The previous government spent too much during the Covid-19 pandemic, despite warnings from officials, according to a briefing released by the Treasury.
The Treasury’s 2025 Long Term Insights Briefing said debt had risen in recent decades, partly because responses to adverse shocks were not met by savings between those shocks.
The higher debt meant less capacity to respond to future shocks, like natural hazards, weather-related risks and biosecurity risks.
Treasury estimated the total cost of the pandemic was $66 billion over the 2020-26 financial years and about 20.4% of GDP.
The IMF and OECD estimated it was among the largest Covid-19 responses globally.
The agency releases a briefing every three years, with this one looking at the role of fiscal policy through shocks and business cycles.
The briefing said the Covid-19 response showed the challenges of using fiscal policy to respond to shocks and cycles.
Initially, Treasury recommended “strong fiscal stimulus” at the start of the pandemic, which was cited as “perhaps” causing the economy to be much stronger than expected by the end of 2020.
The wage-subsidy scheme in particular was seen as making an important contribution to the strong initial recovery, limiting the increase in the unemployment rate and enabling economic activity to resume when restrictions relaxed.
Treasury then moved away from recommending broad-based stimulus, preferring more targeted and moderate support.
Its post-election advice to the then-Finance Minister in late 2020 highlighted “the importance of controlling ongoing spending and ensuring it was high value to meet the medium-term fiscal challenge.”
By August 2021, with the Delta lockdowns coming in, Treasury recommended any decisions to provide support to businesses “should take account of macroeconomic trade-offs”. It recommended against any further stimulus from Budget 2022 onwards.
Wage subsidies and similar schemes during lockdowns made up about 35% of the costs of the response.
A further 18% came from health-system costs, like vaccination, contact tracing, and managed isolation and quarantine.
The remaining “nearly half” was made up of a wide range of initiatives that Treasury said had “varied objectives”.
Some were aimed at directly responding to the impacts of Covid-19, others were aimed at providing fiscal stimulus or “achieving social or environmental objectives”.
They included “tax changes, training schemes, housing construction, shovel-ready infrastructure projects, increases to welfare benefits, the Small Business Cashflow Scheme, Jobs for Nature, additional public housing places and school lunches”.
Programmes within the fiscal response that were not tied to the shock were seen as having “a lagged impact on the economy and proved difficult to unwind in later years”.
The report suggested cyclical management was best left to monetary policy, run by an independent central bank.
It also suggested governments set out clearly when fiscal policy will be used ahead of time, including pre-defining responses. Ideally, this would have cross-party agreement.
An independent fiscal institution, which could scrutinise and report on the sustainability of fiscal policy, was also suggested.
The previous government had considered setting up a watchdog to cost election policies, but it could not get cross-party support.
National then changed its tune, with current Finance Minister Nicola Willis supporting such a measure, but New Zealand First and ACT were opposed to the idea.
‘Dangers of excessive spending’ – Willis
Willis jumped on the report’s release, saying Treasury’s language was “spare and polite”, but its conclusions were “damning”.
She said the briefing showed the challenges of using “big spending measures” to respond to one-off shocks.
Willis singled out the briefing’s focus on the money spent on initiatives not directly tied to the Covid-19 response.
“That is a very diplomatic way of saying New Zealanders are still paying the price of the previous government extending a big-spending approach, initially intended for a pandemic response,” she said.
Labour has been approached for comment.
