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Otago Daily Times
19-05-2025
- Business
- Otago Daily Times
How does govt spending work?
By Susan Edmunds of RNZ With Budget 2025 set to be delivered on Thursday, you are going to hear a lot about government spending this week. But how does it actually work? Where does the money come from, and where does it go? The government pulls in money in a few different ways. Tax revenue is the big one. The government brings in about $120 billion in tax revenue every year. For the 2025 financial year, that was about $22,613 per person. It gets another $7833 per person from ''other income'' from things such as ACC levies, the emissions trading revenue, and fines. Just under half the tax it collects comes from individuals paying tax on their income. Simplicity chief economist Shamubeel Eaqub said while our total tax bill was roughly ''middle of the pack'' for the OECD, we were a bit unique in that our taxes were heavily paid by workers. We do not have the capital gains or inheritance taxes that some other countries have. Another 22% of tax collected comes from the GST we pay on things we buy, then 13% is from corporate tax, 6% from ''sin taxes'' such as tax on tobacco and alcohol, and 4% is from tax on interest and dividends. The money collected in tax is used to pay for the services the government provides. Social security and welfare is top of the list. Not including NZ Super, that's $6486 per person a year in the latest year. ''People think welfare is just poor people,'' Mr Eaqub said. ''It includes the working poor, things like Working for Families, the accommodation supplement.'' Health is next, at $5804 per person, then NZ Super at $4352 per person a year. Education is in fourth place, at $4197 based on 2025 financial year numbers. The government also spends $1400 per person per year on law and order, $3061 on transport and communications, $3153 on economic and industrial services, $592 on defence and $536 on environmental protection, among other things. Spending can be classified as operational activities (sometimes called opex) and investment activities (sometimes called capex). If you think about the way a household is run, opex might be things such as paying your power bill or doing your grocery shopping. Capex might be buying a house. Mr Eaqub said the government would earn about $30,446 for every New Zealander each year, but would spend $37,480. So it has to cover that $7000 from somewhere, usually through borrowing or selling assets. Half the shortfall borrowing is funding operating deficit - so that's your power bill or supermarket shopping. The other 47% is for money that has been used for infrastructure investments. Provided these were a good investment, this should pay off over time and the borrowing is less of a concern. The net interest payment made by the government - the difference between the interest on assets such as bonds the government sells to investors and the money it borrows - is about $550 per person per year. ''It's not the borrowing per se that's the problem, it's when you're borrowing for groceries. The last few years, we've done that repeatedly,'' Mr Eaqub said. ''It's not that debt is bad. Debt for stupid things is bad. Debt for high-quality infrastructure is good.'' But the government could not increase spending without increasing either borrowing or tax revenue, he said. ''We can't have it all - we've got to choose. The trick in the coming Budget is that there is no money for new purchases. ''All announcements are funded by cutting something else, a shuffling of the deck chairs. ''We can all agree there is a whole heap of waste in a lot of things but rather than doing a once-over lightly on every line of spend, we've got to pick things we are doing to stop. What are you going to stop? What are you going to start? What are you going to keep? "If there's a reduced envelope of taxes we've got to make stopping decisions really carefully but also really precisely.''
Scoop
19-05-2025
- Business
- Scoop
Budget 2025: How Does Government Spending Actually Work?
Article – RNZ There will be a lot of talk about government spending this week, but how does it actually work? Where does the money come from, and where does it go? , Money Correspondent You are going to hear a lot about government spending this week. But how does it actually work? Where does the money come from, and where does it go? First up, where does the government get its money from? The government pulls in money in a few different ways. Tax revenue is the big one. The government brings in about $120 billion in tax revenue every year. For the 2025 financial year, that was about $22,613 per person. It gets another $7833 per person from 'other income' from things like ACC levies, the emissions trading revenue, fines and other things. Just under half of the tax it collects comes from individuals paying tax on their income. Simplicity chief economist Shamubeel Eaqub said while our total tax bill is roughly 'middle of the pack' for the OECD, we are a bit unique in that our taxes are heavily paid by workers. We do not have the capital gains or inheritance taxes that some other countries have. Another 22 percent of tax collected comes from the GST we pay on things we buy, then 13 percent is from corporate tax, 6 percent from 'sin taxes' like tax on tobacco and alcohol, and 4 percent is from tax on interest and dividends. Then the government spends it… The money collected in tax is used to pay for the services the government provides. Social security and welfare is top of the list. Not including NZ Super, that's $6486 per person a year in the latest year. 'People think welfare is just poor people,' Eaqub said. 'It includes the working poor, things like Working for Families, the accommodation supplement.' Health is next, at $5804 per person, then NZ Super at $4352 per person a year. Education is in fourth place, at $4197 based on 2025 financial year numbers. The government also spends $1400 per person per year on law and order, $3061 on transport and communications, $3153 on economic and industrial services, $592 on defence and $536 on environmental protection, among other things. Spending can be classified as operational activities (sometimes called opex) and investment activities (sometimes called capex). If you think about the way a household is run, opex might be things like paying your power bill or doing your grocery shopping. Capex might be buying a house. But what about the shortfall? Eaqub said the government would earn about $30,446 for every New Zealander each year, but would spend $37,480. So it has to cover that $7000 from somewhere, and that's usually through borrowing or selling assets. Half of the shortfall borrowing is funding operating deficit – so that's your power bill or supermarket shopping. The other 47 percent is for money that has been used for infrastructure investments. Provided these were a good investment, this should pay off over time and the borrowing is less of a concern. The net interest payment made by the government – the difference between the interest on assets like bonds that the government sells to investors and the money it borrows – is about $550 per person per year. 'It's not the borrowing per se that's the problem, it's when you're borrowing for groceries… the last few years, we've done that repeatedly,' Eaqub said. 'It's not that debt is bad. Debt for stupid things is bad. Debt for high-quality infrastructure is good.' But he said the government could not increase spending without increasing either borrowing or tax revenue. 'We can't have it all, we've got to choose. The trick in the coming Budget is that there is no money for new purchases. 'All announcements are funded by cutting something else, a shuffling of the deck chairs… we can all agree there is a whole heap of waste in a lot of things but rather than doing a once over lightly on every line of spend, we've got to pick things we are doing to stop. What are you going to stop, what are you going to start, what are you going to keep? If there's a reduced envelope of taxes we've got to make stopping decision really carefully but also really precisely.'
Scoop
19-05-2025
- Business
- Scoop
Budget 2025: How Does Government Spending Actually Work?
You are going to hear a lot about government spending this week. But how does it actually work? Where does the money come from, and where does it go? First up, where does the government get its money from? The government pulls in money in a few different ways. Tax revenue is the big one. The government brings in about $120 billion in tax revenue every year. For the 2025 financial year, that was about $22,613 per person. It gets another $7833 per person from "other income" from things like ACC levies, the emissions trading revenue, fines and other things. Just under half of the tax it collects comes from individuals paying tax on their income. Simplicity chief economist Shamubeel Eaqub said while our total tax bill is roughly "middle of the pack" for the OECD, we are a bit unique in that our taxes are heavily paid by workers. We do not have the capital gains or inheritance taxes that some other countries have. Another 22 percent of tax collected comes from the GST we pay on things we buy, then 13 percent is from corporate tax, 6 percent from "sin taxes" like tax on tobacco and alcohol, and 4 percent is from tax on interest and dividends. Then the government spends it… The money collected in tax is used to pay for the services the government provides. Social security and welfare is top of the list. Not including NZ Super, that's $6486 per person a year in the latest year. "People think welfare is just poor people," Eaqub said. "It includes the working poor, things like Working for Families, the accommodation supplement." Health is next, at $5804 per person, then NZ Super at $4352 per person a year. Education is in fourth place, at $4197 based on 2025 financial year numbers. The government also spends $1400 per person per year on law and order, $3061 on transport and communications, $3153 on economic and industrial services, $592 on defence and $536 on environmental protection, among other things. Spending can be classified as operational activities (sometimes called opex) and investment activities (sometimes called capex). If you think about the way a household is run, opex might be things like paying your power bill or doing your grocery shopping. Capex might be buying a house. But what about the shortfall? Eaqub said the government would earn about $30,446 for every New Zealander each year, but would spend $37,480. So it has to cover that $7000 from somewhere, and that's usually through borrowing or selling assets. Half of the shortfall borrowing is funding operating deficit - so that's your power bill or supermarket shopping. The other 47 percent is for money that has been used for infrastructure investments. Provided these were a good investment, this should pay off over time and the borrowing is less of a concern. The net interest payment made by the government - the difference between the interest on assets like bonds that the government sells to investors and the money it borrows - is about $550 per person per year. "It's not the borrowing per se that's the problem, it's when you're borrowing for groceries… the last few years, we've done that repeatedly," Eaqub said. "It's not that debt is bad. Debt for stupid things is bad. Debt for high-quality infrastructure is good." But he said the government could not increase spending without increasing either borrowing or tax revenue. "We can't have it all, we've got to choose. The trick in the coming Budget is that there is no money for new purchases. "All announcements are funded by cutting something else, a shuffling of the deck chairs… we can all agree there is a whole heap of waste in a lot of things but rather than doing a once over lightly on every line of spend, we've got to pick things we are doing to stop. What are you going to stop, what are you going to start, what are you going to keep? If there's a reduced envelope of taxes we've got to make stopping decision really carefully but also really precisely."
Scoop
08-05-2025
- Business
- Scoop
When Will 33,000 People Who've Lost Their Jobs Get Them Back?
Article – RNZ The unemployment rate may have plateaued but the downturn has left thousands out of work., Money Correspondent New Zealand's unemployment rate may have plateaued but the downturn has left more than 30,000 fewer people in work. Data on Wednesday showed the unemployment rate unchanged at 5.1 percent in the March quarter, or 156,000 people unemployed. Economist Shamubeel Eaqub said the drop in employment had been less sharp than in the last major downturn, in the Global Financial Crisis. From the peak to the trough of the GFC, 59,000 New Zealand jobs were lost. So far this time, that number is 33,000. But the impact has not been felt evenly. People aged between 15 and 29 have been particularly affected. In contrast, there have been significantly more people employed, by number, in the 29 to 35 age bracket, and 65-plus. Those with no qualifications or lower secondary have also lost most of the jobs. The number of people with NCEA qualifications and degrees working has increased from December 2023 until now. Auckland has suffered the most job losses, followed by Gisborne-Hawkes Bay and Wellington. Otago has gained jobs over the same period. Eaqub said the GFC was a deep fall and it took five-and-a-quarter years for the labour market to recover. 'That was quite brutal in that recovery. This time around we seem to be seeing we have found a floor, even though it is a very tentative one.' He said there was still weakness in the detail – the job growth in the March quarter was almost all in part-time workers. The fact that some regions were better off than others, such as Otago benefiting from tourism and Manawatu-Whanganui being boosted by its local industry, showed the New Zealand economy had some helpful diversification, he said. People leaving the country were included in the data. 'The outflow of people hasn't offset the job losses. Employment rates have fallen across every age group. The reason why job losses have taken place for young people is not because they have left, but because they have left and they've lost jobs. Both of those things are true.' He said people without qualifications were always hit the hardest. 'We are seeing older people working a lot more. The employment rate among older people has been increasing substantially over the course of the last 15 years. Older people are hanging on to jobs longer.' Eaqub said the most recent downturn had only lasted a year, although it might feel longer to people because of the impact of the pandemic. 'We had the recession of the pandemic, then a strong recovery then another recession in quick succession. That's why it feels like it's been relentless.' He would feel confident that the worst was over when businesses started advertising jobs again. Job ads are still way down. 'Until that picks up, I don't have confidence that the current perking up of optimism is enough.' Infometrics economist Matthew Allman said he expected it would be later this year or early next before the 33,000 jobs lost were recovered. 'Although, uncertainties around global growth due to the US tariffs pose some downside risks to investment and employment which may delay the recovery of the lost jobs.' He said the 21,000 jobs lost in the year to March could be regained by the second half of this year. Mike Jones, chief economist at BNZ, said the unemployment rate could have further to climb. 'Our forecasts build in a peak of around 5.5 percent. And some of the broader indicators of the labour market – things like departures of NZ citizens offshore and falling labour market participation – perhaps point to labour market conditions a little softer than what headline unemployment rate would suggest. 'We don't expect things to turn around quickly. The labour market is a classic lagging indicator and we're still in a 'slow n' low' growth environment. We've also got to factor in the additional uncertainty from offshore and what that might mean for firms' hiring intentions. But assuming the nascent recovery slowly builds in momentum we'd expect to see firms start to hire again with a little more vigour and the unemployment rate start to fall around the end of the year. A return to outright strong conditions looks a way off though, perhaps a story for late 2026.'
Scoop
08-05-2025
- Business
- Scoop
When Will 33,000 People Who've Lost Their Jobs Get Them Back?
Article – RNZ New Zealand's unemployment rate may have plateaued but the downturn has left more than 30,000 fewer people in work. Data on Wednesday showed the unemployment rate unchanged at 5.1 percent in the March quarter, or 156,000 people unemployed. Economist Shamubeel Eaqub said the drop in employment had been less sharp than in the last major downturn, in the Global Financial Crisis. From the peak to the trough of the GFC, 59,000 New Zealand jobs were lost. So far this time, that number is 33,000. But the impact has not been felt evenly. People aged between 15 and 29 have been particularly affected. In contrast, there have been significantly more people employed, by number, in the 29 to 35 age bracket, and 65-plus. Those with no qualifications or lower secondary have also lost most of the jobs. The number of people with NCEA qualifications and degrees working has increased from December 2023 until now. Auckland has suffered the most job losses, followed by Gisborne-Hawkes Bay and Wellington. Otago has gained jobs over the same period. Eaqub said the GFC was a deep fall and it took five-and-a-quarter years for the labour market to recover. 'That was quite brutal in that recovery. This time around we seem to be seeing we have found a floor, even though it is a very tentative one.' He said there was still weakness in the detail – the job growth in the March quarter was almost all in part-time workers. The fact that some regions were better off than others, such as Otago benefiting from tourism and Manawatu-Whanganui being boosted by its local industry, showed the New Zealand economy had some helpful diversification, he said. People leaving the country were included in the data. 'The outflow of people hasn't offset the job losses. Employment rates have fallen across every age group. The reason why job losses have taken place for young people is not because they have left, but because they have left and they've lost jobs. Both of those things are true.' He said people without qualifications were always hit the hardest. 'We are seeing older people working a lot more. The employment rate among older people has been increasing substantially over the course of the last 15 years. Older people are hanging on to jobs longer.' Eaqub said the most recent downturn had only lasted a year, although it might feel longer to people because of the impact of the pandemic. 'We had the recession of the pandemic, then a strong recovery then another recession in quick succession. That's why it feels like it's been relentless.' He would feel confident that the worst was over when businesses started advertising jobs again. Job ads are still way down. 'Until that picks up, I don't have confidence that the current perking up of optimism is enough.' Infometrics economist Matthew Allman said he expected it would be later this year or early next before the 33,000 jobs lost were recovered. 'Although, uncertainties around global growth due to the US tariffs pose some downside risks to investment and employment which may delay the recovery of the lost jobs.' He said the 21,000 jobs lost in the year to March could be regained by the second half of this year. Mike Jones, chief economist at BNZ, said the unemployment rate could have further to climb. 'Our forecasts build in a peak of around 5.5 percent. And some of the broader indicators of the labour market – things like departures of NZ citizens offshore and falling labour market participation – perhaps point to labour market conditions a little softer than what headline unemployment rate would suggest. 'We don't expect things to turn around quickly. The labour market is a classic lagging indicator and we're still in a 'slow n' low' growth environment. We've also got to factor in the additional uncertainty from offshore and what that might mean for firms' hiring intentions. But assuming the nascent recovery slowly builds in momentum we'd expect to see firms start to hire again with a little more vigour and the unemployment rate start to fall around the end of the year. A return to outright strong conditions looks a way off though, perhaps a story for late 2026.'
