Your early guide to the 2025 Budget

Budget decisions will be made soon & the language of government might change

It’s March 3^rd. 80 days until the 2025 Budget on May 22nd.

You might think that this is too soon to start caring about the Budget, but you would be wrong. Right now the government will be working out the final details of the Budget spending. What is happening right now will be setting the agenda for the Budget, and arguably for the political year ahead.

Traditionally, around now is when the “Budget Ministers” hold BM3. That’s two pieces of Treasury jargon, so let me unpack those for you. Budget Ministers are those ministers delegated by Cabinet to make decisions on the broad structure and composition of the Budget. It’s usually:

• Prime Minister (as Chair)

• Minister of Finance

• Deputy Prime Minister

• Associate Ministers of Finance (AMOF’s in the trade)

  o Hon Chris Bishop: Also the Minister for Infrastructure and Transport

  o Hon David Seymour: Also the Minister for Regulation

  o Hon Shane Jones: Also the Minister for Regional Development

They hold a series of meetings – called BM’s (Budget Ministers). Imaginatively, these are called BM1, BM2, and BM3. BM4 is only normally held if there is a real problem or if Cabinet can’t agree. BM1 is traditionally held in Dec. BM2 in late Jan/Early Feb. BM3 is held around now. BM3 signs off the work so that the Cabinet Paper containing the Budget (which can run to several hundred pages) can be produced. Full Cabinet sign-off on all the details is in April.

While these documents are being pulled together the Treasury also produces two documents – the econ’s and the fisc’s. The econ’s paper covers all the economic numbers (GDP, unemployment, trade) and comes first in late Feb/early March. The Fisc’s covers the Crown accounts and is also usually in March. They come together to tell BM’s what the impact of their decisions – and external factors – mean for the Budget.

This Budget will also be complicated by the fact that there is a savings programme going on at the same time. The Budget Policy Statement warns us “savings will need to be found, beyond those already identified in the previous Budget”. We have no idea how successful that savings exercise has been. The deeper the cuts that the government has been able to make, the more likely it is that the Government will be able to spend money. But having already cut at the last Budget, any savings will get progressively more difficult to achieve. Public appetite for cuts is waning.

And the scale of the challenge facing the Government right now is enormous. The recently released “September Quarterly Investment Report” states “The September QIR signals that agencies are seeking $5.9 billion operating and $13.2 billion capital funding for Budget 2025”. The operating allowance that is available for all spending is $2.4bn. The figure being requested will likely have grown since September.

But we don’t really have $2.4bn. Of that:

• $1.4bn – is pre-committed to Health (So $1bn left)

• Other Precommitments (including Pharmac) = $300m – (So $700m left)

• Only we haven’t set aside anything for education (c.$600m – just in cost pressures)

• Removing that leaves just $100m in new money

• There is no money for police to reach recruitment targets

• No money for ‘Going For Growth’ goals

Take just one area - defence. The PM said in February “We will be getting as close to 2% [of GDP spent on defence] as we possibly can”. We currently spend 0.77%. Adding say 0.25% of GDP a year would add $1bn in extra costs every year. That has to come from cuts elsewhere – $10bn across the forecast period.

That allowance is also before any changes to the economic forecasts. Slower growth in the future will mean less money to spend – unless you agree to borrow more. Borrowing isn’t in itself a problem – we should borrow to pay for infrastructure and essential investment. The challenge comes when you are borrowing to pay for tax cuts as we did at the last Budget - all $12bn of it. Borrowing to pay for corporate tax cuts would be even more damaging.

The government therefore faces a difficult set of decisions. As all governments do at this point. But real insiders will be looking for subtle changes in the Government’s language from BM3. If the economic and fiscal data is better than expected – which is a possibility – then Ministers will all be consistently talking down expectations. That way the government can capitalise on the ‘surprise’ when the books are launched.

If the books are worse than expected, then Government spokespersons – and questions in the House – will focus on the future. How there are “difficult decisions ahead”, but growth will return if we “stick to the script”. Language around “staying the course” will be used to divert from the fact that the data isn’t telling a positive story right now. There will be more speeches like that of Iain Rennie (the new Secretary to the Treasury) that a “hard-headed” approach is needed.

The big concern for the Government is if that language doesn’t coalesce soon. That will indicate that the parties of government don’t agree. That will mean that there are still unresolved challenges in getting the books to work and that the Budget overall may not have a sense of priority or purpose. That won’t bode well for the rest of the political year as the three parties start to consciously uncouple ahead of the election. It will likely signal more open warfare between the parties – especially after the handover of power from Winston Peters to David Seymour in May.

Middle Budgets are often overlooked in our three-year cycle, yet they are arguably the most important. What happens at this Budget will be what voters can see and feel at the next election. If this Budget doesn’t stop the crisis in health – and the announcement today isn’t in the same solar system as a solution – then it will be a real issue at the election. If there is no end to the problems facing school meals, they will continue to dog Ministers. If the sense of economic drift continues, it will eat the credibility of whatever Ministers promise.

If common language around the Budget doesn’t start to emerge from the Government soon, it’s a sign that they haven’t got a plan. It will look like the economic medicine being promoted by the Government isn’t working. And the public might start looking for a second opinion.