The Budget represents classic "robbing Peter to pay Paul" economics, writes Nick Stewart.
Nick Stewart is a financial adviser and CEO at Stewart Group.
King Canute would be chuckling from his medieval grave.
Just as the legendary monarch couldn’t command the tides to recede, Finance Minister Nicola Willis can’t levitate New Zealand toward genuine growth without serious structural change.
With time ticking away as two of three budgets during this coalition Government’s term have been announced - those looking for real change will be left waiting another year, those wanting incremental change will be happy, and those after a lolly scramble will have to head down to the local corner store for their own mixed bag.
The growth mirage
Budget 2025 bills itself as a “Growth Budget” – but the numbers reveal both promise and profound limitations.
The headline “Investment Boost” policy (accelerated depreciation allowing businesses to immediately deduct 20% of new asset costs) represents a more meaningful start than many would have foreseen. Tax experts like CAANZ’s John Cuthbertson noted the initiative was “quite a bit more generous than we expected,” with no caps on investment value and broader asset coverage than anticipated.
Yet, context matters. This flash in the pan will deliver just 1% additional GDP over 20 years – total, not annually. That’s a tiny 0.05% per year, barely registering on economic growth charts.
While the upfront 20% deduction provides genuine cash flow benefits for investing businesses, it’s ultimately deferring tax revenue rather than eliminating it.
Most tellingly, the word “productivity” appears just four times in the Finance Minister’s 26-minute budget speech – a glaring omission for a Government promising transformational growth.
Real productivity gains require comprehensive regulatory reform and institutional change. Instead, we get depreciation tinkering that barely scratches the surface of New Zealand’s structural economic challenges.
The fiscal shell game
This Budget represents classic “robbing Peter to pay Paul” economics.
The Government has pulled two major revenue rabbits from the fiscal hat: Brooke van Velden’s pay equity reforms save billions previously committed to bureaucratically driven wage settlements, while KiwiSaver contribution cuts free up $2.5 billion over the forecast period.
These savings aren’t returned to taxpayers or used for debt reduction. Instead, they’re redeployed to fund new spending on health, education, defence, and the Investment Boost policy. It’s fiscal recycling rather than genuine restraint – moving money from one government pocket to another, while maintaining the overall size of the state.
That pay equity “rabbit” deserves particular attention. While sensible policy, the billions saved simply enable increased spending elsewhere rather than reducing the Government’s fiscal footprint.
Similarly, KiwiSaver changes – halving Government contributions while eliminating them for higher earners – fund everything from hospital upgrades to military helicopters. It’s a shell game where retirement savings become defence spending.
Willis promised to balance the books. But Treasury’s own forecasts reveal the structural deficit has actually increased.
The traditional obegal (operating balance before gains and losses) measure never reaches surplus during the forecast period. To get around this, Willis has conjured up “obegalx”- excluding ACC to manufacture a laughably thin $214 million surplus in 2029.
Meanwhile, debt servicing costs this year alone hit $9.5 billion. That’s enough to fund Police, Justice, Customs, Corrections and Defence combined. That’s $467 for every Kiwi household just to service debt. Net Crown debt will peak at 46% of GDP in 2028.
The KiwiSaver concern
A particularly troubling trend emerges with KiwiSaver changes. While default contribution rates increase to 4%, the Government contribution halves to 25 cents per dollar (capped at $260) and is eliminated entirely for earners over $180,000. This removes an estimated $66,000 from an 18-year-old’s retirement pot.
Australia’s superannuation system demonstrates how consistent enhancement of retirement savings creates a multi-trillion-dollar investment pool that becomes a genuine economic growth engine.
New Zealand heads down the opposite path, undermining long-term wealth creation through short-term fiscal convenience. Every dollar removed from KiwiSaver today represents several dollars less investment capital tomorrow.
The timing couldn’t be worse. With an ageing population requiring ever-greater Government support, reducing private retirement savings increases future fiscal pressure precisely when demographic trends demand the opposite response.
Sacred cows remain untouchable
Treasury estimates reveal core Crown expenses climbing from 32.7% to 32.9% of GDP – higher than Grant Robertson’s final year. Health and education continue receiving record total spending despite declining outcomes per dollar. The fundamental elephants in the room remain unaddressed.
ANZ economist Miles Workman calculates that even after stripping out inflation, the Government spends roughly $15b annually more than pre-pandemic levels. The structural spending appetite established during Labour’s “debt-funded spending spree” persists largely unchanged.
This represents a fundamental shift in the Government’s economic footprint. Pre-2020, New Zealand prided itself on lean, efficient public administration. The pandemic provided cover for massive spending increases that were supposed to be temporary but have become permanent features of the fiscal landscape.
Furthermore, Treasury’s capital expenditure estimates ($6.8b across hospitals, schools, defence, and prisons) appear optimistic given international evidence of systematic cost overruns in public infrastructure projects. The $175 billion bond programme revision upward from December’s $168b suggests even Treasury recognises its initial projections were light.
The coalition reality
Act’s David Seymour notes this Budget spends more than his party would prefer but less than others would without Act’s restraining influence. The coalition dynamic produces compromise, not revolution.
Yet the fundamental challenge persists: New Zealand’s fiscal trajectory resembles other advanced economies sliding toward high debt vulnerability, particularly exposed to expensive natural disasters or external shocks.
The path not taken
Real economic transformation requires confronting uncomfortable truths about the Government’s proper role. Instead of feeding the beast of ever-expanding state spending, genuine fiscal conservatives would target the structural drivers of expenditure growth – particularly superannuation and health costs in an ageing society.
The IMF recently ranked New Zealand among advanced economies with the largest structural fiscal deficits. Nothing in Budget 2025 suggests meaningful improvement in that ranking.
With one Budget remaining before the next election, the window for serious fiscal consolidation narrows rapidly. The coalition Government’s gradualist approach may prove insufficient against the economic headwinds ahead.
King Canute, at least, understood the futility of commanding natural forces. New Zealand’s political class still believes it can legislate the way to prosperity without making the hard choices genuine economic transformation demands.
The tide of fiscal reality continues advancing, regardless of political posturing.
Budget 2025 represents another missed opportunity to build the seawalls of genuine reform before the waters rise too high.
Cops say John Heremaia “actively and violently” resisted arrest, and assaulted an officer.