Budget 2025: Labour signals it would respect current fiscal rules

Saturday, 17 May 2025

The Government and Opposition are set to lock horns over the Budget and the priorities for government spending and savings — and perhaps taxation — next week, while quietly humming broadly similar tunes about their overall room for manoeuvre.

Labour finance spokesperson Barbara Edmonds has confirmed in the run-up to Thursday’s Budget the party supports the existing cap on government debt recommended by the Treasury.

She also affirmed that achieving an operating (Obegal) surplus by the end of the Treasury’s forecast period, which currently terminates in the year ending June 2029, remained the appropriate goal.

That fiscal measure includes the deficit at ACC, which stood at $7.2 billion at the end of June, and which Finance Minister Nicola Willis has excluded from the coalition government’s new ‘headline’ deficit measure, which the Government has dubbed “ObegalX”.

“Clearly, the Government has put in ObegalX, because it returns to surplus a year earlier. But we still use Obegal now, so that would be the measure that I would continue to use for us as we put together our fiscal plan,” Edmonds said.

Debate over how best to address rising government debt looks set to dominate discussion of the Budget, in which there will be minimal headroom for new initiatives that aren’t funded by fresh savings.

Willis has frequently criticised the former Labour Government for being spendthrift in the wake of the Covid pandemic, while Labour has hit back over tax cuts provided by the coalition government that it has labelled unwise.

“Budgets are always about choices,” Edmonds said, referring in part to the curtailment of pay equity claims.

“The very first question that everybody should be asking in a Budget is ‘what has been cut to fund this?’ At the moment, we know there's a few billion dollars that they're saving from cutting women's pay.”

But Edmonds’ statements mean Labour is supporting staying within the same fiscal envelope that the coalition government has as its bottom line, and with a potentially tougher target for bringing the government’s books back into balance, given its approach to accounting for ACC’s deficit.

She labelled its approach “balanced fiscal responsibility”.

Treasury’s advice is that core Crown debt should not exceed more than 50% of GDP in normal economic times, in order to ensure governments could still borrow money and not risk default in the wake of a major crisis, such as a large natural disaster.

Treasury secretary Iain Rennie noted last month that debt was “not too far off” that cap.

The figure was standing at 42.6% of GDP, or $182b, as at the end of March, and the Treasury forecast in December it would peak at 46.5% of GDP in the year ending June 2027, before starting to gradually decline as a proportion of GDP.

Edmonds said Labour had agreed with the 50% cap when last in power and said it would continue to do so “unless Treasury gives us advice otherwise when we come into government”.

“It's based on a number of pieces of advice. We clearly need to make sure we have fiscal headroom for ‘shocks’.”