Budget gambles on growth
Budget 2025 is especially so. Somehow, the government and Finance Minister Nicola Willis had to juggle finances and politics. Somehow, she had to conjure up many billions of dollars to salve wounds in health, reinforce the ramparts of defence, rev up roads and enhance education.
At a time when money was not growing anywhere, let alone on trees, she and Prime Minister Christopher Luxon desperately need both the illusion and reality of "growth".
Growth will increase the tax take and lower unemployment and benefit payments. Decent growth can reverse deficits into surpluses and raise voter morale.
Ms Willis' "no BS Budget", or as she said yesterday, "a responsible Budget to secure New Zealand's future", desperately endeavoured to find extra money.
New Zealand's debt is predicted to rise to 46% of GDP before sliding back. The Budget, despite the juggling, will continue to run deficits for a few years yet, at least. The spectre of long-term structural deficits continues to loom.
Covid and post-Covid spending splurges have accentuated New Zealand's tricky finances. Further, the advent of United States President Donald Trump detrimentally affects international economic health and therefore New Zealand.
Politically, Ms Willis and co are betting that the public will recognise their "responsibility", that the government will be rewarded for staying the course.
Such is the desperation that the government swooped on the massive blowouts in the expected costs of "pay equity" settlements.
This gamble produced more than half of the savings, $12.8 billion, needed over the next four years to make the Budget credible. This is the fraught juggle that could see the government come crashing down.
Few will be concerned that the KiwiSaver subsidy will disappear for those earning more than $180,000. Halving the amount for the rest, and altogether $3.7b will be saved.
Means testing for first-year Best Start payments, increasing the threshold for student-loan repayments and means testing parents for Jobseeker allowances for 18- and 19-year-olds are ways to generate more money.
Various areas of government will have to make do without increases, and RNZ's budget will be cut. Impacts will continue to emerge over the next few days as details are scrutinised and affected parties react. There are 116 savings measures.
On the other side of the ledger are 228 new spending initiatives, the likes of higher rate rebate levels for SuperGold cardholders and the 12-month prescription provision.
There were also the pre-Budget announcements for the Social Investment Fund, the screen production rebate, urgent healthcare funding, more money to tackle truancy and for maths education, and to combat drug smuggling. The biggest by far was the $12b over the coming years for defence.
The Budget day's new spending is the attempt to stimulate business productivity and growth through "Incentive Boost", $6.8b foregone in tax revenue over four years through immediate accelerated depreciation for capital spending.
While there are no magic wands to increase productivity, the government is banking on its collection of changes to prompt more efficiency.
Increases to learning support in education should not be scorned.
Ms Willis did her best to lower expectations. Indeed, there is little or nothing for the "squeezed middle", which received small "tax cuts" last year when tax thresholds were adjusted.
However, despite claims of an "austerity" Budget, taxes (and the overall size of the government) will increase again, partly through bracket creep or fiscal drag. Increases in wages and salaries cause more income to be taxed at higher levels.
There will remain those on the Right who think that Ms Willis, despite the rhetoric, is tinkering and not tackling fundamental financial unsustainability. Others will see her as Scrooge, mean-spirited and foolishly stalling an economy that requires government stimulus.
Faced with tough choices, Ms Willis has juggled the finances in a way that carries high political risk. Much will depend on whether the promised growth occurs next year.
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