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Budget 2025: Is this short-term pain necessary to grow the economy?

Promising fiscal responsibility and future-focused investment, Budget 2025 pares back short-term spending while laying foundations for growth at the cost of immediate public service boosts, writes economics professor Michael P. Cameron. Finance Minister Nicola Willis delivered a pragmatic budget yesterday, balancing fiscal discipline and the promise of economic growth. Willis pitched it as a 'responsible Budget' and a necessary response to a challenging economic and fiscal environment. In her budget statement in Parliament, Willis declared the budget 'controls growth in government spending'. To that end, the operating allowance has been slashed from NZ$2.4 billion to $1.3 billion, the tightest in a decade. In Willis' words, this decrease represents a 'deliberate medium-term approach to fiscal consolidation'. The forecast outcome is that the government will return to a small surplus by 2029, with net core crown debt peaking at 46% of GDP in 2028. In spite of the budget's austere tone, the Government has made targeted investments in key areas: $6.8 billion in new capital investment, $1 billion for defence, and substantial tax incentives for businesses to invest in productive assets. However, new funding for health and education is more limited, and may barely keep pace with increasing cost pressures in those sectors. The challenge with this budget is that the new spending mainly has a long-term focus, but there are shorter-term issues that have received less attention. The hope may be that any short-term pain is necessary to ultimately grow the economy, and grow wages. Boost for health: A funding increase of $5.5 billion for hospital and specialist services, primary care, and community and public health Modernising hospitals: Over $1 billion for health infrastructure, including redeveloping Nelson Hospital and the Wellington Emergency Department, and upgrading Auckland hospitals Up to 54 new medicines: $604 million over four years for Pharmac, including 26 cancer treatments Supporting after-hours care: $164 million over four years towards after-hours healthcare Access to help: $28 million over four years to address how emergency services respond to 111 calls from people experiencing mental distress Keeping drugs out: $35 million for Customs to prevent drugs and organised crime from entering the country Supporting front line staff: Support for front line policing, with $480 million of additional funding Speeding up justice: $246 million to reduce court delays and improve access to justice for victims across courts, tribunals and the legal aid system Targeting youth offenders: $33 million over four years for future boot camps, along with a further $33 million for safety and quality upgrades to the country's youth justice residences Supporting Corrections: $393 million over four years for corrections to manage growing prison population More for security: $12 billion over four years in planned commitments for Defence, with $9b in new funding – including $2 billion for five new helicopters Boost for overseas engagement: $368 million to deliver overseas development assistance, focused on the Pacific Keeping kids in school: $140 million over four years to improve student attendance Boosting maths: $100 million over four years to address student underachievement in maths Free registration: $53 million to fund teacher registrations to 2028 Extra classrooms: Over $700 million for new schools, school expansions and additional classrooms More for private schools: $15.7 million boost for private school subsidies over four years Early intervention: $380 million for additional learning support and early intervention programmes for students Addressing the past: $774 million for redress for those abused in state care Assessing future risk: $275 million over four years for social investment Preventing need: $25 million to help prevent children and vulnerable adults from entering state care Supporting communities: Māori Wardens and the Māori Women's Welfare League will receive a $13.2 million boost Emergency housing cuts: $1 billion funding cut over five years following forecast changes in emergency housing costs Reforming the rules: $23 million over four years to reform the Resource Management Act Ongoing investment: $367 million over four years for the International Development Cooperation programme Tax incentives for business: Businesses will be able to deduct 20% of a new asset's value from that year's taxable income, on top of normal depreciation Removing tax roadblocks: $75 million to encourage foreign investment in infrastructure Cuts to KiwiSaver: Government will halve its KiwiSaver contributions, dropping from $521 to $260.72 Subsidies for film: $577 million injection to support television and film production over four years Rebuilding the network: $461 million to maintain and renew the rail freight network Boosting metro rail: $143.6 million to replace and upgrade Auckland and Wellington metropolitan rail networks Recovery support for the East Coast: An additional $219 million over three years to complete recovery works on local roads damaged by Cyclone Gabrielle in 2023 Investing in investing: $100 million for a venture capital fund Michael P. Cameron is a professor of economics at the University of Waikato. This article is republished from The Conversation under a Creative Commons licence.