Finance Minister Nicola Willis. Photo: RNZ / Samuel Rillstone
- Budget a delicate financial balance between pain and gain
- Economic and fiscal forecasts to reflect uncertainty in a sluggish economy
- Budget deficits expected to peak in the coming year, still no surplus before 2029
- Extra government borrowing of up to $4 billion
- Reduced new spending allowance means much robbing of Peter to pay Paul
Analysis - The government has proclaimed 2025 the year of growth, but with an avowed commitment to fiscal prudence of a return to surplus by 2027/28 and control of rising debt, can it deliver when all the indications are that it is close to running on empty?
According to Finance Minister Nicola Willis, this year's Budget is a real "no BS" affair that will create real growth for New Zealand.
The Budget will be again dominated by the government concentrating on balancing the books through cuts and reprioritisation in spending.
It has cut the operational allowance for the coming year to $1.3 billion from the previous $2.4b, which if extended over the forecast period would deliver another $4b in savings.
Treasury forecasts are likely to be revised lower to reflect the softer economic recovery and uncertain global environment caused by the potential impact of US tariffs on world growth and trade.
An economy growing less than 2 percent with unemployment sitting above 5 percent may translate to lower government income, offsetting spending cuts and resulting in weaker finances and higher government debt.
Rays of sunshine
There have been some glimpses of improvement in the latest set of government accounts for the nine months ended March, with the deficit tracking close to the half-year economic forecasts, with the tax take running just ahead of forecasts and spending just below, although some of that might be timing.
The government has already committed to more than $3b spending over four years on various initiatives, along with $6.8b for capital spending to upgrade or buy new assets.
Government borrowing is expected to be up a modest $5b extra over the forecast period, after Treasury frontloaded and borrowed big last year, but net debt levels are still expected to reach more than 46 percent of the value of the economy and edging towards the stated debt lid of 50 percent.
The 2025 Budget. Photo: RNZ / Samuel Rillstone
No lolly scramble
Willis has said the Budget has no rainbows, no unicorns, with departments needing to find further savings through staff and/or programme cuts or changes. Difficult choices loom.
This is the robbing Peter to pay Paul scenario, where no one wants to be Peter.
Businesses would dearly love a cut to company tax, but that is never going to happen in the near-term at least - but perhaps some tinkering with the fringe benefits tax or targeted depreciation to encourage investment may be offered.
KiwiSavers have been teased with hints of moves to improve savings, which perhaps may mean an increase in contribution rates, but might be at the expense of the government's $521 a year contribution.
Which leads to the prospective gains from the reshaping of the pay equity, which have not been quantified in the past but have been credited as "saving" the Budget with billions.
Persistent government spending cuts will take money out of the economy, putting the onus for making the economy grow on the private sector and the Reserve Bank through further interest rate cuts.
The challenge in this and future Budgets is the government getting its 'A into G' - austerity into growth.
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