A tough Budget preached in a revivalist tent

The 2025 Budget Policy Statement (BPS) is an early warm-up to the government's 2025-26 Budget. The statement outlines the goals and objectives that guided Budget decision-making and the financial parameters that frame it.

It is first considered by a select committee and then debated in the House. The debate took place on Wednesday and though it was highly political, it was also instructive. So what lessons can we take from the debate?

In the excitement, a chair forgets his team

When a committee formally reports back to the House, the first speech is given by the committee chair, who speaks on behalf of the committee as a whole. In this case, it was National's Cameron Brewer, as the new chair of the Finance and Expenditure Committee.

Newly thrust into the spotlight, Brewer forgot which team he plays for. As chair, he is not a member of government but of parliament, and on this occasion speaking not for National but for the committee-opposition and all. His speech had little to do with his committee, but was instead a sales pitch for his party and the government.

Nearing conclusion, Brewer got so excited during a call-and-response session with his own caucus, (proclaiming "growth, growth, growth" and "trade, trade, trade"), that the Speaker interrupted his flow.

"This is a Parliament, not a revivalist tent," said Gerry Brownlee.

Government priorities

Brewer did outline four government priorities this Budget round:

• lifting economic growth, through measures to address New Zealand's long-term productivity challenges
• implementing a social investment approach to drive results from the government's investment in social services
• keeping tight control of the government's spending
• developing a sustainable pipeline of long-term infrastructure investments.

'Growth, growth, growth', but not of government

Megan Woods discussed the operating allowance as outlined in the BPS. The operating allowance is the 'extra' money the government has allowed itself for allocation to new initiatives or increased outlays.

She described the likelihood of needy ministries getting any of it as "an insurmountable bar".

The BPS notes an operating allowance of $2.4 billion. But, says Woods, "after you take out the pre-commitments that have already been made-that is things that the government didn't fund in the last Budget and realised that they needed to do some political fix-ups on in between Budgets-we're left with an operating allowance of $700 million".

In an annual budget of more than $180 billion, $700 million is less than half a percent. That is...low.

"I cannot emphasise to New Zealanders how low that is," said Woods. "That is for everything other than health. That is to fund the cost pressures that we see in education. That is to fund what we might want to see in new initiatives in health. That is to fund any increase we might like to have in the paltry allocation we've had to housing in the previous Budget."

New Zealand First MP Jamie Arbuckle put a different spin on it: "$700 million of that is left, remains to be allocated through the Budget, but that is being responsible. We aren't blowing out the Budget; we are being responsible with the money that we have got allocated."

Further cost-cutting in government?

The BPS notes "with a small number of exceptions, government departments should expect to receive no additional funding in the Budget".

ACT MP Todd Stephenson noted that the minister of finance, giving oral evidence to the committee, said: "Ministers have been asked to reprioritise funding within their portfolio if they want to pursue new spending initiatives."

Without inflation-relief in the Budget, intense cost-pressures may lead to further job losses and programme cuts. That might even play-out pre-budget with departments pre-loading as many lay-offs as possible; tucking the costs of redundancy into the outgoing financial year.

Headwinds in the numbers

Headwinds are a common euphemism for tough economic times, or 'golly, this economic management thing is harder than it looks'.

National MP Nancy Lu opted for a different metaphor: "Challenges remain, and we are very, very early in this economic growth space. Economic growth has been a little bit slower than expected, which means that things are sticky."

Governments are legislatively bound to regularly update Parliament on finance. The Half-year Economic and Fiscal Update (HYEFU) is released at the same time as the BPS.

Brewer noted: "December's economic and fiscal data highlighted both the scale of the challenge and the extent of the opportunity that New Zealand faces." A sober clause buried within the evangelical fervour.

He also noted that "inflation is back within the target band at 2.2 percent, compared to 7 percent" and that "with the official cash rate now down to 3.75 percent, saving real money each week in mortgage payments for families across New Zealand is a reality".

Because statistics always cut both ways, Green co-leader Chloe Swarbrick also brought numbers.

"This time last year, the HYEFU was projecting a 1.5 percent growth for this year, but the actual rate now is negative 0.2 percent. Meanwhile, next year's growth of the Budget in May was projected to be 1.7 percent, but it's now projected to be 0.5 percent. This Budget does not increase productivity-in fact, it actively, demonstrably, evidentially does the opposite."

For ACT, Stephenson argued it wasn't as dark as all that: "Stats New Zealand did modestly upgrade GDP, real growth, and nominal growth. Now, it was only modestly, but it should be noted that it actually has been upgraded."

Lu also brought numbers about the past.

"Laid out very clearly in the BPS, New Zealand's fiscal position has deteriorated over the last six years... Crown expenses have risen faster than core Crown revenue. The operating balance before gains and losses, which is commonly referred to as OBEGAL, has been in deficit since 2019 and the 2020 year. And yes. All of the above is during the last Labour government."

And because this was duelling statistics (not banjos), Labour's Ginny Andersen also brought up the past.

"The Budget Policy Statement lays out the truth. It confirms what New Zealanders already feel in their day-to-day lives: things were better under Labour. It states right here: growth through 2023 and 2024 was stronger than originally thought. But since then, since National took office, the economy has taken a sharp downturn."

Climate

Deborah Russell noted one thing that was not given a focus in the BPS: "This Budget Policy Statement is remarkably silent about the hugest issue we have facing us, and that is the issue of climate change, but it's lurking in there."

She pointed to new government procurement rules announced this week.

"They are no longer going to require government services to have buildings built to a five-star rating standard, they should no longer be required to have battery electric or hybrid electric vehicles, and they should no longer have to use low-waste or recyclable products."

As it happens, climate change adaptation is the subject of a special debate the House undertakes to end its week, late on Thursday.

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