Christopher Luxon announces boost to capital spend in pre-Budget speech

RNZ News

08-05-2025

Photo:
RNZ / Samuel Rillstone
Capital expenditure - new money set aside in the Budget to maintain or upgrade assets - will be higher than originally forecast when the government delivers its Budget in two weeks' time.
In a speech to Business New Zealand on Thursday, the prime minister said the money, which would be split mostly across health, education, defence, and transport, will total $6.8 billion.
It means the net capital allowance, once savings identified in the Budget have been accounted for, will increase from the $3.6b previously signalled, to $4b.
Last week Finance Minister Nicola Willis cut the operating allowance by half to $1.3b.
Christopher Luxon told the business audience the smaller operating allowance was the "right call because keeping our word matters".
"I know there are some commentators calling for larger allowances and more spending.
"They need to be honest that those decisions will mean more debt, more deficits, and an indefinite delay to New Zealand's return to surplus," Luxon said.
Luxon said capital expenditure, including for frontline services like health and education, will be a priority in the 22 May Budget.
"In health, education, law and order, defence, and transport my government is prioritising significant new investments.
"Each of those areas are a priority for New Zealanders and they require more funding to deliver the quality services Kiwis expect.
"But that comes with trade-offs," he said.
"Spending more on everything, as some commentators have called for, would mean larger deficits, more debt, and ultimately fewer choices in future budgets as the cost of servicing our debt grows even larger and the prospect of returning to surplus evaporates."
Luxon said capital investment would be critical to the country's "growth journey", but he noted that would not happen if "we invest more but continue to lag behind the global technological frontier".
"In Budget 2025, we will be allocating the funding we need to give effect to the changes I announced earlier this year, including the establishment of three new Public Research Organisations.
"I also know that following a review of the Research and Development Tax Incentive that kicked off last year, the business community has been looking for some certainty on the future of the programme.
"That review was required in law, and the final report has not yet been tabled in Parliament," he said.
"However, I can confirm today that we are retaining the RDTI in this year's Budget so businesses have the certainty they need to keep investing and keep going for growth."
Luxon also announced funding would be provided in the Budget for the government's new Invest NZ agency, which was set up earlier this year to support foreigners wanting to invest here.
Luxon said this month's Budget comes alongside a "challenging international backdrop".
"Trade tensions overseas have seen growth forecasts revised down across the world, as exporters and consumers come under sustained pressure.
"The sharp deterioration of financial markets in early April have somewhat recovered in recent days and weeks, but markets remain volatile."
There are greenshoots too though, he said, with ANZ's initial estimate last week that "the smaller operating allowance would support interest rates being 5-10 basis points lower than otherwise."
"Meanwhile, Treasury has estimated that with a tighter budget package, interest rates would be up to 30 basis points lower by the end of the forecast period.
"For a family with a mortgage, or a farmer or entrepreneur taking on debt to grow their business, that means real financial relief and more opportunity to get ahead," Luxon said.
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