved was completely unnecessary.

"Requiring Inland Revenue to produce additional annual reports would take extra resources at a time when our focus should be on higher priority measures to address the cost of living and get the government's books back in order," he said.

Opposition MPs put up a fight against the repeal bill, saying the government was terrified by what might be in the reports.

Greens co-leader James Shaw said it didn't want New Zealanders to know what was in the first report, which had been due for release in days.

"The people they are serving are those who made the largest donations… the people who put them into power," he said.

The Greens are going to try to get the IRD report under the Official Information Act.

Parliament ended with a few final insults traded during an adjournment debate. It will resume on 30 January.

*Peter Wilson is a life member of Parliament's press gallery, 22 years as NZPA's political editor and seven as Parliamentary bureau chief for NZ Newswire.