Finance Minister Nicola Willis will unveil her high-stakes 2025 Budget today amid fever-pitch speculation over spending cuts as the coalition navigates the tightest operating allowance in a decade.
The Government will only have $1.3 billion to play with in terms of new operational funding, which includes accounting for inflation and other cost increases.
How tight is the Budget? The cuts are coming
In a constrained fiscal environment, Willis has been prepping the public for more “reprioritisations” – coalition-speak for cutting existing initiatives to fund other priorities.
The Finance Minister has been blunt about the approach, saying the Government has freed up “billions of dollars” through cuts to previously committed spending that “can no longer be justified in light of challenging circumstances”.
“This reprioritisation exercise has required careful consideration and some tough, but necessary, choices,” she said. “This has involved a line-by-line review of previous funding commitments, including money put aside in contingency.”
Follow live coverage of the Budget on 1News.co.nz and TVNZ1’s Q+A Special from 2pm.
Most of these cuts, Willis has indicated, will come from programmes begun under the previous Labour government, though some longer-standing initiatives are also on the chopping block. There would also likely be more public service job losses down the line.
The Government has already revealed it will save more than $1 billion over the next four years after it reduced the number of people living in emergency housing faster than expected. This represents just one of the budgetary “reprioritisations” expected.
KiwiSaver changes
One of the most widely speculated-about cuts involves changes to KiwiSaver, which currently costs the Government about $1 billion annually.
At present, residents aged 18 and over can receive up to $521 a year in government contributions to their KiwiSaver if they contribute at least $1040 per year themselves.
Willis has repeatedly declined to rule out means-testing this benefit when questioned, saying only that people would need to “wait and see” what savings the Budget delivers.
If changed, means-testing could see the government benefit removed entirely or reduced for higher-income earners, potentially using a $180,000 threshold.
Alongside speculated changes to the subsidy, Willis has previously signalled her desire to increase KiwiSaver contribution rates from the current 3% minimum for employers.
In a recent speech, she emphasised wanting “to see KiwiSaver balances continue to grow” and said “our Budget will contain steps to support that mission”.
‘Modest’ business growth measures
Willis had signalled she would provide “modest measures to support business growth” in the Budget. These measures are likely to involve accelerated depreciation on certain “productivity-boosting” assets, BusinessDesk reports.
In translation, this speculated change could effectively lower a business’s taxable income in the short term by increasing the amount they can claim as depreciation expenses.
Though the Finance Minister was at pains to temper expectations about a large scheme, when asked on Monday, saying some speculation out there had been wrong.
PM Christopher Luxon said this week changing capital depreciation rules was “not an unattractive idea” given the need for businesses to invest more in technology and equipment.
The Government has already announced a $75 million tax break for foreign investors and tech workers, including changes to thin capitalisation rules and employee share schemes.
‘Targeted’ cost of living relief amid focus on essentials
Willis has also promised “some carefully targeted cost-of-living relief” in the Budget, though details remain scarce as to what this may be.
The Finance Minister has drawn a clear line, saying there will be “no lolly scramble” given current economic constraints.
New spending would be “strictly limited to the most important priorities,” with focus on “health, education, law and order, defence, and a small number of critical social investments”. Some of these have already been announced.
Among pre-Budget announcements were a $140 million package to improve student attendance, $100 million for maths education, and $275 million for social investment.
Means-testing on the table
Beyond KiwiSaver, Willis has not ruled out means-testing for other programmes, particularly the Best Start payment for new parents, which was introduced by Jacinda Ardern in 2017.
The programme gives families a $73 weekly payment for children under one.
While she has confirmed there will be no changes to the Winter Energy Payment, which costs $555 million annually, other government transfers remain vulnerable.
In December, Treasury Secretary Iain Rennie suggested better targeting payments that go to everyone, including those who don’t need support, as a way to improve the books.
He gave the examples of free off-peak public transport for over-65s and the Government covering some tertiary students’ fees as examples where better targeting may be possible.
A ‘learning support Budget’ teased
Education Minister Erica Stanford has teased that today’s announcement will be a “learning support Budget”, signalling investment in the system that supports students with disabilities and learning needs.
The Budget boost is expected to come partly from discontinuing the $118 million Kāhui Ako programme, RNZ reports.
Last year, Stanford told 1News she’d heard from the sector that the existing model was not “delivering the right service, to the right child, at the right time”.
A work programme had been delivered to Cabinet to improve learning support “so the education system could meet the needs of learners and their families”.
Anything else on the cards?
Other potential Budget changes speculated about in the media include adjustments to the foreign buyer ban, cuts to RNZ’s annual funding, and cuts to other initiatives.
The full extent of Nicola Willis’ “tough but necessary choices” and new initiatives will become clear when Willis delivers her Budget at 2pm today.
