Rabbits, Switch-Ups And Highway Robbery: Politicians, Economists React To Budget 25

Scoop

24-05-2025

Budget Day is a bit of a whirlwind.
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."