A $1.1b cut to the government's new spending comes after Trump's trade trafiffs

Finance Minister Nicola Willis says her axing of a billion dollars from the government's operating allowance is a response to "the times we are living in" and pointed to US President Donald Trumps trade tariff's which she called a "seismic global economic event".

Willis also said the cut was about reducing New Zealand's interest debt burden.

The Greens are accusing Willis of "slash and burn" economics while Labour leader Chris Hipkins said it would drive New Zealanders overseas.

But Willis told media at a pre-Budget announcement on Tuesday she'd worked hard to avoid the mistakes of austerity budgets of the past, balancing growth with investment.

She was confident about getting back to surplus by 2029, saying New Zealand must curb its borrowing, and new spending would be slashed from $2.4b to $1.3b.

The minister told Checkpoint the government would continue to spend more each year after this year.

"What this is about is a responsible budget management because right now every week we're going out to the world and borrowing around $500 million.

"We have debt at levels not seen since the mid-1990s. We're running one of the biggest deficits in the world.

"That's the difference between what we're earning and what we're spending. That can't go on forever."

She said as a country, New Zealand couldn't keep wracking up unsustainable debt.

But she said there would still be more money in the May Budget for priority areas such as health, police and defence.

"The alternative approach is frankly irresponsible. To not adjust our spending to the times we find ourselves in. That way lies high inflation, high interest-rates and the economic ruin that comes with it."

Willis said a careful budget process, which was done by the entire Cabinet, had enabled the government to stop borrowing and start investing in critical areas.

"Let's not just forget that a few weeks ago there was a seismic global economic event that has affected global trade, that will affect New Zealand's growth trajectory...

"The introduction of tariffs, counter tariffs, tariff pauses, all of that by international consensus has lessened the forecast for global growth."

Asked if the public service should be prepared for more job cuts, Willis said it could not expect "more money to do the same things".

"This is not a time in which we can afford extravagant wage claims. I think the senior doctors coming out at 12 percent was pretty extravagant. I don't think there are many New Zealanders right now who have successfully got a 12 percent pay rise."

Senior doctors were planning strike action for 24 hours on Thursday.

Willis said business growth was on the radar in the upcoming Budget, as was investment in social initiatives, and the government was committed to meeting the bill for superannuation which was in the billions.

She was concerned with debt levels at 42 percent of Gross Domestic Product, when it typically hovered at 25 percent.

"My worry is that if we were to have significant event, an earthquake, another pandemic God forbid, a biosecurity incursion, that we would properly at that point have to borrow more and then we're getting to the point where the interest on our debt would become almost very difficult to manage."

That debt was now more than $9b, she said.

"That's more than all the money that goes into the police, Corrections, Justice and Defence combined.

"We can't really afford to have that interest bill spiralling out of control."

Meanwhile, Infometric's chief forecaster Gareth Kiernan earlier told Checkpoint the minister's announcement came as a surprise.

"It's out of the blue given that she's been pretty committed to that $2.4b operating allowance previously and in the knowledge that even Treasury had said previously that wouldn't be enough to necessarily keep the lights on, given costs increases and demand pressures associated with population growth."

However, Kiernan said the key was looking at the other side of the equation with Willis given assurances there was still enough money for critical investment.

"It's not about slashing and burning everything," Kiernan told Lisa Owen.

"Gosh, we could be under a much more austere approach if we wanted to really get back to surplus a lot quicker but that is not going to be helpful to the economy if we go down that path."

He predicted the savings the government had identified would be more targeted and nuanced than last year's "blunt instrument" of finding a six to seven percent savings across the board.

Asked by Owen if that was the slashing of public servants, Kiernan said it was the culling of programmes that hadn't progressed and job vacancies that hadn't been filled.

This time around he said deeper and more "sensible" questions had been asked by the government to achieve the savings.

Asked if Trump's trade tariffs had forced the government's hand, Kiernan said that was the message that "seems to have been put out there".

"That over the last couple of months the economic environment internationally has deteriorated.

"I mean, we've revised down our own forecast of GDP growth through 2026 by close to 1 1/2 percentage points, given the risks there are around that international trade situation."

He said that was not just a direct result of the tariffs but how it flowed through to New Zealand's other trade partners such as China.

"If the New Zealand economy grows more slowly going forward than we have been expecting, that means the government will have less tax revenue coming in and so that means they have less room to spend on the other side as well."

Kiernan said it looked as if there'd be a significant slow down in export growth and that recovery, as well as businesses and households being more cautious.

That could look like the labour market not picking up as quickly later this year, with businesses holding off hiring staff meaning job and income security might not be as strong going forward, he said.

Kiernan expected, however, to see more capital spending from the government and investment in infrastructure.

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