Budget 2025: No more ‘confetti’ as economists look for ‘consolidation’

Thursday, 22 May 2025

The “confetti” Budgets of recent years have ended and economists will be looking for “consolidation” today as the Government opens its books.

The 2025 Budget will be revealed by Finance Minister Nicola Willis at Parliament this afternoon, and economists are drawing some parallels with the years after the Global Financial Crisis (GFC), nearly two decades ago.

A tight Budget has been promised and is expected. What will make this Budget different from those of recent memory, economists say, is how it lays out a path to surplus unseen in recent years ‒ because it requires contraction.

And to achieve this the Budget needs to answer a lingering question: what has been re-prioritised or cut to balance the books.

“Budgets for the past six years have been of the confetti variety,” said Cameron Bagrie, an independent economist.

“They were throwing money around like confetti, and we’ve ended up with a lot more debt, and ended up with a pretty big operating deficit. Fiscal policy is moving into a different stage where there needs to be a lot of consolidation.”

Bagrie said some were calling this “austerity”. The term has been rejected by the Government, and some commentators, as overall spending is continuing to track upwards.

“We are not running an austerity agenda, this is a Government that is investing for growth, jobs, and wages,” said Prime Minister Christopher Luxon in the House on Wednesday afternoon.

Nonetheless, Bagrie said the Budget would be “austere”.

“If you look at what's called the fiscal stance, which is how much money the Government's sort of pumping into the economy. It's very heavily contractionary for the next four years.

“Treasury says you need about $2.5 billion of new initiatives spend every year just to keep the Government wheels standing still. Well this Budget is a $1.3 billion one … it’s a long way away from $2.5b.”

This compared to the “very tight” Budgets after the GFC and the trade-offs required after the Christchurch earthquake, he said.

“It's a Peter versus Paul budget. We're going to be taking money from Peter to pay Paul. No one wants to be Peter, but we're going to find out within the document who the Peters are.”

Infometrics chief executive Brad Olsen said the Government was in an “uneasy” position.

“The global economic picture looks a whole lot more challenging. Economic growth has been restrained, but there's still obvious inflationary pressures that are already built in to the Government's fiscal track at the same time.

“At the same time, of course, the Government wants to be trying to stimulate a bunch more growth, but they haven't got as much fiscal capacity to do that, and, in fact, they're still likely to be in a structural deficit … until potentially the end of the decade.”

He said the moment partly resembled the aftermath of the GFC, “in terms of, ‘Geez, we've racked up debt, and we need to try and get it under control’”.

“It's not the best comparison, because I think the difference there was that you were seeing slowly but surely improving economic figures and numbers, whereas at the moment, things are a whole lot more challenging.”

As well as looking for where money was being saved, he would be looking at the capital spending allowance, given “the very large level of capital spending that the Government wants to do”.

“There's a lot more roads that need to be paid for, a lot of schools and hospitals that need to be built, and there's $12 billion worth of defence spending that needs to happen … all of that requires some money.”

Westpac bank senior economist Darren Gibbs said he was hoping this Budget would be different from the past two or three fiscal updates, or Treasury’s assessments of the economic future, which had “negative surprises”.

“We knew things were worse, but when we saw the figures, they were worse again,” he said.

“If you look at the kind of expectations for tomorrow … everyone's expecting things to be a little bit worse, but there's no one out there expecting things to be a lot worse.”

He said Willis had spoken of “bending the curve on the debt”, and the financial markets would “take comfort” in any signs the 'never-ending deterioration in the fiscal position is now over“.

The real test for this Government’s planned fiscal track, he said, would be the 2026 Budget ‒ which will come during an election year.