Budget 2025: A Budget painted on a much darker global canvas

Friday, 23 May 2025

Thousands gathered for a Pay Equity protest at Parliament on Budget Day.

OPINION: In our front page annual Budget illustration, Nicola Willis is depicted hanging from a new defence force helicopter, trying to douse the flames of debt and tariffs ‒ but with minimal means to do so.

Donald Trump looms in the background.

It speaks to the roiled, uncertain and contested geostrategic global environment in which New Zealand finds itself, trying to tamp down a national debt which has grown ‒ and will continue to grow for the next couple of years.

And one in which the search for growth is tough.

Finance Minister Nicola Willis speaks to The Post on Budget 2025.

How exactly can the New Zealand Government ‒ a small, isolated, trade-dependent economy ‒ be expected to navigate its way through these troubled waters?

The immediate politics of the Budget have been effectively hijacked by the Government’s own political misjudgment - tying changes in pay equity laws directly to the Budget and ramming it through Parliament.

Fiscally, of course, that decision has delivered. The forecast lower tax take for the coming four years from a slower economy and some tax breaks is forecast to be over $13 billion lower than in December. The amount of cash returned into the Budget from tightening pay equity is $12.8b.

It is politically a big deal and the fight over it will likely run all the way into the election in 2025. The unions are already calling it a reverse Robin Hood Budget. Polls in the next couple of weeks may start to pick up whether this is as big of a deal outside Wellington as it is in Parliament.

But the broader picture of this particular Budget was really about getting New Zealand’s house in order for the more uncertain, lower growth world in the coming years and decades.

It is a Budget that does reflect the three parties that make up the Coalition. Defence spending, front-loaded with the purchase of navy helicopters in particular, had NZ First all over it. Pay equity was of course ACT’s thing.

More spending on defence is long overdue. Currently New Zealand spends about 1% of gross domestic product on defence. There is now a credible pathway to 2% with money allocated to it in the short run to start to achieve that decade-long goal.

Nicola Willis has had to try to deliver a Budget against a global outlook that is dark, grim and much more unpredictable.

This will be important to demonstrate intent both to ally Australia and to the United States, which still provides an implied security umbrella in the region.

The Budget also takes place in an environment in which the Treasury warns that New Zealand should prepare for some sort of shock equivalent to 10% of GDP each decade ‒ be it earthquake, climate-related weather event or global shock. That means having debt at manageable levels so that New Zealand can borrow quickly and cheaply should an earthquake, flood or pandemic call for it.

Finance Minister Nicola Willis delivers her speech to the media and analysts, along with ministers Chris Bishop, David Seymour, and Shane Jones.

And while the Budget continues the economic track laid out six months ago in the half-year fiscal update, it relies on upside growth, and for growth to return to around 3% in coming years.

To that end, it was branded a growth Budget. There is a new tax break for investment, worth about $1.7 billion a year, as well as some $200m set aside for the Government to be an early co-investor into new projects. More money into KiwiSaver, which should flow through to funds management and ultimately investment in New Zealand companies ‒ but only several years hence.

Then the more general theory is getting Government out of the way to try to get business humming. Not too much out of the way mind you ‒ but paring back Government cash in the economy to make some greater space for economic activity.

So while there are a bunch of little things that could add up over time, it was not a decisive growth Budget with a big pump-priming government spending programme, or significant supply side tax cutting or deregulating economic agenda to really get growth going. The commitment to growth is there, but the preparedness to take any bold moves to really get it going was not.

It was modest and will, it claims, slowly weave a way to surplus. But the question is whether the fiscal consolidation is fast enough to get New Zealand on a lower debt trajectory in reality ‒ as opposed to a forecast turnaround ‒ in time to withstand the next shock.

It is worth remembering that in spite of the Trump tariffs being peeled back over the past few weeks, they could rise again. And even if they don’t, they are higher than they have been in over a century and will mean slower growth. They will also mean global trade and supply chains realign to adjust to minimise risk in the US.

Only months ago, China’s military conducted war games in international waters in the Tasman Sea. And the Trump White House still appears more prepared to accept Vladimir Putin’s explanation for his Ukrainian invasion than the rest of its traditional allies. The rest of the world will have to pony up more on defence, while China gets more assertive in expansionist ambitions in the Indo-Pacific region. Trade flows are more, not less, likely to be disrupted over the coming decade.

That is the broader, and darker canvas that this Budget was painted on.