I did a couple of media interviews this morning on the fiscal challenges facing the new government if, as seems likely from other reports, the foreign buyers tax promised by National can’t be got across the line when the agreements with ACT and New Zealand First are reached. Preparing for those prompted me to refresh my memory of a few of the relevant numbers.

There are several relevant points:

• if the work I was part of before the election was roughly right (and we may never know if the tax is indeed stillborn), the fiscal challenges with the tax would not have been a lot less than they will be without it.    National’s costings assumed revenue of about $735m a year, and our work (and the experiences in places like Vancouver) suggested that something not much above $200m was more likely.
• since total government revenue this year is forecast to be $134bn and GDP to be $417bn, the estimated annual revenue from the foreign buyers tax (on National’s own numbers) was always fairly modest in macroeconomic terms (under 0.2 per cent of GDP, when the fiscal deficit this year is forecast by The Treasury to be 2.7 per cent of GDP).
• National, like Labour, has suggested it will deliver operating balance surpluses from 2026/27, without being at all specific as to how they would get from here to there (structural deficits do not simply fix themselves), and was inclined during the campaign to play down the severity of the deficit, in favour of an emphasis (like Labour’s) on new shiny baubles to lure in the voters.  These two charts (using the recent IMF numbers for comparison) were from a post the day before the election.

All of which is to say that there were pressing fiscal challenges whether or not the foreign buyers tax went ahead, and the scale of those challenges isn’t much changed if it can’t be proceeded with. There might be a larger political challenge – remember the emphasis National put on everything being fully-costed and funded – but then again in MMP any pre-election programme is to some extent only an opening bid in post-election government-formation discussions.

This is the summary table from National’s fiscal plan document.

You’ll see that in the first full year (24/25) the plan envisaged being modestly net positive fiscally (that $537m in the bottom line), mostly because the promised interest deductibility changes would be phased in.

So the new government – or National more specifically- could just argue that for the first year anyway the loss of the foreign buyers tax still left their numbers for that year – the next year’s Budget – looking okay (lose $700m, but they already have a margin of $500m). And if they wanted to change tack and accept that argument I and others had made that the foreign buyers tax revenue wasn’t going to be disinflationary (since it was mostly coming from people outside the economy, so wasn’t reducing domestic private spending) they could even argue that scrapping it wouldn’t materially complicate the fight against inflation.

Or they could delay/rephase any of a number of the other specific items in that table. Delay the income tax cuts by a quarter and you save $500m in the first year, and push back the interest deductibility changes and childcare subsidies by a year and you save another $500m in the first year (perhaps a little more to the extent interest rates are a bit higher now than was allowed for in the costings). Rejigging the first year on the table – 24/25 – really isn’t a particular problem (at least if the foreign buyers tax were the only material change to National’s plan).

But it would further increase the challenges – which will already be severe – on both the 2024 and 2025 Budgets, which will mainly determine whether there is a serious chance that in election year 2026 the Minister of Finance will be able to produce a budget that year with a credible prospect of an operating surplus for 2026/27. It isn’t impossible that the extent of the increased pressure might be small – there are several more rounds of Treasury fiscal and economic forecasts to come (including one next month) and the outlook could be a little less unfavourable than it has been (although things could go the other way too) – but it wouldn’t be a promising start after the last few years of fiscal incontinence.

One way of covering any gap over time is, of course, fiscal drag. Recall that National was very non-committal on future adjustments to tax brackets for inflation.

The more government formation locks in fiscal pressures now the less likely any future band adjustments become.

My bottom line in all this is that on its own the loss of the foreign buyers tax isn’t critical or determinative, but it should simply sharpen the focus on the key questions that were there all along even just on National’s own programme: are they willing and able to make hard choices across successive budgets to get the government accounts back to surplus, and can they do it (as they promised, with all the options they ruled out) without cutting into programmes, or taking some of their own promises off the table. I’m somewhat sceptical – and there are some easy, low-value, programmes they should not have committed to keep (eg fees-free, winter energy payments, Kiwisaver subsidies) – but at present we really don’t have a lot to go on (eg all the attention has been on a possible NZ First win around the foreign buyers tax, and not at all on what ACT might succeed in securing). But National might have been on stronger ground had it spent more time in the campaign highlighting the fiscal mess Labour was leaving and less on shiny new baubles it was offering.

2.5 months ago, when National’s Back Pocket Boost plan was released I made a quick comment on Twitter that promising tax cuts in the current climate was almost a definition of fiscal irresponsibility. The deficits they’ve inherited aren’t National’s fault but they will very shortly be its responsibility (shared with partners, but National is the biggest party and Willis is to be the Minister of Finance), and the focus should have been first on closing those structural deficits, not on upfront tax cuts and vapourware commitments to surplus one day, but not yet.