The government is reducing its operating allowance from $2.4 billion to $1.3 billion.
Finance Minister Nicola Willis announced the change to the amount of new funding available for the May Budget during a speech to the Hutt Valley Chamber of Commerce on Tuesday morning.
As a result, only a limited number of government departments will receive extra funding this year. Willis described the next month’s budget as “no lolly scramble.”
“New spending initiatives are strictly limited to the most important priorities: our focus has been on health, education, law and order, defence, and a small number of critical social investments,” Willis said.
“We have also found room for modest measures to support business growth and to provide some carefully targeted cost-of-living relief.”
According to Willis, the government expects agencies to adapt to New Zealand’s constrained fiscal resources. She said, “This will require restraint in public sector wage increases and an ongoing commitment to getting more impact out of every dollar spent.”
Supported by Associate Finance Minister David Seymour, Finance Minister Willis has led a major savings initiative ahead of the Budget to identify billions of dollars in spending that could be redirected to other priorities.
“This has involved a line-by-line review of previous funding commitments, including money put aside in contingency. This reprioritisation exercise has required careful consideration and some tough, but necessary, choices.”
At the December half-year update, a small surplus was projected for 2029, and Willis reiterated her goal of achieving a surplus a year earlier if possible.
Despite US President Trump’s announcement of a tariff increase, Willis confirmed that the government is still committed to its fiscal targets.
“Sticking to them has required some careful adjustments in this year’s budget. The key change we have made is to the size of this year’s “operating allowance” – that is, the amount of money put aside for new spending.”
“This means we will be spending billions less over the forecast period than would have otherwise been the case. This will reduce the amount of extra borrowing our country needs to do over the next few years, and it will keep us on track towards balanced books and debt reduction,” Willis explained.
“The fiscal forecasts will not be finalised until later this week, but according to the latest numbers I have seen, this smaller operating allowance means we will continue to forecast a surplus in 2029.”