Fiscal mining: The coalition’s multibillion-dollar trap for Labour

Sunday, 24 May 2026

Dr Vernon Small is a former Press Gallery journalist and former Labour Government adviser

OPINION: Who knew that “drill, baby drill” isn’t just a pro-mining slogan, it’s a Budget tool too?

With less than a week to run to B-day, it’s becoming clear just how much fiscal mining the Government has done to rebalance the books and cling to a forecast return to surplus before the end of the decade.

One clear motivation for that was the move by two credit rating agencies to put New Zealand government debt on negative outlook, citing the repeated delays in achieving a surplus. Another, more background one, is the political leaning of the majority of the coalition’s parties, which prefer to limit or even shrink the size of Government.

But there is also an electoral dimension – either by design or as a welcome spinoff – from digging a chasm of cost cutting. And especially from mining in areas that have historically delivered rich seams of voters to the Opposition parties – students, the less well off, women, and Wellington.

Whether those “savings” are used for reprioritisation to other areas of spending (as has mostly been the case so far this term) or to lower overall spending, they make it extremely difficult for Labour and other opposition parties to appear prudent while both reversing the cuts and proposing new initiatives.

As a political ploy it is straight out of the Government’s pay equity songsheet from the 2025 budget – a surprise move that “freed up” more than $12 billion but has since been used by National to try and skewer Labour on its promise to reverse the changes.

(Labour was planning a mirror-image tactic in 2023 with a tax switch that was to be part of the wealth tax that wasn’t. The plan that was hatched, before it was dispatched by leader Chris Hipkins, was to cut taxes for everyone before the election, and promise to fund them through a wealth tax on the richest few to be implemented after the election. That would have put National in a bind if it won in 2023; would it reverse the tax cut on everyone or keep the wealth tax that they opposed.)

In the lead-up to Thursday’s Budget, the Government has so far sliced $300 million off this year’s operating allowance (the pool of cash available for new spending) and may potentially make further cuts in subsequent years.

It has cut $350 million a year from spending by scrapping the fees free scheme for students in their third year of study. (Labour has been lukewarm in its condemnation so it may not be in its future spending plans.)

And this week Ministers “saved” around $200 million a year by cutting the maximum Temporary Additional Support rate as part of a revamp of social housing assistance and the accommodation supplement.

It’s a package that in a cost-of-living crisis, made worse by the Iran conflict, opts to take $30 a week extra rent from 84,000 financially struggling households to give around $15 a week to more than 100,000 on the accommodation supplement who may be struggling more.

All in the interests of improving equity and in lieu of the alternative; finding more money elsewhere, or from people who can better afford it, to pay for an increase in the supplement.

Taking from the poor to give to the poor puts a whole new twist on the Robin Hood legend, but it is also just another cost Labour, and its allies, will either have to wear or reverse.

Meanwhile, to add to the Opposition’s alternative-budget challenges, the Government has added $2.2 billion to the capital spending allowance (and presumably further lifted the government’s debt track).

The big one, of course, is the major revamp that would see 8700 public service jobs go over three years as departmental baselines are chipped away.

The plan is to hew 2% off departments’ baseline budgets this year and 5% in each of the next two years, with some departments to be exempt from the funding cuts, though not from job cuts.

According to Treasury – which has accepted the plan meets the threshold for inclusion in its forecasts - that would deliver “savings” of $2.4 billion. The Government says that would be redeployed (so perhaps used to offset necessary spending growth, rather than add to spending) in areas such as health, education and defence.

That is a fair swag of cash for the Opposition to find if it credibly wants to oppose the cuts, before it even thinks of the political cost-benefit ratio of arguing for more public servants.

The 2%, 5%, 5% phasing means that while the average is around $600 million a year, the bulk of the impact will be felt after the election in 2027 and 2028.

In that regard NZ First and its leader Winston Peters – which at times acts like a policy Strait of Hormuz for this government - has tossed the Opposition a contingent lifeline.

Not only has Peters’ Ministry of Foreign Affairs been exempt from the cuts this year, but he has thrown shade on Finance Minister Nicola Willis’ $2.4 billion target (and by implication the surplus track) by suggesting in defiance of her plan that the November 7 election could see Mfat further exempted – so arguably other agencies too.

Presumably that could be either through a change of government (which Peters does not apparently favour) or through negotiations to form a new government.

But for now, that that doesn’t change the fundamental conundrum the Government is forcing on Labour.

If you don’t agree with the cuts, will you reverse them? All of them? And how will you pay for that?