Half-year Economic and Fiscal Update & ‘mini-Budget’
The Half-year Economic and Fiscal Update (HYEFU) was delivered against a backdrop of considerable uncertainty and ongoing risks both domestically and internationally. In short, tax revenue growth is slowing, deficits are larger than forecast, and economic growth per capita is in decline.
A considerable deterioration of the Government’s books since the Pre-election Economic and Fiscal Update (PREFU) means that there is limited ability for the Government to support new initiatives, including any substantial tax cuts. The Finance Minister today identified considerable fiscal risks that have arguably not been future funded by the previous Government.
The mini-Budget was largely a list of achievements to date and emphasis on the “100-day” plan of action, with some explanation of how new initiatives, such as the proposed tax cuts, will at least be partially funded. With $7.5 billion of net initial operating savings and additional revenue committed out to 2028, this is just the start. A lot of activity will be undertaken over the next few months to identify further significant expenditure cuts ahead of the Budget in May.
The mini-Budget and wider actions so far have provided some much-needed boost to business confidence with a government determined to get on with the job – but it is still early days. There is much work to be done over the next 3 years, and beyond, to get the economy back on track.
It is likely that the government has approached the finances in this way as a reality check for all. The economy has challenges to face and the revisiting of the IREX ferries project this week was much talked about in Wellington and a powerful signal that even a deal running into billions of dollars would not be immune from review.
Update: Fair Pay Agreements
Earlier this week, the Fair Pay Agreements Act Repeal Act passed through Parliament and once it receives Royal assent, it will repeal the Fair Pay Agreements (FPAs) legislation.
FPAs came into force on 1 December 2022 under the previous government. Under this system, unions and employer associations could bargain for employment terms and conditions that would apply to all employees (large or small) in an industry or an occupation regardless of whether they agreed with them, or even took part in the negotiation process.
The repeal Act will remove this compulsory bargaining framework, as well as the ability of the Employment Relations Authority to determine minimum employment terms across an entire industry.
As no FPAs have been completed, the impact of the repeal will be to remove the ability for any FPAs to be finalised. Once it is repealed, bargaining for initiated fair pay agreements will cease as there will be no legislative mechanism to bring any agreements into force.
The state of bargaining will then revert to the previous framework where employers and employees (or unions representing their members) have more flexibility to agree on their employment terms as long as these are above the minimum entitlement provisions specified in the Employment Relations Act 2000.