23-05-2025
NZ Slashes Social Spending as Surplus Is Pushed Further Out
Government contributions to Kiwisaver—New Zealand's equivalent to Australia's private superannuation scheme—are to be halved to 25 cents for every dollar a worker contributes as part of cuts across the social sector to pay for additional spending on police and defence.
The contribution will be capped at $261 (US$155) a year, while the minimum a worker and employer must contribute to the scheme will rise from 3 percent of earnings to 4 percent, to be actioned in two stages over the next three years.
People earning more than $180,000 a year will receive no government contribution at all, starting in July this year.
Delivering the 2025 New Zealand budget, Finance Minister Nicola Willis announced that a modest surplus of $200 million will now be achieved in 2029.
It's based on a new measure introduced by the government this year, which excludes Accident Compensation Corporation (ACC) liabilities. Using the formula applied to every budget until last year would instead show a deficit of around $3 billion that year.
Treasury forecasts this year's deficit to the end of June will be $10.2 billion using the new calculation method, about $2.7 billion lower than forecasted. It will then peak in the coming year at $12.1 billion, nearly $2 billion more than it predicted in December, with the 2027 forecast nearly double the previous estimate at $8.1 billion.
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Aside from workers' retirement savings, unemployed young people aged 18 and 19 will now have the amount of their Jobseeker benefits determined by their parents' incomes.
Also facing cuts is the Best Start programme, a tax rebate paid during the first three years of a child's life. It's worth up to $2,200 a year, depending on the parents' income, but with every newborn eligible for at least some support. Now it will be fully means-tested, with payment cut off completely when a family earns over $97,000 a year.
Most government departments have received no extra funding this year, meaning they will not only be hit by inflation but will have to absorb the cost of any increases in materials or wages.
A recent
Minister of Finance Nicola Willis is applauded after delivering the budget during Budget Day 2025 at Parliament in Wellington, New Zealand, on May 22, an 'Austerity Budget'
There are exceptions, however: law and order, defence and health all get extra money.
The overall health budget has been raised to $31 billion in the next year, an increase of 4.77 percent.
Police are to get over $500 million over four years to maintain 'front line services,' and $246 million will be invested over the same period in an attempt to clear a backlog in the courts.
Further, with police putting more people in jail—inmate numbers are forecast to rise to almost 11,000 by mid-2026—corrections get an extra $400 million over four years to cope with 'population and other volume pressures.'
The government previously announced
Willis told Parliament it 'reduces government spending as a share of the economy, returns the government's books to balance, and bends the debt curve from going up to going down.'
She accused the previous Labour government of 'living beyond its means, loading up the credit card to pay for things New Zealand couldn't afford.'
She had focused on spending cuts rather than new taxes because they would 'burden New Zealand workers and businesses and scare away talent and investment.'
Having announced a
'This means a much lower tax bill in the year of purchase,' Willis said.
She predicted the scheme would lift New Zealand's capital stock by 1.6 percent, GDP by 1 percent, and wages by 1.5 percent.
It starts immediately and applies to new assets purchased in New Zealand as well as those imported from overseas. It includes commercial buildings but excludes land, residential buildings, and assets already in use in New Zealand.
Separately, the government has also set aside $65 million to encourage foreign investment in New Zealand infrastructure by increasing the amount of tax-deductible debt foreign investors can use to fund it.
Despite the cuts to social spending, Willis preempted criticism of it as an 'austerity budget' in her speech.
'This is not austerity—far from it. In fact, it is what you do to avoid austerity,' she said.
