Rabbits, Switch-Ups And Highway Robbery: Politicians, Economists React To Budget 25
Opposition politicians, journalists and economists have just three-and-a-half hours to pore over the books, before presenting reports and analysis on what's on offer, what it means to people and, of course, come up with a hot take or two.
The government found $2.7 billion a year through its changes to pay equity, cut its own contributions to KiwiSaver, told 18 and 19 year olds it would no longer pay them to sit on the couch and introduced a new Investment Boost tax incentive, which is tipped to increase New Zealand's GDP by 1 percent over the next 20 years.
It was dubbed the 'Growth Budget' by the government, although the finance minister was fond of calling it the 'No BS Budget'.
Economists and MPs had their own nicknames and thoughts to share.
Bagrie Economics managing director Cameron Bagrie called it the 'Rabbit Budget', as the pay equity changes allowed the government to pull the rabbit out of the hat and generate savings.
"Looking forward, we need a few more rabbits to pull out of a few more hats in the 2026 and 2027 Budgets, because we're still a long way away from returning to surplus."
The books are not expected to return to surplus until 2029 and, even then, it will be a modest surplus of $200 million.
Bagrie said New Zealand still had not seen the hard yards.
"The savings are all backloaded into 2027, 2028 and 2029, and those savings to be delivered are going to require that we need tight expenditure control in the 2026, 2027 and 2028 Budgets. We know that spending pressures, including the funding of the defence force, are going to be pretty intense."
Council of Trade Unions economist Craig Renney, who is also on Labour's policy council, said it was a 'Highway Robbery Budget' with the changes to pay equity.
"It's not a Budget that's delivering for working people and it doesn't appear to be a Budget with working people in mind," he said. "We're taking money straight out of the pockets of low-income workers.
"We're taking benefits off 18-19 year olds, we're taking money from the education budget. We're taking money off Vote Māori Development, Vote Pacific Peoples and we're spending it on defence."
On the KiwiSaver changes, Renney wanted assurances that employers would not put pressure on low income workers to deliberately take the 3 percent level, so their own costs did not go up.
He praised the Investment Boost scheme, saying New Zealand was "way behind" in capital investment and the state had a big role to play.
Baucher Consulting tax expert Terry Baucher was also a fan of the scheme, saying it was more generous than many predicted. He was less impressed with what was in the Budget for low-income families.
"The government has increased the Working for Families threshold to $44,900, but that's still below what someone on minimum wage would earn annually and it's $10,000 lower than it should be, if it had been increased in line with inflation since June 2018," he said.
"Arguably, you could say that the burden for that Investment Boost is being paid by low-income workers and I don't agree with that. It's a disappointment in that regard."
He said New Zealand faced a "demographic crunch", and there was not enough in the Budget to encourage families to work and raise their children in New Zealand.
"We're taking money from our younger working people to give to older, richer property-owning people and long-term, in my view, that's not a recipe for a growth economy."
Baucher said he understood why the government was means-testing KiwiSaver at higher levels, although did not support reducing the government contributions overall.
Inequality researcher Max Rashbrooke said the KiwiSaver changes were mean-spirited.
"It is the state increasingly saying, 'If you're going to save, you're on your own. We're putting the burden on you to save out of your pay and we're putting the burden on your employer, rather than collectively, the state, trying to ensure that people are saving well for their retirement'."
Infometrics chief executive Brad Olsen said it was the 'Switch-up Budget' as the government tried to spend more, while cutting back.
"There are some big trade-offs that the government has had to make in Budget 2025 and I think, definitely for some groups, they'll be saying that's probably the wrong trade-off," he said.
Olsen was "fairly relaxed" on the KiwiSaver changes and did not believe the current government contribution rate stimulated a huge amount of further investment that otherwise would not happen.
"I don't think it'll shift the dial in terms of more or less investment from Kiwis by getting rid of that government contribution, but by increasing both the employer and employee contribution rates, that will stimulate more savings over time and I think that's positive."
He was also onboard with cutting the government contribution rate entirely for those earning more than $180,000, saying the government needed to get its books in order and it did not need to give those earning good money that much support.
New Zealand Initiative chief economist Eric Crampton said the government was making slow progress towards the smaller structural deficit in 2029 and needed to sort it before the demographic changes really started to bite in the 2030s.
"At some point, we have to wonder about the fiscal responsibility provisions in the Public Finance Act matter, because those effectively say you should not be running structural deficits for a decade, and we will have been running structural deficits for a decade. The ones during Covid were excusable - now, not so much."
Crampton agreed that greater means-testing and targeted assistance to those in need made sense.
"[It] can help towards fiscal consolidation," he said. "I don't need to be getting a subsidy towards my KiwiSaver.
"It's better to target these sorts of things. Similarly, a bit tighter targeting in Working for Families can make a lot of sense.
"It's good that they are stopping the inflation indexing of repayment thresholds for student loans. It would be nice if they took a few other measures."
He pointed to re-instating interest on student loans as a measure that the government could take, while at the same time, increasing scholarships that are means-tested.
No commitment from Labour on $12.8b pay equity return
Fresh from delivering their speeches to the House, a rolling maul of MPs from government and opposition came across Parliament's tiles to take questions.
First up was Labour leader Chris Hipkins, who continued to denounce the pay equity changes, particularly now there was a number put on them.
He committed to reversing the changes, should Labour return to the government benches, but couldn't be nailed down on the exact amount.
Primarily, that was because he was unsure how the government had arrived at its figures.
"They still haven't released their calculations on how they arrived at the savings they've delivered today, so I can't give you numbers," he said.
"I can give you the principle, which is the principle is very clear for us. We don't believe that women should be paid less than men."
He also said the Working for Families changes were "a measly amount, won't even pay for a block of butter" and the government cutting its KiwiSaver contributions "raided the future retirement savings" of New Zealanders.
"I think most Kiwi families will be feeling that any advantage they got from tax cuts last year has been well and truly absorbed by increased costs in other areas," Hipkins said. "Their power bills are still going up, their rents are still going up.
"Prices of food are still going up and they're finding other forms of government support are now being cut, like Working for Families, Best Start, KiwiSaver, and so on."
Prime Minister Christopher Luxon said Hipkins "has flip-flopped all over the place" and questioned how he would pay for reinstating pay equity as it had been.
"Is he going to tax for it or is he going to borrow for it, if he wants to unroll all those changes?"
Luxon said it was a "balanced Budget", which was focused on growth, and supporting people with the cost of living and on frontline services.
Meanwhile, Winston Peters said he was proud of the SuperGold rates relief, and money for railways and defence.
"Everybody's going to make that statement, they're proud of this and proud of that," he said. "Most of them will say they're proud of their portfolio, but I suppose the fact is we could have made a big mistake and done what I've seen in the past.
"We have some revolutionary Budget we pay for for the next 15 years and I've seen a couple of those in my time."
He hinted, over the next few months, New Zealanders would see other changes that would assure them of "a better economic outcome", thanks to his party's influence, although stayed coy on what those were.
ACT leader David Seymour said "the numbers speak for themselves", as a result of Brooke van Velden's pay equity changes.
He also said the increased funding for private school subsidies would make things "vaguely fair" and that he agreed to the Incentive Boost scheme, once he saw evidence it would be effective.
"If you're going to give any kind of target a tax break, then acquiring capital equipment and goods is probably the most powerful thing you can do, if you just want to see increased capital intensity."
The Green Party came out swinging, with co-leader Marama Davidson nicknaming the Budget the "no-ambition Budget, it's the child-poverty Budget, it's the we-don't-care-about-women Budget, it's the we-don't-care-about-rangatahi Budget, it's the we-don't-care-about-disabled-people, we-don't-care-about-Māori, we-don't-care-about-Pasifika".
"Who do we care about? Wealthy and fossil fuel companies."
Davidson said the JobSeeker changes for 18-19 year olds was the government saying "with their full hearts, their full chests, they are really happy to be cruel and mean to people who are already having a hard time".
Chlöe Swarbrick said the $200m towards co-investment in new gasfields was potentially a breach of the UK and EU free trade agreements.
Finance Minister Nicola Willis said the KiwiSaver changes would ensure the scheme was sustainable into the future, insisting it struck the right balance.
"New Zealand faces rising costs from superannuation from an ageing population and we need to make sure that we have our house in order."
She said officials were unable to advise on how many people would opt down to the current 3 percent rate, as it involved making guesses on people's behaviour.
"That is something we'll have to see in due course. I expect there will be many New Zealanders who, until they are feeling more financially secure, may not increase their contributions.
"I think many New Zealanders will, because the default will be that you instantly go to that higher rate and people will have to think very carefully about whether they want to save less."
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'The theory is that each time I have a child born, I would invest $22,000. The key is that the investment is not for my children but for my grandchildren. So for example, my child, let's call him Tim. 'When Tim is born I invest $22,000. When Tim turns 65, the investment is worth, say, $1 million. Each of Tim's children (who would be probably 30-40 years old) would be entitled to get a split of the payout. Note Tim does not participate in the investment. 'For Tim's children to receive their share, all they have to do is make an equivalent investment for their children to keep it running. They could make it out of their share of their payment. 'This may sound complicated, but the only difficulty I can see is the initial investment to be made. However, once past that hurdle, the scheme is self-perpetuating and, if you look forward far enough, covers potentially hundreds or thousands of descendants. 'I'm curious if this is a worthwhile idea or not. 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It's probably a reasonable assumption if the money is invested in a share fund or a non-KiwiSaver aggressive fund. You would need to stick with it – not switching when the balance falls in a market downturn. If that's likely to be difficult for you, use a lower-risk fund and settle for a lower end balance. As your son acknowledges, inflation will eat into how much a future balance will buy. But it will still be great for the recipient – for perhaps a house deposit, or to repay a chunk of a mortgage. The amount a recipient puts in to keep the scheme running would need to be adjusted for inflation. If you have more than one child, obviously you would want to do the same for all of them. But what if one of your children has more kids than another?Cousins will be treated unequally. Maybe that's okay, but it's worth thinking about. What if one of your children has no offspring? Perhaps you could specify that they give the money to a charity of their choice. As your son notes, this would have to be set up with legal expertise. Basically, he is making the most of the power of a compounding investment over a really long time. I say: 'Go for it!' Small difference becomes big Q: Not a question, but a spectacular example of how a return of 8% versus 6% makes a massive difference after 42 years, is given in an online table I found. The 6% after 42 years provides $597,000. But the 8% provides $986,000, being nearly two-thirds more. A: You're right. Over long periods, a somewhat higher return makes a huge difference. That's why it would be best if the family in the previous Q&A, or anyone who wants to copy the idea, uses a high-risk fund – probably one that holds just shares. Stay with insurance Q: One of the benefits I received at my previous job was fully subsidised Southern Cross health insurance (Wellbeing One plan). Unfortunately, my new role does not include this coverage. 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You may look back later and say you would have been better off if you had followed your self-insurance plan. But what people often ignore is peace of mind in the meantime. It's worth a lot to know that if you do suddenly develop a serious health issue, you won't have to either wait for perhaps months to get help or find big sums of money for treatment. The last thing you need at that time is money worries as well. And being in good health in your fifties – or sixties or seventies – certainly doesn't come with a guarantee that it will continue. Clearly, leading a healthy lifestyle must help you to fight any health nasties, but it doesn't prevent them. On the other hand, you will be shocked at how quickly health insurance premiums rise as you get older. You can keep costs down to some extent by limiting cover to specialist care, rather than including GP visits, and by increasing your excess – the amount you have to pay before insurance kicks in. How much? Dunno Q: Another health insurance question. My husband and I are both 65 and face the common question of continuing our health insurance or to self-insure. It is hard to make this decision without a ballpark figure for self-insurance. I totally appreciate everyone's health is so variable and I understand the reluctance by brokers to provide a figure, but some guidance would be helpful and appreciated. Can you help? A: Sorry, but no. Or, if you insist, several hundred thousand dollars. Some medical procedures, including scans and surgery, cost thousands. What's more, you can't predict whether you will need several procedures at much the same time, as different parts of your body decide to misbehave. When to switch Q: You often refer to switching funds as locking in your losses. I never fully understood that. It makes sense to me if one switches funds because they are scared during a market drop and switch to a lower-risk fund long term. But in your view: does that apply to all fund switches? What are the risks when switching a fund? If I switch to a higher-risk fund while the market is down, do I still lock in any losses? I know timing the market is futile, but I don't understand what the downsides to switching at any given point are. A: I've been waiting for the markets to wobble again before running this Q&A. Funnily enough, it hasn't really happened for a while. Then again, it could happen between my deadline time and the time you read this. So let's get on with it! First, we'll look at switching to a lower-risk fund during a downturn. Let's say that your account balance falls from $20,000 to $15,000. If you worry it will fall further, and therefore you reduce your risk, you've locked in the $5000 loss. You won't get that money back again when the markets rise, because your new fund doesn't hold many shares, if any. And recovery always happens – although sometimes it takes a while, and occasionally several years. If, however, you had stayed the course, your balance would have returned to $20,000 or higher. You would have lost nothing. In those circumstances I would say, 'Sorry, but if you can't cope with volatility you shouldn't have been in a high-risk fund in the first place. But okay, if you really can't sleep, just take the loss and move to lower risk. And, importantly, stay there'. On other fund switches, it depends. If you move to higher risk during a downturn, that's a pretty good move. You've bought at a relatively low price and will benefit when prices later recover. That's called contrarian investing – moving in the opposite direction to most people. The trouble is it involves market timing which, as you say, is a fool's game. When the market falls, for example, we never know if it might fall a long way further, followed by a slow recovery. So the rule is: reducing risk in a downturn is bad; increasing risk in a downturn may be good – but only if you're lucky. Usually it works far better to just get your money into the correct risk level for you, and leave it there. There are, however, two circumstances in which moving risk makes sense: You're getting nearer to the time you expect to spend the money. In those circumstances, it can work well to move your money in, say, three lots, a month or two apart. That way you avoid happening to make the move at a bad time. You realise you can't tolerate downturns as much as you thought you could. But, as stated above, you must then stay in the lower-risk fund for the long term. Not so possible Q: In regard to your comments on the use of aggressive funds by the elderly or those entering retirement, it is of course possible to do well by transferring money from an aggressive fund to a cash fund or similar when the aggressive fund is showing a peak balance. Over six months to a year, the aggressive fund will rise and fall similar to the Dow or Nasdaq index. Of course it's all about timing, but for those who follow the world indices figures, such as the VOO or similar, it is not too difficult to do. A: It's not just difficult, it's impossible if you want to get it right more than occasionally by luck. As I've said often, it can work well for retired people to hold money they expect to spend in 10 or more years in an aggressive fund – usually a fund that holds shares only. But it's not a good place for shorter-term money. Your balance in such a fund can quite suddenly plunge – occasionally as much as halving. And, as noted above, recovery can sometimes take several years. Meanwhile, the grocery purchases can't wait. You're suggesting we simply watch how the markets are moving and switch to a lower-risk fund at market peaks – in other words, right before a market downturn. The big question – one that every active fund manager in the world would love to be able to answer – is when a market has peaked. Getting that right repeatedly can't be done. Every now and then a fund manager does well, reducing risk right before a crash. Convinced he – or rarely she – has learnt the secret, investors rush into their funds. And once in a golden moon, the fund manager gets it right a second time or third time, and even more investors jump on the wagon. And then, uh oh! If you want to try to do this with a small amount – let's call it play money – go for it. And good luck! But I would never suggest it for others. * Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@ Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
