In a pre-Budget speech that left little room for interpretation, Finance Minister Nicola Willis confirmed the Government will halve its operating allowance in the 2025 Budget—from $2.4 billion to $1.3 billion. Framing the announcement as a necessary act of fiscal discipline, Willis described the Budget as offering “no lolly scramble,” prioritising debt reduction and targeted spending over widespread new investment.
The reduction in the operating allowance marks the most significant pullback in new government spending in a decade and demonstrates the coalition Government’s response to post-COVID fiscal pressures, mounting public debt, and subdued economic growth forecasts.
Targeted Spending, Frozen Baselines
Willis revealed that only a handful of sectors, namely health, education, law and order, defence, and select social investments, will receive new funding. “We have also found room for modest measures to support business growth and to provide some carefully targeted cost of living relief,” she said in her address to the Hutt Valley Chamber of Commerce.
All other departments are expected to operate within frozen baseline budgets, effectively receiving no new funding. In practice, this means wage restraint and a requirement to deliver services without additional resources. “We expect government agencies to adjust themselves to New Zealand’s limited fiscal means,” Willis said.
The freeze comes as part of a wider effort to reduce government borrowing. “We will be spending billions less over the forecast period than would have otherwise been the case,” Willis said, arguing that this would keep the country on track toward a projected budget surplus in 2029.
“Still Scope to Reduce Spending”
Former Finance Minister Steven Joyce, speaking to Newstalk ZB’s Mike Hosking, backed the Government’s decision. Joyce emphasised the need to consider current cutbacks within the broader context of recent fiscal trends. “Government spending has doubled in the past eight years while inflation has only gone up about 30% in the same time,” he noted. For Joyce, the scale of recent growth in expenditure justifies a correction. “There’s still scope to reduce spending,” he said, suggesting there is public appetite for greater restraint in the public sector.
That sentiment was echoed by National MP Mark Mitchell, who told Mike Hosking Breakfast that the Government must respond to the sharp increase in national debt, from $58 billion in 2017 to $175 billion in 2024. “We went from paying $3.6 billion in interest a year to $8.9 billion, and we cannot afford that”, he said.
Mitchell defended the tight Budget, pointing to the line-by-line review conducted by Willis and Associate Finance Minister David Seymour. This exercise targeted contingency funds and previously committed spending that was deemed no longer viable.
Surplus in Sight?
Despite worsening global conditions, including the economic fallout from Trump’s new tariffs, Willis maintained the Government’s goal of returning to surplus by 2029. “If we hadn’t made the choice to reduce our operating allowance this year… I would have had to say to you we’re continuing to increase debt well out into the future and that wouldn’t have been responsible,” she said.
Critics, however, argue that the Government’s approach may hinder recovery. Treasury previously stated that $2.5 billion would be needed just to meet rising service costs. By setting the allowance at $1.3 billion, the Budget introduces the tightest discretionary spending limit since 2015.
Opposition Reactions
Labour leader Chris Hipkins responded sharply to the announcement, accusing the Government of hollowing out public services to finance last year’s tax cuts. “New Zealanders are seeing the true price of tax cuts,” Hipkins said. He warned the Budget signals to public servants and young New Zealanders alike that “there’s no hope here for them”.
The Green Party described the Budget as ushering in “a new age of austerity,” with co-leader Chlöe Swarbrick warning that defunding services would lead to higher long-term costs. “This is the austerity playbook: defund public services to failure, watch them fail, then privatise,” she said.
The Gamble on Restraint
As the Government doubles down on its message of “doing more with less,” it is betting that targeted investment and strict spending controls will stabilise New Zealand’s public finances without derailing essential services. However, the success of this strategy will depend heavily on economic performance and public sector adaptability.
With the Budget due to be released in May, the pressure is on for Willis and the Government to prove that restraint now will deliver resilience later.