Budget 2023: Prime Minister Chris Hipkins announces decision on new taxes

The Prime Minister has announced the Government will not introduce a new cyclone levy at the May 18 Budget to pay for the recovery from Cyclone Gabrielle.

The asset damage from that severe weather event has finally been given an estimated cost of between $9 billion and $14.5 billion, more than the Kaikōura earthquake, but significantly less than the Canterbury earthquakes.

"As a result, we're confident we can fund the recovery within the allowances without a one-off cyclone levy," Chris Hipkins said.

The recovery will instead be funded through a combination of annual operating and capital allowances which are set every year for the Budget, as well as through savings, reprioritisation and by taking on more debt.

"Half of the total estimated costs relate to 'public infrastructure' – assets owned by central and local government such as roads," he said. "The bill for these assets is usually spread over a longer period, so it is appropriate to do so for this."

The Prime Minister has also ruled out introducing any new major tax changes like a wealth tax or a capital gains tax in the Budget. Labour's policy for the October election, however, remains to be seen. 

It comes as Hipkins tries to paint the Budget as being "orthodox" and "no-frills", which in his words means "funding the things most important to New Zealanders like support with the cost of living and cyclone recovery".

"A key message of this Budget is restraint. In a cost-of-living crisis, now is not the time to be asking Kiwis to pay more [through] a levy for cyclone repair costs," Hipkins said.

The issue of tax is back in the spotlight after IRD on Wednesday released a report showing some of the wealthiest New Zealanders are paying an effective tax rate that is less than half of that paid by middle New Zealand.

It's led to calls for the Government to introduce new taxes, with options like a capital gains tax, a wealth tax, and an inheritance tax all suggested. 

Hipkins said there will be three areas of investment in the Budget to lay the foundation for future growth and improved productivity: skills, science and technology, and infrastructure. 

These three areas, which Hipkins said he has a "personal interest" in, will receive "extra support" in the Budget.

"There's no point getting through the challenges of today if we don't have a plan for the future," Hipkins said. 

"Rather than a long laundry list of worthy ideas, I want the Government to do a small number of things very well. And those small number of things need to be focused on growing our economy."

The Prime Minister has made it clear since the start of his tenure in January that he believed the Government was trying to do too much.

He's thrown a number of previous Government policies onto a bonfire, including the merger between TVNZ and RNZ, plans to reduce speed limits, and other transport or climate-related policies

Hipkins has said this will give the Government more bandwidth to focus on the cost of living and cyclone recovery. For example, by taking pressure off Waka Kotahi, it can focus on repairing damaged transport infrastructure.

The National Party has spent much of the past year lashing the Government over its spending, arguing that it's contributed to sky-high inflation. The Government's always said inflation has been affected by international factors and high rates are being seen globally.

In a speech to the Employers and Manufacturers Association on Thursday, Hipkins said the Government is "committed to reducing our proportion of spending to dampen demand in the economy". He said Government spending as a proportion of GDP is declining.

"Living within our means is an important economic goal for me, professionally and personally.

"But getting to that level of spending has to be done carefully and over time. If we tried to get there in this Budget for instance it would require some dramatic cuts to services and cost of living support that New Zealanders rely on.

"We are taking a balanced approach that reduces our spending while also delivering core services."

Hipkins said his plan for the economy included expanding our trading opportunities and doing a "small number of things very well".

"Infrastructure will be a big focus in this year’s Budget not only due to the ongoing need to build hospitals and schools for a growing population, but also to rebuild and strengthen following Cyclone Gabrielle.

"While the primary focus will be on rebuilding the regions that have suffered the most, the cyclone has also made us more aware of risks in other parts of the country across our transport network – I bet that there will be more talk about culverts and Bailey Bridges over the next few months than this country has ever heard."