Speaker 1: Kiota.
Speaker 2: I'm Chelsea Daniels and this is the Front Page, a
Speaker 2: daily podcast presented by The New Zealand Herald.
Speaker 1: This month, the government will.
Speaker 2: Deliver its second budget and Finance Minister Nikola Willis is
Speaker 2: starting to tease what exactly we could see from it
Speaker 2: and basically.
Speaker 1: Don't expect much.
Speaker 2: There will be just one point three billion dollars of
Speaker 2: new discretionary operating spending in this year's budget as the
Speaker 2: government focuses once again on reducing spending by billions of dollars.
Speaker 2: So where is all this money going and what goodies
Speaker 2: could the government offer up in such tight conditions. Today
Speaker 2: on the Front Page, Wellington Business Editor Jane Tibschraney is
Speaker 2: with us to.
Speaker 1: Look through what to expect for Budget twenty twenty five.
Speaker 2: Janey, let's start with Willis's speech to the Heart Valley
Speaker 2: Chamber of Commerce. The main message there seems to be
Speaker 2: that billions of dollars has been slashed.
Speaker 1: Is that fair?
Speaker 3: Not quite? Chelsea.
Speaker 4: Basically, previously Nikola Willis said that she would increase the
Speaker 4: amount of money that the government spends on operating costs
Speaker 4: by two point four billion dollars in the next year.
Speaker 4: What she said in that speech was that should only
Speaker 4: increase the spending the operation or spending by one point
Speaker 4: three billion, So that's a cut from two point four
Speaker 4: to one point three that is new spending. So the
Speaker 4: government is actually still going to be spending more money,
Speaker 4: and in many ways it needs to. We have population growth,
Speaker 4: we have inflation. You know, all the services that the
Speaker 4: government provides naturally cost more as as prices go up
Speaker 4: and as more people come to New Zealand. But the
Speaker 4: surprising thing that Nickola Willis revealed was that she wouldn't
Speaker 4: increase her spending by as much as previously said. Now
Speaker 4: that is significant because at two point four billion, that
Speaker 4: was what she previously said, that was already looking tight
Speaker 4: like at that level there already had to be reprioritizations
Speaker 4: across government. So at one point three that does mean
Speaker 4: that just to keep the current level of services ticking along,
Speaker 4: there will have to be cuts somewhere across the public
Speaker 4: sector to pay for that.
Speaker 5: At every step, we've asked ourselves to questions, One can
Speaker 5: these dollars be justified when we are borrowing to pay
Speaker 5: for them? And two can we be sure these dollars
Speaker 5: will do more good in this area than if invested
Speaker 5: in our most pressing priorities, like funding essential health services,
Speaker 5: better educating our kids, ending New Zealand's security for ensuring
Speaker 5: our future growth.
Speaker 2: Is it fair to say that a lot of the
Speaker 2: focus on the budget will be to fund the rising
Speaker 2: costs associated with things like healthcare. I saw that the
Speaker 2: government has already allocated funds for health and new medicines
Speaker 2: for FARMAC. Health really eats away at the budget each year,
Speaker 2: doesn't it.
Speaker 4: Yeah, Look, health spending is huge. Health and New Zealand superannuation,
Speaker 4: those are the two big ticket items, and as our
Speaker 4: population ages, those costs just keep climbing it at a
Speaker 4: pretty remarkable rate. I think what you're talking about here
Speaker 4: is that previously the government promised to spend certain amounts
Speaker 4: on health, on medicines through through FARMAC. It made those promises,
Speaker 4: so much of the new spending that is expected to
Speaker 4: occur has already been eaten up by that promise to
Speaker 4: it to spend more on health. So again, that sort
Speaker 4: of means that the government has to find even more
Speaker 4: money than previously thought from elsewhere in its budgets to
Speaker 4: pay to keep the lights on. So I think the
Speaker 4: theme of this budget is really going to be cuts
Speaker 4: to public services. The government has to find that money somewhere.
Speaker 4: But when you look at the nominal amounts, so that
Speaker 4: dollars and cents that the government spends that is continuing
Speaker 4: to climb.
Speaker 2: What about the sweeteners that we always want to see
Speaker 2: from the budget? Are there any promises of things like
Speaker 2: tax carts or the like.
Speaker 3: I don't think so.
Speaker 4: Unfortunately, Nikola Willis has really tempered our expectations around this.
Speaker 4: I think under the previous government we got used to
Speaker 4: turning up on budget Day and going, Oh, what's the
Speaker 4: creative new thing that the government has come up with
Speaker 4: to support the economy. I strongly doubt there will be
Speaker 4: anything like that that in this budget. It's worth noting
Speaker 4: that for governments that the middle budget, so governments have
Speaker 4: a three year term, the middle budget is often the
Speaker 4: one where they kind of can do the g nally
Speaker 4: things and then they save the positive things for the
Speaker 4: final budget before the election. So a part of me
Speaker 4: does wonder whether Nicola Willis is really knuckling down in
Speaker 4: this budget and that might give a little bit more
Speaker 4: room to be a bit freer at the next budget
Speaker 4: ahead of the election. If I was to be cynical.
Speaker 1: Yeah, well that makes sense, doesn't it.
Speaker 2: Because the first budget it's like, well, here's some sweetness,
Speaker 2: this is why you elected us, and then the last
Speaker 2: ones like, well, here's some sweetness, because this is why
Speaker 2: you should elect us again. So one of the big
Speaker 2: sweetners last year was the childcare rebate policy. Hey, and
Speaker 2: in the last week that's blown up in the government's face.
Speaker 1: What's happened there?
Speaker 4: Yeah, Look, I think that the government has said that
Speaker 4: it got some modeling which suggested the uptake of the
Speaker 4: support would be much larger than it's been, so it
Speaker 4: has a bit of egg on its face there. The
Speaker 4: other big support that came through last budget was, of
Speaker 4: course the changes to those income tax brackets. So that
Speaker 4: has effectively given I don't know if you call it
Speaker 4: an income tax cut, but the brackets for income tax
Speaker 4: have been adjusted partly to reflect inflation, which means we
Speaker 4: are paying a bit leass income tax than would eitherwise
Speaker 4: be the case. That was a pretty massive cost and
Speaker 4: big election promise.
Speaker 5: Was my intention that we would make any changes to
Speaker 5: charity tax law at the budget. But I won't be
Speaker 5: making changes at the budget, and I can confirm that
Speaker 5: because we are.
Speaker 3: Continuing work in this area.
Speaker 5: So if you take that example of sanitarium, if we
Speaker 5: were to say we're now not exempting your business from tax,
Speaker 5: what they could do is instead make their profits a
Speaker 5: donation back to the Seventh day Adventist Church, their parent
Speaker 5: and get around. And yet, well, yeah, that's right, they'd
Speaker 5: get around it, and so they wouldn't in fact be
Speaker 5: paying more tax.
Speaker 2: Have they looked at any alternative methods of bringing in
Speaker 2: revenue asides from I guess raising everyone's taxes? I saw
Speaker 2: that Willis has rejected a charities tax for this budget.
Speaker 1: Why is that?
Speaker 3: Yeah, that was really interesting.
Speaker 4: Actually, Nichola Willis made the point that changing the rules
Speaker 4: around how much tax charities pay is really complicated. You know,
Speaker 4: there are a lot of charities that operate that do
Speaker 4: really good work for the community, and in fact, this
Speaker 4: government does rely on charities a lot to do social work. So,
Speaker 4: for example, community housing providers, this government in particular is
Speaker 4: relying really heavily on them to build state houses so
Speaker 4: that the government doesn't have to build the houses. It's
Speaker 4: a nally piece of law because you have all that
Speaker 4: legitimate stuff that goes on, and then you have the
Speaker 4: controversial ones like Destiny Church or sanitarium, you know, charities
Speaker 4: that are kind of businesses. So it sounds like differentiating
Speaker 4: between the two and changing the law in such a
Speaker 4: way that cracks down on the ones you want to
Speaker 4: crack down on but supports the ones you want to
Speaker 4: support is really tricky. Nikola Willis also said that actually
Speaker 4: making changes might not bring in that much more tax
Speaker 4: revenue for the government. So I think she said we'll
Speaker 4: keep working on that, and the accountants i've heard comment
Speaker 4: on that have said that's a good call.
Speaker 3: It's a Nali peace law. It's best. You know, you
Speaker 3: have to get it right.
Speaker 2: We've seen a lot of backlash in the US towards
Speaker 2: dough cutting billions from public services, and Donald Trump is
Speaker 2: facing record low approval ratings in the polls there. Do
Speaker 2: you think the government needs to be careful in how
Speaker 2: much it cuts in case it faces this kind of
Speaker 2: anti Trump sentiment at the ballot box next year?
Speaker 3: You know, I think the sentiment in New Zealand is
Speaker 3: quite different.
Speaker 4: And I mean, every time there's a cut, someone is
Speaker 4: going to be affected. Now, if you are affected by
Speaker 4: a cut, you're not going to be happy. But I
Speaker 4: believe the general sentiment in New Zealand at the moment
Speaker 4: is that people are you know, they feel like a
Speaker 4: lot of the spending that occurred under the previous government
Speaker 4: hasn't produced the results that have benefited their lives materially.
Speaker 3: Now.
Speaker 4: Of course, it's easy to say that now, you know,
Speaker 4: we don't know. We could have been in a much
Speaker 4: worse position now had the previous government not provided all
Speaker 4: that support during the pandemic. But I believe the majority
Speaker 4: of New Zealanders at the moment, I think, want to
Speaker 4: hang on to a bit more of the money they earn.
Speaker 4: They don't want spending on, you know, things that are
Speaker 4: not necessary. But I think it is hard because things
Speaker 4: like healthcare and education they need to be I mean,
Speaker 4: investment really needs to continue there. And those are the
Speaker 4: areas I believe people really care about how long you're
Speaker 4: waiting to get your medical treatments, or how long you're
Speaker 4: waiting at the hospit or whether it's safe with your
Speaker 4: kids are getting good eddication. Those areas the government desperately
Speaker 4: needs to keep focused on.
Speaker 2: I think yeah, and I guess if you were walking
Speaker 2: down the street and asking people what shouldn't be cut
Speaker 2: health and education would be up there. Hey, is there
Speaker 2: any an inclination of what could be cut more?
Speaker 4: Well, we've been playing the guessing game, and my best
Speaker 4: guess at the moment is that the government might cut
Speaker 4: or might means test the contribution it makes to key
Speaker 4: we Saver members. So as it stands, if you contribute
Speaker 4: a certain amount every year to your kei we Saver,
Speaker 4: you get just over five hundred dollars a year from
Speaker 4: the government. Now, the idea behind that was to encourage.
Speaker 3: People to contribute to key we Saver.
Speaker 4: With these costs of superannuation really rising and looking to
Speaker 4: the future, key we Saver is going to play an
Speaker 4: increasingly important part of helping us pay for our retirements.
Speaker 4: So the government wants to encourage people to contribute. That's
Speaker 4: what that five hundred dollars payment is therefore, but that
Speaker 4: does cost about one point one billion dollars a year.
Speaker 4: That's a lot. I feel like the government could means
Speaker 4: test that, so it could say, look, if you earn
Speaker 4: over a certain amount, you don't need to get this
Speaker 4: free money from the government. We're only going to give
Speaker 4: it to lower income owners. That would save a lot.
Speaker 4: Nicola Willis has also you know I've been talking to
Speaker 4: her a bit about this a bit recently, and she
Speaker 4: is looking at reviewing key we save the settings. So
Speaker 4: I wonder whether they cut that payment, and they could
Speaker 4: even look to increasing the minimum contribution. So currently it's
Speaker 4: three percent, but I do wonder whether they might say, hey,
Speaker 4: look in a couple of years, the default contribution rate's
Speaker 4: going to be, say four percent.
Speaker 3: Again.
Speaker 4: Superannuation is a real big issue for New Zealand, and
Speaker 4: I think governments really need to look to help us
Speaker 4: better equip ourselves for our retirements.
Speaker 6: I think New Zealanders can see every day the concert
Speaker 6: of the government's decisions to prioritize tax cuts and spending
Speaker 6: cuts over investing in the public services that New Zealanders
Speaker 6: rely on. We see a health system descending into crisis,
Speaker 6: we see record numbers of New Zealanders giving up and
Speaker 6: leaving the country, and this government are going to make
Speaker 6: all of those problems worse.
Speaker 2: In terms of less government spending, what does that do
Speaker 2: to the Reserve Bank?
Speaker 4: So in theory, if the government spends less, that can
Speaker 4: have a contractionary effect on the economy. If the government's putting,
Speaker 4: you know, isn't increasing, it's spending as much that can
Speaker 4: weigh on economic growth. Now, if that is the case
Speaker 4: and the country needs growth, and then that does put
Speaker 4: more of the onus on the reserve Bank to do
Speaker 4: more to stimulate the economy. So currently the Reserve Bank
Speaker 4: is it's not really it's been cutting interest rates the
Speaker 4: OCRs at a level at the moment where it's still
Speaker 4: actually a highy bit contractionary, but it's getting into that
Speaker 4: sort of stimulatory level. Theoretically, if the government does less
Speaker 4: to stimulate the economy, that does put pressure on the
Speaker 4: Reserve Bank to do so by cutting interest rates a
Speaker 4: bit more.
Speaker 3: Than it otherwise would.
Speaker 4: Now what that means is if interest rates are quite low,
Speaker 4: that encourages people and businesses to borrow and spend. So
Speaker 4: I do wonder whether we could get to a situation
Speaker 4: where the government puts a bit of a lid on
Speaker 4: its spending and its debt. But on the other side,
Speaker 4: that means that individuals and businesses end up taking out
Speaker 4: more debt. Already, traditionally New Zealand households are pretty indebted.
Speaker 4: It's because our house prices are so high, our mortgages
Speaker 4: are so big, so that there could be a bit
Speaker 4: of a shift there, as I say, a slow down
Speaker 4: an uptake of government debt and a speeding up of
Speaker 4: uptake of private debt.
Speaker 2: But if the government did commit to more debt in
Speaker 2: order to spend more fund some more big schemes like
Speaker 2: I don't know, but a third harbor crossing in Auckland.
Speaker 1: What would be the negatives of doing that?
Speaker 2: Because you often hear the argument of debt being bad
Speaker 2: for the country, but what is the harm of being
Speaker 2: a bit slower to pay that back?
Speaker 4: Yeah, this is a really hotly debated issue, and I think,
Speaker 4: you know, most sensible people agree that a debt is
Speaker 4: good if it's invested in productive things, so you know,
Speaker 4: infrastructure that as I said before, that supports productivity. Arguably
Speaker 4: giving people wealthy people various payments like the Kei we
Speaker 4: saver payment, well, is that really helpful?
Speaker 3: Maybe not.
Speaker 4: The issue of having lots of debt is that you
Speaker 4: have to pay interest on that debt, and currently our
Speaker 4: interest costs are heading towards ten billion dollars a year,
Speaker 4: So that's ten billion dollars that could be spent on
Speaker 4: hospitals or other things.
Speaker 3: You know, debt doesn't come for free.
Speaker 4: That is kind of a downside Another downside is that
Speaker 4: a country's debt gets too high and the people who
Speaker 4: lean to us around the world, the investors, if they think,
Speaker 4: oh my god, New Zealand's debts too high, that the
Speaker 4: country can't really pay it back, they could start seeing
Speaker 4: New Zealander as being risky. And if they see New
Speaker 4: Zealander as being risky, they'll say, okay, we'll buy our debt,
Speaker 4: but we want to hire a return. So that ends
Speaker 4: up pushing up the interest rates that they demand for
Speaker 4: the debt that they buy, and that costs the country more.
Speaker 4: I don't really think we're at that point at the moment.
Speaker 4: Like we've seen bond yields go up in America, and also,
Speaker 4: you know, because of Donald Trump's policies, investors are saying, oh,
Speaker 4: this is a bit this country is looking a bit shaky,
Speaker 4: so we're happy to lend to you, but we want
Speaker 4: to hire a return. We also saw this in the
Speaker 4: UK when Liz Trust was the Prime Minister. Briefly investors
Speaker 4: got the shakes and bond yields went up, So that's
Speaker 4: another downside. I don't think we're at that point. Something
Speaker 4: else to consider is, well, what is the cost of
Speaker 4: not borrowing and investing, you know, if we don't you know,
Speaker 4: support our people, have a decent health system, all these
Speaker 4: things that also costs us. Now an area that you
Speaker 4: see that as ac the ACC is in a major deficit.
Speaker 4: It's costing us a lot. ACCC is one of the
Speaker 4: reasons for this. It's all very complicated, but one of
Speaker 4: the reasons is because it's taking people longer to get rehabilitated.
Speaker 4: Is it taking people longer to get rehabilitated because the
Speaker 4: health system is not functioning well? They're along wait lists,
Speaker 4: it takes ages to get an appointment. So maybe that's
Speaker 4: an example of how underinvestment can cost you.
Speaker 3: Thanks for joining us, Janey, awesome. Thanks Chelsea.
Speaker 2: That's it for this episode of The Front Page. You
Speaker 2: can read more about today's stories and extensive news coverage
Speaker 2: at enzadherld dot co dot nz. The Front Page is
Speaker 2: produced by Ethan Sells and Richard Martin, who is also
Speaker 2: our sound engineer. I'm Chelsea Daniels. Subscribe to The Front
Speaker 2: Page on iHeartRadio or wherever you get your podcasts, and
Speaker 2: tune in tomorrow for another look behind the headlines.
Speaker 4: S