A beginners’ guide to the Budget

Monday, 19 May 2025

Senior Treasury analyst Christopher Brunt sits down with political editor Luke Malpass and explains the Budget

With Budget 2025 fast coming up on us, readers could be forgiven for thinking they are walking into a world where the the usual language of politics is suspended and replaced by a jargon-rich environment with weird acronyms and different definitions of what the Government spends.

Thinking a bit of expert assistance would be useful, The Post got in touch with the Treasury, and subsequently sat down with senior analyst Christopher Brunt to try to make sense of it all.

Prime Minister Christopher Luxon goes in for a hug after his Finance Minister, Nicola Willis, delivered her first Budget in May 2024. Expect more celebratory displays on Parliament’s Government benches during this year’s Budget on Thursday - but read on to learn how to get a better sense of what Budget 2025 really means.

It is Brunt’s third Budget with the Treasury and he is a member of a 20-strong Budget team at No.1 The Terrace.

The contents of the Budget, which can sometimes be market sensitive, are of course confidential, and announced by the Government. The Treasury agreed to help us understand the key parts of the document produced each year and what they mean - not anything in this particular Budget..

Treasury senior analyst Christopher Brunt helps break down the key features of the Budget into simple to understand terms.

The Treasury is the Government’s financial and economic adviser. “So our role is to support the Minister of Finance,” Brunt says. “That spans a whole 12-month period, effectively. So we're already doing a bit of thinking about Budget 26 for example. So the process begins effectively, yeah, it runs the full 12 months.”

The numbers

Some overall numbers would be useful to start off with, before we get into the more detailed stuff.

In the last Treasury update in December, the Government was this year forecast to incur over $186 billion in total government expenses, while bringing in over $169 billion in Government revenue. The operating balance before gains and losses is forcecast to be a bit over $10 billion in deficit. New Zealand is forecast to have $192 billion in net core Crown debt, which is equivalent to 43% of the economy.

These figures will all be updated on Thursday, influenced by the economic outlook, the tax take, and Government decisions.

First of all, what exactly is the Budget

The Budget is akin to the budget of any school, club, business or household: an estimate of what the organisation plans to spend in the coming year on various activities, how much debt it holds, against how many assets.

The New Zealand Government Budget is funded by taxes, which, in the end, people have no choice but to pay. So it is an important document that must be voted on by the Parliament. In New Zealand’s tightly whipped political system, once a Government is formed it is assumed that the Budget will have enough votes to pass.

“The easiest way to think about the Budget is it's the presentation from the Government to Parliament and to the public of the Government's spending plans for the next year,” Brunt says. “So the Budget actually encompasses all of the spending that the Government does, including the stuff that kind of just rolls on naturally, year on year.

The 2024 Budget lock-up - when journalists, analysts, economists and others are literally locked in a room to get an advance heads-up on the Budget’s contents - gets under way. Post political journalists Andrea Vance and Luke Malpass are in the foreground, digging through the mountain of documents making up the Budget.

“One of the core principles that sits behind our kind of constitutional system is it's actually Parliament, not ministers, that get to approve what money the Government spends.

“And so Budget Day is the day where the Minister of Finance stands up before her parliamentary colleagues and says: ‘this is what I want to spend money on in the next year’, and seeks their approval for her to do that.”

How is the Budget presented?

For all those sitting down in the lock-up this Thursday - a tightly controlled, confidential briefing ahead of the actual Budget reading, for the likes of the media, economic and financial analysts, certain NGOs and the like, who are central to communicating its themes and messages - there will be a thick stack of Budget papers.

Brunt says that these can be broadly categorised into three buckets.

The first contains Budget Estimates - a line by line summary of what the Government is going to be spending; the Fiscal Strategy Report, which sets out how the Government is going to manage its books; and the Child Poverty Report which sets out how the Government is tracking against its child poverty targets. All three of these documents are required by law.

Bucket two is where the minister supplements that stuff “with some documents of her own that aren't required by law”, Brunt says.

That is a polite way of saying it is the more political, presentational Budget stuff such as press releases and explainer-type documents, where the Government tries to highlight certain bits of the Budget such as tax cuts or big investments.

Last year, Brunt points out, there was an A5-sized “Budget at a Glance” document which set out the main bits.

“So if you don't know what's in the Budget… that's always good place to start,” he says.

There is also a bigger document called “Summary of Initiatives” which is a line by line summary of what is new in the Budget for this year.

Which brings us to the third bucket.

Bucket number three, Brunt explains is a Treasury document. “So it doesn't belong to the minister, it belongs to the Treasury. And that's called the Treasury's Budget Economic and Fiscal Update.”

The BEFU, as it is known, “takes all the economic circumstances plus the Government's Budget decisions and all the decisions it's taken up until now, and it says this is what the impact on the economy and on the Government's books will be over the next few years”, Brunt says.

The BEFU is also where journalists and those in the Budget lock-up first turn to see what the economic and fiscal outlook is. It is replete with charts and commentary and forecasts - as well as commentary about risks to those forecasts; for example the economy turning down, or the Government spending more than it said, or inflationary pressures - anything really.

It also has a key set of tables right at the back of the book which have historical data and forecasts of key spending, revenue debt and tax measures. And it forecasts where all those measures, on current settings, will be in each of the next four years.

So that is the what and the how. Now for the key terms and concepts that need to be understood, or at least may be useful to know.

OBEGAL

OBEGAL stands for the operating balance before gains and losses.

“Let's think about like a coin. So on one side of the coin, you've got the income, the revenue that the government brings in. What's the most obvious place the government gets its revenue? From taxes,” Brunt says.

Budgets are a time for various political rituals, including the obligatory photo opportunity of the Finance Minister collecting a copy of the document as it comes off the printer. Nicola Willis, pictured with ministerial colleague Chris Bishop, went for a minimalist design for her debut document.

“On the other side of the coin is certain types of government expenditure… [what] it spends on doing stuff. So if it pays a doctor's salary or a nurse's wage, or the salary of a police officer, that's money that it's spending on doing stuff, that's included in OBEGAL.

“What's not included is the money that it spends on building stuff.”

Like any other budget, the OBEGAL can be in either surplus or deficit in any given year: in deficit if the Government spends more than it brings in in taxes (and other revenue), and in surplus if incomings are greater than outgoings.

Another crucual thing to remember about the OBEGAL, Brunt points out, is that it is a “whole of government measure”.

“So that means that it encompasses the things that we traditionally think about when we think about government spending, things like the salaries of people who work in Wellington, schools, hospitals, those sorts of things.

“But it also includes the revenue and the expenses of Crown companies, for example, state-owned enterprises, things like KiwiRail, even places where the Crown only owns 51% - things like Air New Zealand.”

The other term you will hear is OBEGALx. In December last year the Minister of Finance introduced this new measure - it is OBEGAL with ACC stripped out of it. The argument was that ACC has little material impact on the real state of government finances. This has been a point of debate.

So that’s OBEGAL. It is an accrual accounting method that also takes into account things such as depreciation, but excludes things such as big but transitory market movements that might affect Crown companies, for instance.

Core Crown Residual Cash

The finance minister gave a pre-Budget speech on Tuesday morning, where she outlined what’s in it.

Core Crown Residual Cash is another measure worth keeping an eye on, though not a favoured headline measure in traditional Budgets.

It is the difference between all the cash the government collects (such as taxes) and all the cash it spends.

“In other words, it shows the cash left over each year after the government pays for its operating activities (like nurse and teacher salaries), and capital investments (like big infrastructure projects),” the Treasury says.

If it’s positive, all else being equal the government is probably paying down debt over time. If it’s negative, it is likely having to borrow to pay for things.

The years 2017 and 2018 were the last time there was a residual cash surplus. This year’s is currently expected to be $16b in deficit. By the end of the four-year forecast period that is expected to be about $5b.

The operating allowance

The operating allowance is one of the most regularly reported bits of the Budget. It is really just the technical way of describing the extra new spending the Government decides to allow each year.

“If we think about it in terms of household income again… your daily, your yearly expenses, 95% of them are unchanged year on year, right?” Brunt explains.

“So you pay your mortgage every year, you pay your rates every year, you pay your power and your broadband every year, that just rolls on annually, so that's 95%. Then there's the 5% that say changes year on year. So maybe one year you go on a fancy holiday, the next year you buy a new car, so on and so forth.

“So the allowance is about the 5% that changes,” Brunt says.

Another Budget tradition - after introducing her plans to Parliament and the debate getting underway there, the Finance Minister fronts a business-focused audience the next day to give a further speech on her plans for the economy.

Brunt said that when Nicola Willis reduced the number of this year’s operating allowance a few weeks ago to $1.3b the upshot was that, “she will be spending, all else being equal, $1.3b more per annum than what she was spending last year. So she's effectively adding $1.3b to the pot.”

Total Crown vs Core Crown revenue and expenses

In the chart of key fiscal indicators there are total Crown expenses and revenue and core Crown expenses and revenue.

The difference is basically what is included in these two different measures. Core Crown includes the main government ministries and departments - health, education, social development, defence - basically spending that is directly responsible to ministers. Total Crown spending includes everything else, including other places the Crown gets revenue or spends money, such as bodies governed by boards responsible for their own financial performance - various Government agencies and entities.

Debt

The preferred debt measure of the government - and the one that has been most consistently used over time - is called “net core Crown debt”. It is the total amount of debt the government holds - gross debt - less any liquid assets the Crown could use to pay the debt down if needed.

Brunt once again uses an analogy of household finances.

“Let's say, then, that you your mortgage is $500,000 but you've got $100,000 sitting in a bank account that is liquid money. You could, tomorrow, pick up that $100,000 and you could use it to pay off, pay down your mortgage to $400,000. That means your net debt is $400,000 not $500,000 … effectively, if you can move it from pot A to pot B and use it to pay down your debt immediately, then we net it off in our net debt measure.”

As above, because it is net core Crown debt, it doesn’t include debt for things such as NZTA and Crown companies because they have separate boards that govern those organisations and are accountable for their own debt.

And finally, why do surpluses matter?

All major parties basically accept that it desirable to run Budget surpluses where possible. The politics come into play because they all have different recipes for that - raising taxes, or cutting costs, or making different choices about timing - when and how much money to borrow if times are tough, or if they think New Zealand really needs something.

But why does this matter? Well, says the Treasury’s Brunt, because like your household finances, even the Government cannot run at a loss for too long with interest rates getting more expensive.

Brunt likens it to a household that puts away money when times are good but maybe needs to get a loan or borrow money when times are tougher. He says that we intuitively all know that the latter cannot go on for too long.

“The same kind of thing operates in government finances, because ultimately, you know, if you if you kept on borrowing money… then eventually the person who was lending to you… would say, actually, I don't think it's credible that you're going to pay me back or you're not going to pay me back as fast, and so I'm going to charge you a bit more, because this is suddenly getting a bit riskier for me.

“Obviously, government has a lot more levers to borrow money than an individual household does. But the same principle applies, that if you borrow it for too long and your borrowing is too high, then at some point, international lenders will say, actually, I think we need to charge you a bit more, because this is getting a bit riskier.”