Budget 2025: The Growth Budget

Scoop

28-04-2025

Minister of Finance
Tēna koutou kātoa. Greetings everyone. Can I thank you Mark for that kind introduction and thank everyone who has taken the time to be here today. My special thanks go to our hosts Metco Engineering and the Hutt Valley Chamber of Commerce.
Let me also acknowledge my colleagues who join us today - your local MP and my Associate Minister of Finance the Hon Chris Bishop, together with the Minister of Education the Hon Erica Stanford.
This factory is a bit of a different setting than the conference centre or ballroom Ministers typically use for a pre-Budget speech. Why?
Because places like this are the engine room of the New Zealand economy.
Our Government knows that to speed up the economic recovery New Zealanders need we have to get this growth engine cranking.
I appreciate that economic growth can be a bit of an abstract concept: the work that happens on this factory floor is what it's all about.
The workers at Metco solve problems, coming up with new products and manufacturing processes for a range of industries. They design and create clever components for customers around the world – producing everything from window stays through to bus stops.
Metco has grown successfully by making investments in its own machinery and technology and by hiring and up-skilling great people who come up with innovative ideas and then make them happen.
The growth of businesses like MetCo, and indeed of all the businesses represented in this room today, has created good jobs and livelihoods for the people of the Hutt Valley community.
It's also allowed your businesses to make healthy tax contributions, which helps fund the Government's investment in health services, schools, vital infrastructure and other important public spending.
Thank you for that contribution, we don't take it for granted.
New Zealand needs more success stories like MetCo: Your growth is what's needed to deliver the kind of country we all want: with better living standards, better job opportunities and more financially secure families.
That's why our Government is going for growth.
Earlier this year we released a snapshot of the work we have underway to support this growth agenda. Going for Growth sets out 87 specific actions we are taking under five key themes:
Developing talent
Competitive business settings
Innovation, technology and science
Overseas investment and trade
Infrastructure for growth
I encourage you to check out the plan and the work underway. There's more to come.
For today though, I'm going to switch out of my Economic Growth hat and into my Minister of Finance hat and focus my remarks on this year's Budget.
The Context for Budget 2025
The Government's growth ambition has been front and centre as we've put the Budget together.
We know that global uncertainty is challenging for many of you and we're determined our Budget will play a role in giving you confidence for the future.
But let me be blunt: it's not the easiest time to be putting together a Budget.
New Zealand is still recovering from the economic damage inflicted during the Covid period and we're now facing the headwinds of further global instability.
There is a pressing need for greater investments in our health system, our education system, our defence force and other areas, and very little money to pay for those investments.
Our Government is also acutely conscious of the challenging economic circumstances many New Zealanders have experienced in the past few years as we've emerged from a period of very high inflation and rapidly rising interest rates.
The pain is still rippling through our communities. Kiwis feel it in the higher prices they still pay for almost everything, in higher levels of unemployment and in struggling local businesses. The cost of living remains a top-of-mind concern.
The good news is that, despite significant global challenges, a steady economic recovery is now taking place here, with export-led growth gathering strength, business confidence coming off its lows and the primary sector benefiting from higher commodity prices and mostly favourable growing conditions.
Having considered everything happening around the world, the Treasury is continuing to forecast accelerating growth in the New Zealand economy over the coming year, with falling unemployment forecast to follow in the second half of the year.
There's no magic wand to wish away the price rises baked in over recent years, but getting inflation and interest rates under control has been essential to achieving this economic recovery.
That's why I always take pause to celebrate that since our Government came to office inflation has returned to normal levels, resulting in a 200 basis point reduction in interest rates.
We must not take this progress for granted.
While some pretend we can fix all the post-Covid damage with yet more extravagant government spending, the economic truth is that they are wrong.
The only way to sustainably overcome cost of living pressures is through successive years of stable inflation, careful investment and sustained economic growth.
Our Government is committed to the responsible fiscal management and growth supporting policies needed to make that happen.
Debt, deficit and the path out
An important part of that effort is getting our own books in order. That's a big task.
The previous Government's spending decisions during and after Covid have left New Zealand with a sea of debt and red-ink in the government finances.
Government debt leapt up by almost $120 billion between 2019 and 2024, soaring from under $58 billion to $175 billion.
Those are big numbers, almost too big to comprehend, so let me explain it this way: That amounts to $22,000 more in debt for every New Zealander.
You may well ask: what do we have to show for all that debt?
To give you some further historical context, New Zealand's net core Crown debt, which once hovered between five and 25 per cent of GDP, rose to around 42 per cent last year. That's the highest level of government debt New Zealand has shouldered since the mid-1990s.
Servicing that debt is expensive.
The interest bill on government debt has soared from $3.6 billion in 2014 to $8.9 billion last year. That sum is more than annual core Crown expenses for the Police, Corrections, the Ministry of Justice, Customs and the Defence Force combined.
Our Government's goal is to put net core Crown debt on a downward trajectory towards 40 per cent of GDP and in the longer term keep it below that percentage.
Why? Because allowing debt to keep spiralling would threaten the livelihood of every New Zealander.
We must ensure our country is financially strong and resilient enough to effectively respond to whatever the future may throw: be it earthquakes, extreme climatic events, biosecurity incursions or whatever. We need the world to keep seeing us as a good country to invest in and lend to. Manageable debt levels are an essential foundation for a strong economy and for your financial future.
Achieving lower debt levels isn't easy: especially because the government books remain out of balance.
The post-Covid 'structural deficit' has left a big gap between what the country needs to fund to deliver on the spending commitments previous Budgets have made and what we need to earn to pay for that spending.
The Government is currently borrowing billions to bridge the gap.
Every Thursday afternoon, New Zealand Debt Management issues around $500 million of Government bonds. Some of this is to that roll over existing bonds that have expired, but large chunks of it are for new borrowing.
That level of borrowing obviously can't go on forever, or else our kids and grandkids will be left with unsustainable debt and considerable economic uncertainty.
Most of you can probably relate to this if you think about your own household budget: sure, sensible borrowing has its place, but no overdraft can be extended forever, and while you can keep giving the credit card a hammering, left unpaid, it does, eventually, get declined.
It's worth bearing this in mind next time somebody tries to suggest to you that the New Zealand Government needs to spend more on something.
The second question always needs to be: but how will we pay for it?
Our Government's strategy is to reduce the deficit over time, through a gradual programme of consolidation and careful spending choices.
We are committed to maintaining stability for New Zealanders, by continuing to invest in essential frontline services, infrastructure for growth and social supports like superannuation.
But delivering those things requires us to make careful choices about what we spend elsewhere.
That's why we've committed ourselves to ongoing reprioritisation and fiscal restraint. It isn't easy, but it is essential.
Believe me, I'd rather we were in clover, with money to spend on all the good ideas we hear. But the reality is that we are governing in tighter times.
Economic growth is essential to our fiscal repair job. It's simply the most effective way to raise government revenue, and to give us better choices for the future.
Some have suggested a different approach. They say New Zealand should seek to close the deficit by simply adding more and higher rates of taxes to Kiwis' wages, savings, wealth or capital.
We reject that approach.
Punishing Kiwis with higher taxes right now would undermine our recovery, strangle growth and threaten the economic stability New Zealand needs.
It would pull the rug out from all those businesses and industries who are already just hanging on. And it would send an exodus of Kiwi talent and wealth to Australia and beyond.
It would be exactly the wrong recipe for a country whose future prospects depend on investment and growth.
Changes in the economic and fiscal outlook since HYEFU
The Treasury's last set of economic forecasts was presented at the Half Year Update in December.
As you know, the global economic outlook has worsened considerably since that update.
Tarriff announcements by the US government, countervailing tariffs being imposed by China and an uncertain path for future tariffs and exemptions have created volatile global economic conditions with forecasters around the world agreeing that global growth will be lower this year and next year than they were previously predicting.
New Zealand can't escape the fallout.
Accordingly, Treasury has adjusted the forecasts it presented in December, reducing their assumptions of real GDP growth in New Zealand in 2025 and 2026.
New Zealand's economy will still be growing, but not as fast as forecast a few months ago.
That lower growth trajectory has an inevitable impact on the government books, reducing revenue and threatening our already difficult return to surplus and debt reduction.
At the same time, it's clear that the country's need for investment has not lessened: whether it be in the infrastructure we need for a more productive future, the funding needed to meet pressures in our health service and education system; or the need to rebuild our defence capability to meet the challenges of a less stable world.
On top of all of that, it's also the case that New Zealand's long-term productivity and savings challenges haven't gone away.
So there's a huge amount to juggle in this year's Budget.
How has the Government managed these challenges?
We started with that question that I suggested to you earlier: How do we pay for the things we need now without putting our future economic stability at risk?
Our approach has been threefold.
First, there has been a very high bar for new initiatives in the Budget. I can confirm today that there will be no lolly scramble in Budget 2025. New spending initiatives are strictly limited to the most important priorities: our focus has been on health, education, law and order, defence, and a small number of critical social investments. We have also found room for modest measures to support business growth and to provide some carefully targeted cost of living relief.
Second, beyond a small number of exceptions, government departments are not receiving additional funding in the Budget. We expect government agencies to adjust themselves to New Zealand's limited fiscal means. This will require restraint in public sector wage increases and an ongoing commitment to getting more impact out of every dollar spent.
Third, we have undertaken a significant savings drive.
That effort has involved Ministers identifying areas of previously committed spending that can no longer be justified in light of the challenging circumstances New Zealand now faces.
We've analysed spending decisions made by previous governments and re-evaluated them in the context of today's constraints. This has involved a line-by-line review of previous funding commitments, including money put aside in contingency.
This reprioritisation exercise has required careful consideration and some tough, but necessary, choices.
At every step, we've asked ourselves two questions:
Can these dollars be justified when we are borrowing to pay for them?
Can we be sure these dollars will do more good in this area than if invested in our most pressing priorities – like funding essential health services, better educating our kids, defending New Zealand's security or ensuring our future growth?
Taken together, the Government's savings drive has freed-up billions of dollars. Those savings will now be re-deployed to fund New Zealand's most pressing priorities.
Sticking to the fiscal strategy
In this year's Budget we've also had to carefully consider whether, in light of major global economic events, our fiscal strategy still remains achievable.
The strategy is focused on two key goals: putting net debt on a downward trajectory and returning the books to an OBEGALx surplus by 2028.
This strategy matters, it matters for getting the books back in order and that's about more than a set of numbers. It's about keeping interest rates lower and providing a solid platform for future growth. It's about ensuring New Zealand continues to be seen as a stable, reliable place to invest in and lend to. It's about making sure we don't leave our kids and grandkids with debts they just can't repay.
At our last update in December - well before President Trump's 'Liberation Day' - we were expecting a small surplus in 2029, and it remained our intention to returning it a year earlier if possible.
I can confirm that our Government remains committed to those goals.
Sticking to them has required some careful adjustments in this year's Budget.
The key change we have made is to the size of this year's 'operating allowance' - that is the amount of money put aside for new spending.
At the Half Year Update, the Treasury forecast that the 'allowance' in Budget 2025 would be $2.4 billion.
That was always a small envelope. However, as I outlined earlier, our approach has been to supplement our new spending by reprioritising funds from elsewhere.
I am confirming today that the Government has reduced the size of our Budget 2025 operating allowance to $1.3 billion.
This means we will be spending billions less over the forecast period than would have otherwise been the case. This will reduce the amount of extra borrowing our country needs to do over the next few years and it will keep us on track towards balanced books and debt reduction.
The fiscal forecasts will not be finalised until later this week, but according to the latest numbers I have seen, this smaller operating allowance means we will continue to forecast a surplus in 2029.
The reality of global economic events is that if we'd pushed on with a larger operating allowance then we would be staring down the barrel of even bigger deficits and debt.
Let me emphasise once again: our Budget will still deliver increased investment in the things that really matter to Kiwis: like health, education, law and order, the defence force, business growth and targeted cost of living relief. Those things are important to you and they're important to our Government.
Our careful reprioritisation approach means we can continue to make progress on today's priorities while ensuring we are better positioned to face the challenges tomorrow will bring.
Yes, those challenges loom large.
But let's get real: global instability may not be a passing trend. New Zealand can't expect to keep borrowing as much as we are now. The world doesn't owe us any favours.
This is not the time to kick the can down the road.
We must act now to secure our financial future.
Conclusion
In conclusion, Budget 2025 takes place against a difficult global backdrop.
We can't wish that away. What we can do is focus on the things in our control.
Our Government is doing just that, by providing a predictable, steady approach to economic and fiscal management.
In an unstable world we are staying the course with responsible policies that provide stability, support investment and make New Zealand an attractive place for the world to trade and do business with.
These sensible policy approaches are the base from which we will deliver better choices and investments in the years ahead.
With those basics in place, there is much for Kiwi businesses to feel optimistic about.
New Zealand has enormous economic growth potential.
We are a safe, secure country with a growing constellation of free trade agreements and a global reputation as a good place to do business.
We are blessed with abundant natural resources – everything from ocean to freshwater, fertile land and temperate weather to abundant minerals.
In a world worried about food security, we feed more than 40 million people with levels of efficiency and sustainability that are the envy of many.
We have a long history of stable democracy, strong institutions and rule of law.
We've delivered scientific breakthroughs and global success stories and we will continue to do so. As I stand here today, we are world leaders in sending rocket to space - rockets that include components made right here in this factory.
Fundamentally, I'm optimistic about New Zealand's economic future because I have faith in you: the New Zealanders who get out of bed each morning and go and make things happen.
I'm optimistic because I see how hard Kiwis work. I see how much effort Kiwi parents go to for their kids. I see how much employers and workers care about their communities. We are a smart, innovative, resilient people.
The next decade can be our decade. That requires good and steady government and careful spending choices. This year's Budget will not be a lolly scramble. What this Budget will be is a responsible Budget that secures New Zealand's future.