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
Reforming pay equity laws and changes to KiwiSaver are among the main features of the Government’s $21 billion in funding cuts in Budget 2025.
Much of the speculation ahead of today’s Budget surrounded the scale of cuts – what the Government will call savings or reprioritisation – made by Finance Minister Nicola Willis, given her measly $1.3b operating allowance.
A total of 116 initiatives had been stopped or cancelled, giving the Government an extra $5.3b per year over the next four years, referred to as the forecast period.
The Government’s reforms to pay equity, which have prompted significant outrage and protest, were touted by Act leader David Seymour as saving Budget 2025, something Willis didn’t agree with.
The financial benefit for the Government from the reforms was kept secret until today when Treasury documents revealed the changes had added $12.8b to the Government’s books.
Willis, speaking to those gathered at today’s Budget lock-up, explained pay equity costs in 2020 were initially expected to reach $3.7b but there had since been a “blowout”, with costs rising “steeply pretty much every year”, and added to by Labour’s 2022 decision to fund pay equity claims in Government-funded sectors.
She claimed those costs were “hidden from taxpayers”. But Willis later hid a figure of her own, refusing to state how much the costs had increased by as it risked revealing what funding the Government had retained in contingency to pay future claims.
Willis committed to funding future pay equity settlements under the new thresholds. For claims in sectors partially funded by the state, government contributions would be decided on a case-by-case basis.
All Willis would say is a “significant sum” had been held in reserve.
As she spoke about the changes, the sound of a scheduled protest, largely prompted by the reforms, could be heard by those in the lock-up.
Pay equity protest in front of Parliament during the today's Budget 2025. Photo / Marty Melville
KiwiSaver
One of the other major developments in Budget 2025 was removing the Government’s contribution to KiwiSaver for people who earned more than $180,000 per year and halving the contribution to those who earned less.
Across the forecast period, it would give the Government almost $2.5b in savings and more than $500 million in expected revenue.
Civilian defence staff
A total of $120m has been cut from workforce costs through removing civilian roles that were considered “not essential to the delivery of military outputs”, according to Treasury.
That was split into $30m across each of the four years. It also included converting some contracted functions “where it is cost effective to do so”.
Despite the cut, defence was one of the areas where the Government had focused much of its new spending, putting $4.2b into defence through this year’s Budget.
Most of that had already been announced by Defence Minister Judith Collins, including more than $2b for new helicopters and almost $1b designed to “rebuild the Defence Force”.
Emergency housing
Emergency housing is getting a more than $1b funding cut over five years following forecast changes in emergency housing costs. The Government says it is well ahead of its target to reach a 75% reduction in people in emergency housing by 2030.
The amount of social welfare money available to 18- and 19-year-olds is being reduced, with the Government saying parents rather than the taxpayer should foot the bill where possible. A parental assistance test will be introduced to limit Jobseeker and Emergency benefits to only those teenagers who cannot rely on their parents for financial support. This is set to save the Government around $84m a year after it is introduced in July 2027.
Working for families
The Government will start means-testing the Best Start tax credit from year one. It is already means-tested for years two and three. This will save the Government around $211m over four years.
The Government will start means-testing the Best Start tax credit from year one. Photo / Heartfelt
Pacific business & employment
The contestable Tauola Business Fund will be closed with the Government cutting its $14m in funding over four years. Around $5.5m per year ($22m over four years) has been cut from Tupu Aotearoa programme which supports Pacific people into employment. The programme retains $5.25m in annual funding.
Tu Manawa fund
A sports and recreation programme for young people and children is getting a 25% funding cut. The Government has reduced Crown funding in the Tu Manawa Fund by around $3.8m a year over four years. The fund retains around $11.4m in annual funding.
Charter schools
The Government has cut the amount of funding available to fulfill David Seymour‘s charter school ambitions. Around $4m has been cut from the Charter School Agency funding pool for the current financial year to fuel other education initiatives.
Kāhui Ako
Kāhui Ako, an education scheme where thousands of schools and education providers collaborate, share best practice and help each other, has had all its $375m in funding across four years cut.
The Government is reducing Heritage New Zealand funding by 12% from next year onwards, equating to around $6m over three years.
Covid contracts
More than $284m in capital spending is being retained through the termination of a Covid-19 advance purchase agreement, likely to have been a vaccine contract.
That added to the almost $50m cut from the Ministry of Health’s budget.
Police executive and national/community crime prevention initiatives
A reduction in police executive staff alongside other non-sworn employees has returned almost $69m to the Government.
A further $31.1m of grant funding had been withdrawn from national and community-based crime prevention initiatives that had been deemed “lower-value, with no direct impact on frontline services”.
The Government had regularly stated its commitment to bolstering frontline police numbers, however, the Police Minister recently all but admitted the target to increase the frontline by 500 officers in two years was not achievable.
Cuts to RNZ’s budget had been rumoured in recent months and were today confirmed, the entity’s funding trimmed by $18.4m.
That was an annual cut of $4.6m over the forecast period. That represented a 7% cut and left about $62m per year for RNZ to work with.
In the lock-up, Willis stated all government entities had to assess the efficacy of their spending and she was confident RNZ could continue functioning well at its revised budget.
Media and Communications Minister Paul Goldsmith noted in his statement RNZ had received a funding increase of $26m per year in 2023 as well as a $7.3m per year increase in 2020.
He said he expected RNZ to “improve audience reach, trust and transparency”.
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.
