Five key insights into Budget 2025

Tuesday, 29 April 2025

Next month’s Budget just got even tighter. Finance Minister Nicola Willis has cut about $1 billion from the operating allowance - a dramatic change made in the final moments of crafting her second Budget.

Delivering her pre-Budget speech a few weeks out from Budget Day, on May 22, Willis revealed the Government would spend significantly less than was expected and had identified “billions” worth of savings from existing public sector programmes.

While Willis has continually repeated mantras of “responsible fiscal management” and restrained spending, her speech on Tuesday morning included surprising news about how cutback this year’s Budget would be. In it, she claimed ministers had identified “billions of dollars” as part of a savings drive, and revealed her operating allowance had been slashed.

Just a few months ago, during the Treasury’s Half Year Economic and Fiscal Update (HYEFU) in mid-December, Willis said Budget 2025 would include an operating allowance of $2.4b.

But on Tuesday, Willis said that operating allowance - which is the amount of new spending Willis can allocate - had been revised down to just $1.3b.

That is a major change, given that same HYEFU update showed the Government had already pre-committed to spending $1.595b in Budget 2025.

That means Budget 2025 must include significant reductions to government spending, scaling back programmes that have already been committed to.

This new fiscal course was set during a speech to the Hutt Chamber of Commerce, where Willis spoke to business figures in a metalworks factory.

Here are the key points of her speech:

1. Willis remains focused on reaching surplus in 2029

A main focus of Tuesday’s speech was debt.

“The interest bill on Government debt has soared from $3.6b in 2014 to $8.9b last year. That’s an awful lot of money,” Willis told the crowd at Metco’s factory.

She noted the annual interest payments New Zealand was making, issuing about $500 million of Treasury bonds each week, amounted to more than was spent on law and order and defence combined.

She said the Government’s debt level was the highest it had been since the 1990s, reaching more than 40% of the nation’s Gross Domestic Product (GDP). The Government had set a target of reaching surplus in 2029, so she stressed the importance of getting on top of those interest payments.

But as Tuesday’s speech revealed, the Government was expecting to receive less money as the result of global economic challenges.

“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,” Willis said.

2. The Government will cut ‘billions’ from existing programmes

The coalition’s first Budget, delivered last year, was memorable for its focus on finding “efficiencies”, “re-prioritisations”, and “savings”.

Government departments were tasked with finding savings of about 7%. Willis said she hadn’t set a savings target again this year, but the “savings drive” had continued.

“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,” she said.

That meant upwards of $2b had been found by cutting spending on existing programmes.

3. There will be no new taxes - including on charities

In the past, Willis had talked about introducing a tax on charities. The charitable sector was worth about $80b, including some significant businesses such as Sanitarium, which is tax exempt.

But Willis told the business chamber that it was not the right time to introduce any new taxes, saying it would “strangle growth and threaten the economic stability New Zealand needs”.

Later, speaking to reporters, she said that included a charities tax. She said the Government would continue work to introduce a tax for charities, but advice she’d received indicated it was complex and would generate only around $50m per year.

4. Expect ‘modest’ cost of living and business support

Willis said the budgets for most public sector departments would be frozen in Budget 2025. But there would be some exceptions, which she listed: “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,” she said.

What would that cost of living and business support be?

Asked what the support for economic growth would be, and if it would be a change to the corporate tax rate, she replied: “We’ll outline that at the Budget, there will some modest measures.”

“This is not a lolly scramble budget. They will be modest initiatives, but we’re putting the money where it’s needed,” she told Stuff.

5. There will be almost no new spending

Any new initiatives will be incredibly limited, because, crucially, the Government has almost no new money to spend in this Budget.

Willis confirmed during Tuesday’s speech that $1.1b had been cut from the expected operating allowance for Budget 2025. That new allowance, $1.3b, would be less than what Treasury said had already been allocated for spending.

The Government has made a series of “pre-commitments” for Budget 2025.

That included $604m for cancer medications which weren’t funded in Budget 2024, promises to teachers, and the expected rise in healthcare spending with an ageing population.