The finance minister’s introduction of a new indicator for measuring the budget has sparked accusations of creative accounting from opposition parties. However, Nicola Willis has defended the change, arguing that including a long-term funded scheme in short-term decision-making was counterproductive to the government’s goal of improving fiscal health.
Tuesday’s Half-Year Economic and Fiscal Update (HYEFU) coincided with Willis announcing a new measure for the operating balance before gains and losses (OBEGAL), called OBEGALx. This revised measure excludes revenue and expenses from the Accident Compensation Corporation (ACC).
Despite this adjustment, the government’s return to a budget surplus remains delayed. The surplus is now forecast for 2028-29, a year later than previously projected in May. If ACC were still included in OBEGAL calculations, the deficit would persist even longer.
Willis justified the exclusion of ACC’s figures from OBEGAL, emphasizing that ACC operates as a long-term, levy-funded scheme. Its deficits or surpluses, she argued, are irrelevant to the government’s short-term fiscal decisions.
“We were concerned that the self-funded nature of some entities would distract from the primary objective of this measure: determining whether the government’s revenue and spending decisions are balanced over the short term,” she explained.
Treasury will continue to report the original OBEGAL, which includes ACC, in future forecasts and budgets. However, Treasury has expressed concerns about how the new measure will be communicated to the public.
Opposition parties have seized on these concerns, accusing Willis of manipulating fiscal indicators. Labour leader Chris Hipkins criticized the change, calling it an attempt to obscure the government’s financial difficulties.
“She’s adopting a measure entirely of her own creation to make the deteriorating financial situation she has created look less severe,” Hipkins said.
Green Party co-leader Chlöe Swarbrick echoed this sentiment, describing the new measure as “creative accounting” aimed at improving appearances rather than addressing the underlying fiscal challenges.
Labour finance spokesperson Barbara Edmonds urged Willis to reconsider her approach, calling for a comprehensive recovery plan instead of austerity measures. She warned that austerity policies have historically stifled GDP growth in other countries.
“If you look at the budget policy statement, it indicates more spending cuts are on the horizon,” Edmonds said. “She’s only allocated $700 million for the next budget to cover everything outside of health.”
Edmonds criticized the government’s borrowing choices, contrasting them with previous administrations that borrowed to address crises such as the global financial crisis, the Canterbury rebuild, and the COVID-19 pandemic.
“This government has borrowed for tax cuts, interest deductibility, and tobacco tax breaks,” she said, advocating instead for continued investment in housing, hospital upgrades, and infrastructure projects.
Edmonds argued that spending cuts alone would not achieve a budget surplus. “Where she is directing the spending is her choice, but it’s clear that her approach is not boosting productivity or economic growth,” she said.
Willis, however, defended her strategy, saying the alternative to “spending wisely” was to burden New Zealand with unsustainable spending levels. She blamed the previous government for adding over $100 billion to debt and contributing to high inflation and fuel prices.
“That approach is no longer viable,” Willis said, emphasizing her focus on driving economic growth to address the country’s fiscal challenges.
Willis acknowledged that she cannot control Treasury’s forecasting assumptions, which have shifted since the election, but stressed the importance of fiscal consolidation.
“The recession we’re currently in started earlier, has been deeper, and has persisted longer than Treasury anticipated,” she noted.
In response to criticism, Willis highlighted the government’s commitment to making savings despite opposition resistance. “We’re also working hard to stimulate growth across the economy because we recognize that faster growth is essential for improving New Zealand’s financial situation,” she said.
-TIN Bureau