WEBVTT - Budget 2025: Government to reduce spending by "billions" - so what could be cut?

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<v Speaker 1>Kiota.

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<v Speaker 2>I'm Chelsea Daniels and this is the Front Page, a

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<v Speaker 2>daily podcast presented by The New Zealand Herald.

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<v Speaker 1>This month, the government will.

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<v Speaker 2>Deliver its second budget and Finance Minister Nikola Willis is

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<v Speaker 2>starting to tease what exactly we could see from it

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<v Speaker 2>and basically.

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<v Speaker 1>Don't expect much.

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<v Speaker 2>There will be just one point three billion dollars of

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<v Speaker 2>new discretionary operating spending in this year's budget as the

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<v Speaker 2>government focuses once again on reducing spending by billions of dollars.

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<v Speaker 2>So where is all this money going and what goodies

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<v Speaker 2>could the government offer up in such tight conditions. Today

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<v Speaker 2>on the Front Page, Wellington Business Editor Jane Tibschraney is

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<v Speaker 2>with us to.

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<v Speaker 1>Look through what to expect for Budget twenty twenty five.

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<v Speaker 2>Janey, let's start with Willis's speech to the Heart Valley

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<v Speaker 2>Chamber of Commerce. The main message there seems to be

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<v Speaker 2>that billions of dollars has been slashed.

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<v Speaker 1>Is that fair?

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<v Speaker 3>Not quite? Chelsea.

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<v Speaker 4>Basically, previously Nikola Willis said that she would increase the

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<v Speaker 4>amount of money that the government spends on operating costs

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<v Speaker 4>by two point four billion dollars in the next year.

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<v Speaker 4>What she said in that speech was that should only

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<v Speaker 4>increase the spending the operation or spending by one point

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<v Speaker 4>three billion, So that's a cut from two point four

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<v Speaker 4>to one point three that is new spending. So the

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<v Speaker 4>government is actually still going to be spending more money,

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<v Speaker 4>and in many ways it needs to. We have population growth,

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<v Speaker 4>we have inflation. You know, all the services that the

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<v Speaker 4>government provides naturally cost more as as prices go up

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<v Speaker 4>and as more people come to New Zealand. But the

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<v Speaker 4>surprising thing that Nickola Willis revealed was that she wouldn't

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<v Speaker 4>increase her spending by as much as previously said. Now

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<v Speaker 4>that is significant because at two point four billion, that

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<v Speaker 4>was what she previously said, that was already looking tight

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<v Speaker 4>like at that level there already had to be reprioritizations

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<v Speaker 4>across government. So at one point three that does mean

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<v Speaker 4>that just to keep the current level of services ticking along,

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<v Speaker 4>there will have to be cuts somewhere across the public

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<v Speaker 4>sector to pay for that.

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<v Speaker 5>At every step, we've asked ourselves to questions, One can

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<v Speaker 5>these dollars be justified when we are borrowing to pay

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<v Speaker 5>for them? And two can we be sure these dollars

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<v Speaker 5>will do more good in this area than if invested

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<v Speaker 5>in our most pressing priorities, like funding essential health services,

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<v Speaker 5>better educating our kids, ending New Zealand's security for ensuring

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<v Speaker 5>our future growth.

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<v Speaker 2>Is it fair to say that a lot of the

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<v Speaker 2>focus on the budget will be to fund the rising

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<v Speaker 2>costs associated with things like healthcare. I saw that the

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<v Speaker 2>government has already allocated funds for health and new medicines

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<v Speaker 2>for FARMAC. Health really eats away at the budget each year,

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<v Speaker 2>doesn't it.

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<v Speaker 4>Yeah, Look, health spending is huge. Health and New Zealand superannuation,

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<v Speaker 4>those are the two big ticket items, and as our

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<v Speaker 4>population ages, those costs just keep climbing it at a

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<v Speaker 4>pretty remarkable rate. I think what you're talking about here

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<v Speaker 4>is that previously the government promised to spend certain amounts

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<v Speaker 4>on health, on medicines through through FARMAC. It made those promises,

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<v Speaker 4>so much of the new spending that is expected to

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<v Speaker 4>occur has already been eaten up by that promise to

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<v Speaker 4>it to spend more on health. So again, that sort

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<v Speaker 4>of means that the government has to find even more

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<v Speaker 4>money than previously thought from elsewhere in its budgets to

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<v Speaker 4>pay to keep the lights on. So I think the

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<v Speaker 4>theme of this budget is really going to be cuts

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<v Speaker 4>to public services. The government has to find that money somewhere.

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<v Speaker 4>But when you look at the nominal amounts, so that

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<v Speaker 4>dollars and cents that the government spends that is continuing

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<v Speaker 4>to climb.

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<v Speaker 2>What about the sweeteners that we always want to see

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<v Speaker 2>from the budget? Are there any promises of things like

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<v Speaker 2>tax carts or the like.

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<v Speaker 3>I don't think so.

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<v Speaker 4>Unfortunately, Nikola Willis has really tempered our expectations around this.

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<v Speaker 4>I think under the previous government we got used to

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<v Speaker 4>turning up on budget Day and going, Oh, what's the

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<v Speaker 4>creative new thing that the government has come up with

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<v Speaker 4>to support the economy. I strongly doubt there will be

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<v Speaker 4>anything like that that in this budget. It's worth noting

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<v Speaker 4>that for governments that the middle budget, so governments have

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<v Speaker 4>a three year term, the middle budget is often the

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<v Speaker 4>one where they kind of can do the g nally

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<v Speaker 4>things and then they save the positive things for the

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<v Speaker 4>final budget before the election. So a part of me

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<v Speaker 4>does wonder whether Nicola Willis is really knuckling down in

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<v Speaker 4>this budget and that might give a little bit more

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<v Speaker 4>room to be a bit freer at the next budget

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<v Speaker 4>ahead of the election. If I was to be cynical.

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<v Speaker 1>Yeah, well that makes sense, doesn't it.

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<v Speaker 2>Because the first budget it's like, well, here's some sweetness,

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<v Speaker 2>this is why you elected us, and then the last

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<v Speaker 2>ones like, well, here's some sweetness, because this is why

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<v Speaker 2>you should elect us again. So one of the big

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<v Speaker 2>sweetners last year was the childcare rebate policy. Hey, and

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<v Speaker 2>in the last week that's blown up in the government's face.

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<v Speaker 1>What's happened there?

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<v Speaker 4>Yeah, Look, I think that the government has said that

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<v Speaker 4>it got some modeling which suggested the uptake of the

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<v Speaker 4>support would be much larger than it's been, so it

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<v Speaker 4>has a bit of egg on its face there. The

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<v Speaker 4>other big support that came through last budget was, of

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<v Speaker 4>course the changes to those income tax brackets. So that

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<v Speaker 4>has effectively given I don't know if you call it

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<v Speaker 4>an income tax cut, but the brackets for income tax

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<v Speaker 4>have been adjusted partly to reflect inflation, which means we

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<v Speaker 4>are paying a bit leass income tax than would eitherwise

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<v Speaker 4>be the case. That was a pretty massive cost and

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<v Speaker 4>big election promise.

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<v Speaker 5>Was my intention that we would make any changes to

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<v Speaker 5>charity tax law at the budget. But I won't be

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<v Speaker 5>making changes at the budget, and I can confirm that

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<v Speaker 5>because we are.

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<v Speaker 3>Continuing work in this area.

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<v Speaker 5>So if you take that example of sanitarium, if we

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<v Speaker 5>were to say we're now not exempting your business from tax,

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<v Speaker 5>what they could do is instead make their profits a

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<v Speaker 5>donation back to the Seventh day Adventist Church, their parent

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<v Speaker 5>and get around. And yet, well, yeah, that's right, they'd

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<v Speaker 5>get around it, and so they wouldn't in fact be

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<v Speaker 5>paying more tax.

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<v Speaker 2>Have they looked at any alternative methods of bringing in

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<v Speaker 2>revenue asides from I guess raising everyone's taxes? I saw

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<v Speaker 2>that Willis has rejected a charities tax for this budget.

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<v Speaker 1>Why is that?

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<v Speaker 3>Yeah, that was really interesting.

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<v Speaker 4>Actually, Nichola Willis made the point that changing the rules

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<v Speaker 4>around how much tax charities pay is really complicated. You know,

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<v Speaker 4>there are a lot of charities that operate that do

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<v Speaker 4>really good work for the community, and in fact, this

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<v Speaker 4>government does rely on charities a lot to do social work. So,

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<v Speaker 4>for example, community housing providers, this government in particular is

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<v Speaker 4>relying really heavily on them to build state houses so

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<v Speaker 4>that the government doesn't have to build the houses. It's

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<v Speaker 4>a nally piece of law because you have all that

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<v Speaker 4>legitimate stuff that goes on, and then you have the

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<v Speaker 4>controversial ones like Destiny Church or sanitarium, you know, charities

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<v Speaker 4>that are kind of businesses. So it sounds like differentiating

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<v Speaker 4>between the two and changing the law in such a

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<v Speaker 4>way that cracks down on the ones you want to

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<v Speaker 4>crack down on but supports the ones you want to

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<v Speaker 4>support is really tricky. Nikola Willis also said that actually

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<v Speaker 4>making changes might not bring in that much more tax

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<v Speaker 4>revenue for the government. So I think she said we'll

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<v Speaker 4>keep working on that, and the accountants i've heard comment

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<v Speaker 4>on that have said that's a good call.

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<v Speaker 3>It's a Nali peace law. It's best. You know, you

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<v Speaker 3>have to get it right.

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<v Speaker 2>We've seen a lot of backlash in the US towards

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<v Speaker 2>dough cutting billions from public services, and Donald Trump is

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<v Speaker 2>facing record low approval ratings in the polls there. Do

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<v Speaker 2>you think the government needs to be careful in how

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<v Speaker 2>much it cuts in case it faces this kind of

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<v Speaker 2>anti Trump sentiment at the ballot box next year?

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<v Speaker 3>You know, I think the sentiment in New Zealand is

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<v Speaker 3>quite different.

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<v Speaker 4>And I mean, every time there's a cut, someone is

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<v Speaker 4>going to be affected. Now, if you are affected by

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<v Speaker 4>a cut, you're not going to be happy. But I

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<v Speaker 4>believe the general sentiment in New Zealand at the moment

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<v Speaker 4>is that people are you know, they feel like a

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<v Speaker 4>lot of the spending that occurred under the previous government

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<v Speaker 4>hasn't produced the results that have benefited their lives materially.

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<v Speaker 3>Now.

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<v Speaker 4>Of course, it's easy to say that now, you know,

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<v Speaker 4>we don't know. We could have been in a much

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<v Speaker 4>worse position now had the previous government not provided all

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<v Speaker 4>that support during the pandemic. But I believe the majority

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<v Speaker 4>of New Zealanders at the moment, I think, want to

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<v Speaker 4>hang on to a bit more of the money they earn.

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<v Speaker 4>They don't want spending on, you know, things that are

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<v Speaker 4>not necessary. But I think it is hard because things

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<v Speaker 4>like healthcare and education they need to be I mean,

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<v Speaker 4>investment really needs to continue there. And those are the

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<v Speaker 4>areas I believe people really care about how long you're

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<v Speaker 4>waiting to get your medical treatments, or how long you're

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<v Speaker 4>waiting at the hospit or whether it's safe with your

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<v Speaker 4>kids are getting good eddication. Those areas the government desperately

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<v Speaker 4>needs to keep focused on.

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<v Speaker 2>I think yeah, and I guess if you were walking

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<v Speaker 2>down the street and asking people what shouldn't be cut

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<v Speaker 2>health and education would be up there. Hey, is there

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<v Speaker 2>any an inclination of what could be cut more?

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<v Speaker 4>Well, we've been playing the guessing game, and my best

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<v Speaker 4>guess at the moment is that the government might cut

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<v Speaker 4>or might means test the contribution it makes to key

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<v Speaker 4>we Saver members. So as it stands, if you contribute

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<v Speaker 4>a certain amount every year to your kei we Saver,

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<v Speaker 4>you get just over five hundred dollars a year from

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<v Speaker 4>the government. Now, the idea behind that was to encourage.

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<v Speaker 3>People to contribute to key we Saver.

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<v Speaker 4>With these costs of superannuation really rising and looking to

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<v Speaker 4>the future, key we Saver is going to play an

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<v Speaker 4>increasingly important part of helping us pay for our retirements.

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<v Speaker 4>So the government wants to encourage people to contribute. That's

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<v Speaker 4>what that five hundred dollars payment is therefore, but that

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<v Speaker 4>does cost about one point one billion dollars a year.

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<v Speaker 4>That's a lot. I feel like the government could means

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<v Speaker 4>test that, so it could say, look, if you earn

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<v Speaker 4>over a certain amount, you don't need to get this

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<v Speaker 4>free money from the government. We're only going to give

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<v Speaker 4>it to lower income owners. That would save a lot.

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<v Speaker 4>Nicola Willis has also you know I've been talking to

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<v Speaker 4>her a bit about this a bit recently, and she

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<v Speaker 4>is looking at reviewing key we save the settings. So

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<v Speaker 4>I wonder whether they cut that payment, and they could

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<v Speaker 4>even look to increasing the minimum contribution. So currently it's

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<v Speaker 4>three percent, but I do wonder whether they might say, hey,

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<v Speaker 4>look in a couple of years, the default contribution rate's

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<v Speaker 4>going to be, say four percent.

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<v Speaker 3>Again.

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<v Speaker 4>Superannuation is a real big issue for New Zealand, and

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<v Speaker 4>I think governments really need to look to help us

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<v Speaker 4>better equip ourselves for our retirements.

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<v Speaker 6>I think New Zealanders can see every day the concert

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<v Speaker 6>of the government's decisions to prioritize tax cuts and spending

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<v Speaker 6>cuts over investing in the public services that New Zealanders

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<v Speaker 6>rely on. We see a health system descending into crisis,

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<v Speaker 6>we see record numbers of New Zealanders giving up and

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<v Speaker 6>leaving the country, and this government are going to make

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<v Speaker 6>all of those problems worse.

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<v Speaker 2>In terms of less government spending, what does that do

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<v Speaker 2>to the Reserve Bank?

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<v Speaker 4>So in theory, if the government spends less, that can

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<v Speaker 4>have a contractionary effect on the economy. If the government's putting,

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<v Speaker 4>you know, isn't increasing, it's spending as much that can

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<v Speaker 4>weigh on economic growth. Now, if that is the case

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<v Speaker 4>and the country needs growth, and then that does put

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<v Speaker 4>more of the onus on the reserve Bank to do

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<v Speaker 4>more to stimulate the economy. So currently the Reserve Bank

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<v Speaker 4>is it's not really it's been cutting interest rates the

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<v Speaker 4>OCRs at a level at the moment where it's still

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<v Speaker 4>actually a highy bit contractionary, but it's getting into that

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<v Speaker 4>sort of stimulatory level. Theoretically, if the government does less

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<v Speaker 4>to stimulate the economy, that does put pressure on the

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<v Speaker 4>Reserve Bank to do so by cutting interest rates a

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<v Speaker 4>bit more.

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<v Speaker 3>Than it otherwise would.

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<v Speaker 4>Now what that means is if interest rates are quite low,

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<v Speaker 4>that encourages people and businesses to borrow and spend. So

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<v Speaker 4>I do wonder whether we could get to a situation

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<v Speaker 4>where the government puts a bit of a lid on

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<v Speaker 4>its spending and its debt. But on the other side,

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<v Speaker 4>that means that individuals and businesses end up taking out

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<v Speaker 4>more debt. Already, traditionally New Zealand households are pretty indebted.

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<v Speaker 4>It's because our house prices are so high, our mortgages

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<v Speaker 4>are so big, so that there could be a bit

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<v Speaker 4>of a shift there, as I say, a slow down

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<v Speaker 4>an uptake of government debt and a speeding up of

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<v Speaker 4>uptake of private debt.

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<v Speaker 2>But if the government did commit to more debt in

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<v Speaker 2>order to spend more fund some more big schemes like

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<v Speaker 2>I don't know, but a third harbor crossing in Auckland.

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<v Speaker 1>What would be the negatives of doing that?

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<v Speaker 2>Because you often hear the argument of debt being bad

0:14:06.480 --> 0:14:09.760
<v Speaker 2>for the country, but what is the harm of being

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<v Speaker 2>a bit slower to pay that back?

0:14:11.600 --> 0:14:14.880
<v Speaker 4>Yeah, this is a really hotly debated issue, and I think,

0:14:15.200 --> 0:14:17.960
<v Speaker 4>you know, most sensible people agree that a debt is

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<v Speaker 4>good if it's invested in productive things, so you know,

0:14:22.520 --> 0:14:27.280
<v Speaker 4>infrastructure that as I said before, that supports productivity. Arguably

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<v Speaker 4>giving people wealthy people various payments like the Kei we

0:14:31.440 --> 0:14:33.400
<v Speaker 4>saver payment, well, is that really helpful?

0:14:33.680 --> 0:14:34.080
<v Speaker 3>Maybe not.

0:14:34.360 --> 0:14:36.240
<v Speaker 4>The issue of having lots of debt is that you

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<v Speaker 4>have to pay interest on that debt, and currently our

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<v Speaker 4>interest costs are heading towards ten billion dollars a year,

0:14:43.000 --> 0:14:45.320
<v Speaker 4>So that's ten billion dollars that could be spent on

0:14:45.640 --> 0:14:47.040
<v Speaker 4>hospitals or other things.

0:14:47.600 --> 0:14:49.080
<v Speaker 3>You know, debt doesn't come for free.

0:14:49.120 --> 0:14:52.320
<v Speaker 4>That is kind of a downside Another downside is that

0:14:52.400 --> 0:14:55.680
<v Speaker 4>a country's debt gets too high and the people who

0:14:55.760 --> 0:14:58.200
<v Speaker 4>lean to us around the world, the investors, if they think,

0:14:58.280 --> 0:15:00.640
<v Speaker 4>oh my god, New Zealand's debts too high, that the

0:15:00.680 --> 0:15:03.360
<v Speaker 4>country can't really pay it back, they could start seeing

0:15:03.360 --> 0:15:05.920
<v Speaker 4>New Zealander as being risky. And if they see New

0:15:06.000 --> 0:15:09.000
<v Speaker 4>Zealander as being risky, they'll say, okay, we'll buy our debt,

0:15:09.040 --> 0:15:11.080
<v Speaker 4>but we want to hire a return. So that ends

0:15:11.160 --> 0:15:14.200
<v Speaker 4>up pushing up the interest rates that they demand for

0:15:14.240 --> 0:15:16.720
<v Speaker 4>the debt that they buy, and that costs the country more.

0:15:16.840 --> 0:15:18.960
<v Speaker 4>I don't really think we're at that point at the moment.

0:15:19.040 --> 0:15:24.320
<v Speaker 4>Like we've seen bond yields go up in America, and also,

0:15:24.640 --> 0:15:28.240
<v Speaker 4>you know, because of Donald Trump's policies, investors are saying, oh,

0:15:28.320 --> 0:15:30.400
<v Speaker 4>this is a bit this country is looking a bit shaky,

0:15:30.520 --> 0:15:32.920
<v Speaker 4>so we're happy to lend to you, but we want

0:15:32.960 --> 0:15:35.400
<v Speaker 4>to hire a return. We also saw this in the

0:15:35.480 --> 0:15:39.040
<v Speaker 4>UK when Liz Trust was the Prime Minister. Briefly investors

0:15:39.080 --> 0:15:43.120
<v Speaker 4>got the shakes and bond yields went up, So that's

0:15:43.120 --> 0:15:45.960
<v Speaker 4>another downside. I don't think we're at that point. Something

0:15:45.960 --> 0:15:48.480
<v Speaker 4>else to consider is, well, what is the cost of

0:15:48.800 --> 0:15:53.280
<v Speaker 4>not borrowing and investing, you know, if we don't you know,

0:15:53.360 --> 0:15:56.200
<v Speaker 4>support our people, have a decent health system, all these

0:15:56.240 --> 0:15:59.200
<v Speaker 4>things that also costs us. Now an area that you

0:15:59.240 --> 0:16:04.440
<v Speaker 4>see that as ac the ACC is in a major deficit.

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<v Speaker 4>It's costing us a lot. ACCC is one of the

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<v Speaker 4>reasons for this. It's all very complicated, but one of

0:16:09.120 --> 0:16:12.440
<v Speaker 4>the reasons is because it's taking people longer to get rehabilitated.

0:16:12.920 --> 0:16:15.760
<v Speaker 4>Is it taking people longer to get rehabilitated because the

0:16:15.760 --> 0:16:18.600
<v Speaker 4>health system is not functioning well? They're along wait lists,

0:16:18.600 --> 0:16:21.080
<v Speaker 4>it takes ages to get an appointment. So maybe that's

0:16:21.120 --> 0:16:24.440
<v Speaker 4>an example of how underinvestment can cost you.

0:16:24.760 --> 0:16:27.520
<v Speaker 3>Thanks for joining us, Janey, awesome. Thanks Chelsea.

0:16:31.480 --> 0:16:34.600
<v Speaker 2>That's it for this episode of The Front Page. You

0:16:34.640 --> 0:16:38.440
<v Speaker 2>can read more about today's stories and extensive news coverage

0:16:38.480 --> 0:16:42.520
<v Speaker 2>at enzadherld dot co dot nz. The Front Page is

0:16:42.520 --> 0:16:46.280
<v Speaker 2>produced by Ethan Sells and Richard Martin, who is also

0:16:46.440 --> 0:16:51.080
<v Speaker 2>our sound engineer. I'm Chelsea Daniels. Subscribe to The Front

0:16:51.120 --> 0:16:54.720
<v Speaker 2>Page on iHeartRadio or wherever you get your podcasts, and

0:16:54.800 --> 0:16:58.400
<v Speaker 2>tune in tomorrow for another look behind the headlines.

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<v Speaker 4>S