Achieving either goal with efficacy in Budget 2025 will be near impossible. But Willis will want to make an initial step to change the trajectory of the fiscal.
She believes this hinges on reprioritised spending and growth-orientated regulatory change.
Hence, the quantum of new spending won’t be a focal point of the Budget, as it’s been in the past. Rather, the spotlight will be on where the savings will come from.
What exactly should you look out for in the Budget?
1. How much will a tightening of the pay equity regime save?
The Government has been tight-lipped over the fiscal impact of the pay equity law change it unexpectedly rushed through Parliament a couple of weeks ago.
No regulatory impact statements were prepared by government agencies.
And while the Government has been happy to publicise the amounts it plans to spend on the initiatives it’s announced ahead of the Budget, it has refused to say how much the pay equity change is estimated to limit the pay rises of people who work in female-dominated sectors.
With around 180,000 people affected by the change, the savings to the Government will likely be in the billions.
2. How will KiwiSaver be changed?
The Government is expected to start means-testing the annual contribution, worth up to $521, it gives KiwiSaver members.
Currently members get 50c for every dollar they contribute up to a cap of $1042.
This means the Government could stop making the payment to those who earn more than $180,000 a year, for example.
The question is, will it book savings from means-testing the payment, or pass them on to other KiwiSaver members, like lower-income earners or business owners, who don’t receive “employer” contributions?
However, it’s Willis’ comments around wanting to see KiwiSaver balances grow that’s prompted a bit of a head-scratching.
Will she take the plunge and outline a timeline for upping minimum contribution rates from 3%?
Or will she tweak the scheme to support pockets of people less well served by the scheme?
She could, for example, require employers to match the contributions of members who contribute more than 3%, or require employers to contribute to all employees who are KiwiSaver members, even if they aren’t currently contributing.
3. Will taxes be tweaked to support economic growth?
The Government has talked up the need for businesses to invest more in technology, tools, and machinery to improve productivity.
This has prompted speculation it might lower the tax bills of businesses by enabling them to increase the amounts of depreciation they expense.
If the Government makes the change, the questions will be: How much more depreciation does it allow businesses to write-off? Which assets does the change apply to?
Willis could target the tax relief to certain productivity-enhancing assets or sectors to keep a lid on the cost of a change.
Alternatively, she could unveil smaller, or sector-specific, initiatives to support businesses – much like those announced ahead of the Budget.
4. Will a return to surplus be in sight?
The Government has already unveiled a key piece of information that usually makes Budget Day headlines: the amount of new spending earmarked for the year ahead.
It’s said operational expenditure will increase by $1.3 billion ($1.1b less than planned in December) and its capital expenditure will rise by $4b ($375 million more than planned).
Because the growth outlook has deteriorated, economists believe there will be little change to Treasury’s forecast bond (debt) issuance programme, which was expanded substantially in December to $128b over the four years to June 2029.
Today, eyes will be on whether there is a return to surplus within the four-year forecast period using the traditional “Obegal” measure, rather than the new “Obegalx” measure, which Willis created to exclude the impact of the Accident Compensation Corporation’s big deficit.
There was no surplus in sight in December, when Treasury last published its forecasts.
It saw net core Crown debt continuing to rise as a percentage of gross domestic product (GDP) from 42% in 2024 to nearly 47% in 2027.
The Government had pledged to bring debt down below 40% of GDP. By way of context, it fell below 20% just before the pandemic.
5. How different could things be if Treasury’s forecasts were wrong?
Treasury always details the impacts of different economic scenarios on the Government’s finances.
Its “fiscal sensitivity analysis” will be particularly interesting this year, as there is every chance a new development in the United States or elsewhere will change the economic outlook.
Indeed, the US’ tax and tariff plans have partially contributed to New Zealand Government bond yields being higher than expected.
This will likely see the Government forced to pay more interest on its debt than Treasury foreshadowed in December.
With global dairy prices being high and Official Cash Rate cuts on the cards, Willis will be hoping to catch a break and see the economy perform more strongly than expected.
She might want her election year Budget to include a few more “unicorns and rainbows” than this one.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
