KiwiSaver cut, Best Start means-tested, $6.6b for business. Nicola Willis’ Budget aims for growth but warns of slow wages and high unemployment. Video \ Mark Mitchell
Opinion by Audrey Young
Audrey Young, Senior Political Correspondent at the New Zealand Herald based at Parliament, specialises in writing about politics and power.
We knew before the Budget what it was not going to be - rainbows, unicorns, and splashes of cash for the Government to kiss away every taxpayer tear.
We knew what Nicola Willis wanted it to be – a Budget that achieves that delicate balance between showing super discipline andenough indications of a brighter future ahead.
Much of the political sell rests on the actual amount she has cut from the contingencies of future pay equity settlements.
It is a big number – $12.8 billion over four years.
That is more than half of the overall savings made in all areas – $21.4b – to reprioritise spending.
Other savings are small by comparison. Changes to the KiwiSaver scheme for example, including halving the Government contribution, will save $2.5b over four years.
Another measure, to stop 18-year-olds and 19-year-olds getting the unemployment benefit if their parents can support them, will save $164 million.
The lion’s share of the savings has undoubtedly come from Paula to pay Peter.
That was a political problem for Willis before we knew the figure, and will continue to be a political problem afterwards.
Willis revealed another previously confidential figure in her bid to convince the public that the pay equity scheme had got out of control under the previous Government. She said that when the pay equity law was first passed in 2020, Treasury estimated at the time it would cost $3.7b over four years.
Her point is that those forecasts had grown exponentially since then and the fact she could strip out $12.8b and still leave a contingency (she won’t say how much) for settlements of government employees showed how out-of-control it had got.
Finance Minister Nicola Willis with a copy of the Budget 2025. Photo / Mark Mitchell
Labour cannot entirely dispute that. The reason negotiations on the care and support workers pay equity settlement Mark II failed (the first settlement was for five years only and had expired) was because of the gap between what the Labour Government had set aside in a contingency and what the negotiators believed was fair.
As part of Willis’ pay equity reset, she got Cabinet to decide in April last year - without announcing it until this year - that there would no longer be any money set aside in contingency for the funded sector.
That is the sector comprising both non-profit and businesses dependent on government funding, such as rest home providers employing care and support workers.
Willis continues to attempt to demonise the previous Government as having written “a blank cheque” for the funded sector.
In doing so, she is referring to a decision by the previous Cabinet to approve “in principle” any negotiations in that sector very early in the process.
The reason for that is that without such a goodwill gesture, unions would not have been able to get employers to the table.
These are sectors such as care and support workers where the lowest-paid women work.
And the reason pay equity is going to remain an albatross around Willis’ neck is that the worst of the worst cases continue to occur in the funded sector.
Willis does not have enough political will to resolve the most difficult part of pay equity, the funded sector.
The Opposition and unions, who demonstrated noisily outside Parliament today, will continue to campaign for them.
Minister of Finance Nicola Willis walks to the lock-up to announce Budget 2025. Photo / Marty Melville
The Government will say that the savings from pay equity have gone into extra funding for education, health, police and defence.
Of course, the savings are not specifically tagged and will go into the consolidated accounts from which all government spending is derived, be it education or tax breaks for landlords.
Willis characterises her second Budget as a “responsible Budget to secure New Zealand’s future”.
There will be some excitement about the new Incentive Boost tax break for businesses allowing them to deduct 20% of a new asset’s value from that year’s taxable income.
That should help lift productivity and it was the best-kept secret in the Budget.
There appears to be a real lift in funding for children with additional learning needs and that will be highly welcome.
But overall, the new normal for Willis is the art of doing as much as possible from very little.
That is a discipline she is learning to refine.
Do you have questions about the Budget? Ask our experts – business editor at large Liam Dann, senior political correspondent Audrey Young and Wellington business editor Jenee Tibshraeny – in a Herald Premium online Q&A here at nzherald.co.nz at 9.30am, Friday May 23.
