Budget 2025: KiwiSaver, women, and "austerity"

Change my mind

May 22, 2025

Finance Minister Nicola Willis has referred to her 2025 Budget as the No B.S. Budget. We all know what she means by that, but Chris Hipkins took it upon himself to offer up some alternative interpretations during his Budget speech including: “no bold solutions,” “no bread and shelter,” and “no back-paid settlements for women”. What the Budget does have, according to Hipkins is “Big Subsidies”.1

Naming and renaming the Budget is always part of the sledging of Budget Day and this was a relatively clever contribution from the Leader of the Opposition. The same cannot be said of the rest of his speech. He cynically mentioned “women” 21 times in his speech in a bid to make the entire thing about the Pay Equity changes. He is right that the changes to the legislation have played a significant role in this Budget given that they saved the country an enormous $12.8 billion over four years. But his determination to frame the Budget up as somehow being entirely funded via a paycut to women is beyond stretching the truth.

If you want to read more about the Pay Equity legislation, I wrote a piece on the narratives being pushed by political parties and one questioning how we value different jobs.

What is in the Budget?

The 2025 Budget represents a (comparatively) significant shift towards fiscal conservatism, prioritising long-term economic stability over short-term stimulus. It addresses critical areas like defence and health and reflects a balancing act between maintaining fiscal discipline and responding to evolving economic conditions. I note, that economists and commentators on the right are less enthused by the size of the shift toward fiscal restraint, however. While pundits on the left cry “austerity”, on the right they are fed up with waiting for the radical action on spending that they were promised. Economist Michael Reddell accuses the Government of overstating the “growth” potential of the Budget. The Budget is, in his view, “simply unserious”.

Fiscal Strategy and Economic Outlook

Set at $1.3 billion, the operating allowance is the smallest in a decade, reflecting some commitment to fiscal restraint amid global economic uncertainties. The Government has forecasted deficit projection at $14.74 billion for the current financial year, an improvement from the previous $17.32 billion estimate. But, GDP growth is projected at 2.9% for the year ending June 2026, down from a prior forecast of 3.3%. It is fair to say this was influenced by the current global trade tensions and is projected to pop up a bit to 3% for year to June 2027.

As Marc Daalder of Newsroom points out the slightly reduced growth projection comes “after contracting by 0.8 percent in 2025.”2 He also notes that unemployment will continue to rise “set to peak at 5.4 percent (it’s currently 5.1 percent) before falling back to 5 percent in 2026 and proceeding on a track to 4.3 percent by 2029.”3

Capital Investment

The Budget allocates a total of $6.8 billion for new capital investments, with a net capital allowance of $4.0 billion. Capital investment refers to the expenditure made by the Government to acquire, upgrade, or maintain physical assets and ensure the country’s physical infrastructure is modernised, maintained, and expanded to support future growth.

Key capital investments include more than $1 billion for health services, including hospital and specialist service upgrades and redevelopment projects. Education receives $734 million for school infrastructure and property upgrades. Defence gets a significant boost with over $1 billion allocated with an additional $1.6 billion set aside for the next Budget. Other investments of more than $3.9 billion support various infrastructure and public service projects across the country.4

Health and Social Services

The Budget includes a funding increase of $5.5 billion allocated for hospital and specialist services, primary care, and community and public health. Additionally, $447 million will be invested in expanding access to urgent and after-hours care services. The Budget also provides additional funding for aged care. An additional $1.4 billion has been allocated to cover cost pressures in our health system, with $604 million over four years for new cancer drug purchases.

Furthermore, the Budget allocates resources to shift mental health emergencies from a criminal justice response to a health-focused approach in handling 111 mental distress calls.

The already announced $190 million of funding for the Social Investment Fund is earmarked for commissioning social services from community organisations in a more holistic and integrated way. Nicola Willis is treating the new agency - led by Andy Coster - as a pilot of sorts with the hope that its success will justify more future funding.

As is always the case with a Government that includes New Zealand First, they have also announced they are expanding the threshold for SuperGold rates relief so more Kiwis are eligible for that support. Winston Peters always delivers something for his golden oldies!

Saving the Government $163 million over four years, it has been decided that 18 and 19 year olds will have their Jobseeker and emergency benefits means-tested against their parents’ income. The details of income thresholds have not yet been decided.

The Royal Commission of Inquiry into Abuse in Care

In response to the Inquiry, the Government has allocated $774 million to improve the New Zealand care system and provide redress for survivors. Key components of the funding include increasing average redress payments from $19,180 to $30,000, providing "top-up" payments to survivors who previously settled claims, and expanding the capacity to process claims. Additionally, $25 million is allocated to prevent children and vulnerable adults from entering state care, aligning with the government's commitment to address the inquiry's recommendations.5

Justice and Corrections

In her speech, Nicola Willis explicitly stated that the Government would not be defunding the police - no doubt much to the Greens’ dismay.6 Instead, $263 million has been allocated to support frontline policing.

Instead of abolishing prisons, a policy Swarbrick and Paul from the Greens support, the Government has increased the Corrections Budget by $393 million over four years. Part of the focus of Corrections funding is to be directed towards rehabilitation programs and infrastructure improvements to manage the growing number of prisoners.

The New Zealand Herald points out that the approach of this Government has meant it “is spending $448m more each year on corrections than in the last full year of the Labour Government.”

Additionally, the justice system will receive funding aimed at improving its efficiency and effectiveness, with particular focus on enhancing court operations and legal aid services.

Budget 2025: The 10 things you need to know, from pay equity savings to subsidising private schools - NZ Herald

Education

Radio New Zealand reports:

Education Minister Erica Stanford said new education initiatives in the Budget totalled $2.5 billion over four years, though about $614m of that total was reprioritised from "underperforming" initiatives.7

Nicola Willis and Education Minister Erica Stanford have made it clear that the funding they have dedicated to learning support in education is point of pride for them. In a press release, Minister Stanford said:

“Backed by a social investment lens, this is a seismic shift in how we support learning needs in New Zealand. We’re deliberately prioritising early intervention, investing in what works and directly tackling long-standing inequities in the system.”8

The learning support funding package includes:

$266 million to extend the Early Intervention Service (EIS) from early childhood education through to the end of year 1 of primary school. This will fund more than 560 additional FTE for EIS teachers and specialists.
$122 million to meet increased demand for ORS (Ongoing Resourcing Scheme) for students with high and complex needs. This investment will also increase the number of specialists and teacher aide time to support the more than 1,700 additional learners forecast to access ORS over the next four years.
$192 million to ensure that over three years, all Year 1-8 schools and kura are funded for a Learning Support Coordinator to work with students, families and educators to identify and respond to learner needs. This investment will benefit 1250 schools and an additional 300,000 learners around New Zealand.
$43 million for an extra 78.5 FTE speech language therapists, as well as additional psychologists and supporting teacher aide hours to help meet the growing demand of students with communication and behaviour needs. This will provide specialist supports to around 2500 students over the next four years.
$3 million of investment in our teacher aides with targeted professional development for working with learners with social, emotional, wellbeing, behavioural, and neurodiverse needs.
$4 million to employ 25 intern educational psychologists each year to enable a more sustainable pipeline of locally trained workforce.
$90 million of capital for approximately 25 new learning support satellite classrooms to provide around 225 new student places across the Ministry of Education’s specialist school network, as well as provide learning support property modifications so that schools are more accessible to learners with additional needs.

$100 million over four years has also been allocated to fund 143 full-time expert maths teachers, in order to address underperformance in mathematics education and $140 million has been allocated to tackle truancy and improve school attendance rates.

Defence and Infrastructure

Big spending on Defence comes as no surprise as Minister Judith Collins and the Government have made clear that this is a priority area for New Zealand. They allocated $12 billion over four years to bolster the New Zealand Defence Force's capabilities, including the purchase of new military helicopters and upgrades to existing infrastructure.

Infrastructure in general received a further investment of $600 million dedicated to upgrading New Zealand's rail network, including maintenance on freight lines and replacement of passenger lines in Auckland and Wellington.

Business and Taxation

Under pressure from New Zealand businesses to deliver on promises to make doing business in New Zealand easier, the Government has made changes to investment incentives. Businesses can now deduct 20% upfront of the cost of any new assets, such as machinery and equipment, from their tax bill in addition to regular depreciation. Not quite the full capital expensing that everyone hoped, but is expected to make a difference nonetheless:

Treasury estimates the centrepiece of the Budget, the depreciation changes, will actually lift New Zealand’s growth, increasing GDP by 1% and wages by 1.5% – but that lift takes place over 20 years (although half the growth occurs in the next five years).
The effect of the tax changes will be to encourage businesses to bring forward investment, stimulating the economy.
Willis quoted from a Regulatory Impact Statement on the change that a large amount of the benefit of the credit would flow through to workers, although Treasury’s forecasts show that this has not been enough to stop it from revising work-related changes.9

Changes to KiwiSaver are one of the headline grabbers from this Budget with the Government’s contribution to KiwiSaver accounts set to be halved. The New Zealand Herald reports that “currently, people saving in KiwiSaver can get $521 a year from the taxpayer, this has been cut down to just $260.72.”10 This change, along with bringing in means-testing from July 1st so that individuals earning over $180,000 annually will no longer be eligible for the Government contribution at all, will save the taxpayer $2.46 billion over the next four years.

Means-testing is also being implemented across the whole Best Start programme. Radio New Zealand reports: “From April next year, the Best Start child payment scheme will also become fully income tested in the same way the second and third years are, with payments cut off when a family earns more than $97,000 a year.”11 This will save $211 million.

Despite cutting its own contribution to KiwiSaver, the Government clearly wants Kiwis saving more. They are raising the default rate of employee KiwiSaver contributions from 3 % to 4%. This obviously applies to the employer matching the contribution too.

Media and Journalism

The numbers are small in the grand scheme of things, but the message the Government is sending to publicly funded media in this Budget is pretty sizeable. Radio New Zealand is having their annual budget cut by about 7% or nearly $5 million per year. Minister Paul Goldsmith has not minced words about his expectations for the media company:

“This savings initiative recognises that government-funded media must deliver the same efficiency and value for money as the rest of the public sector,” said Goldsmith.
“I expect RNZ to improve audience reach, trust and transparency. I am confident the organisation can do so while operating in a period of tightened fiscal constraint.”12

As Radio New Zealand itself notes with the headline Budget 2025: More money for journalists, less for RNZ the Government has committed extra funding to journalism that it perceives as high value. Minister Goldsmith said:

“Regional journalism helps keep communities informed and holds decision-makers to account.
“Budget 2025 will invest $6.4 million over four years in council, community and court reporting across New Zealand. The funding will be distributed through NZ on Air.
“Open Justice and Local Democracy Reporting have been successful programmes with an emphasis on reporting, rather than opinion. This funding expands them.
“It will get funding into regional newsrooms so that more local frontline journalists can report on the things that matter to their audiences.”13

Speaking of Radio New Zealand, they produced this nifty visual (below) of how much the Budget has allocated to different areas of spending. Take a good look and remember this when you read about how the Government is robbing beneficiaries to pay for defence or law and order. Our social welfare safety net is always the biggest chunk of our Budget. And even those of us who strongly believe in the importance of state welfare for those who come upon hard times should reflect that reviewing the efficiency of the spend in that area is appropriate, not an attack.

Austerity

The word ‘austerity’ has been thrown around a bit today. Chris Hipkins suggested the Government was on the path to a UK-style austerity in his speech. This seems to be a case of the former Prime Minister being incapable of defining a word accurately, again. This Budget is not austere.

As David Farrar of Curia Research and KiwiBlog points out, Nicola Willis is spending more than Grant Robertson did in his last Budget as Finance Minister. These ‘cuts’ are just a trim. They are barely enough to slow the runaway train down.

It is frankly criminal that the media prints the lies spouted about an underfunded health system when it is better funded than it was under Ardern and Hipkins.

Nicola Willis is no Ruth Richardson. Sometimes I wonder what the economy might like in five years if she were.