Speech: Budget 2025 - The Growth Budget

Tēna koutou kātoa. Greetings everyone. Can I thank you Mark for that kind introduction and thank everyone who has taken the time to be here today. My special thanks go to our hosts Metco Engineering and the Hutt Valley Chamber of Commerce.

Let me also acknowledge my colleagues who join us today - your local MP and my Associate Minister of Finance the Hon Chris Bishop, together with the Minister of Education the Hon Erica Stanford.

This factory is a bit of a different setting than the conference centre or ballroom Ministers typically use for a pre-Budget speech. Why?

Because places like this are the engine room of the New Zealand economy.

Our Government knows that to speed up the economic recovery New Zealanders need we have to get this growth engine cranking.

I appreciate that economic growth can be a bit of an abstract concept: the work that happens on this factory floor is what it’s all about.

The workers at Metco solve problems, coming up with new products and manufacturing processes for a range of industries. They design and create clever components for customers around the world – producing everything from window stays through to bus stops.

Metco has grown successfully by making investments in its own machinery and technology and by hiring and up-skilling great people who come up with innovative ideas and then make them happen.

The growth of businesses like MetCo, and indeed of all the businesses represented in this room today, has created good jobs and livelihoods for the people of the Hutt Valley community.

It’s also allowed your businesses to make healthy tax contributions, which helps fund the Government’s investment in health services, schools, vital infrastructure and other important public spending.

Thank you for that contribution, we don’t take it for granted.

New Zealand needs more success stories like MetCo: Your growth is what’s needed to deliver the kind of country we all want: with better living standards, better job opportunities and more financially secure families.

That’s why our Government is going for growth.

Earlier this year we released a snapshot of the work we have underway to support this growth agenda. Going for Growth sets out 87 specific actions we are taking under five key themes:

• Developing talent

• Competitive business settings

• Innovation, technology and science

• Overseas investment and trade

• Infrastructure for growth

I encourage you to check out the plan and the work underway. There’s more to come.

For today though, I’m going to switch out of my Economic Growth hat and into my Minister of Finance hat and focus my remarks on this year’s Budget.

The Government’s growth ambition has been front and centre as we’ve put the Budget together.

We know that global uncertainty is challenging for many of you and we’re determined our Budget will play a role in giving you confidence for the future.

But let me be blunt: it’s not the easiest time to be putting together a Budget.

New Zealand is still recovering from the economic damage inflicted during the Covid period and we’re now facing the headwinds of further global instability.

There is a pressing need for greater investments in our health system, our education system, our defence force and other areas, and very little money to pay for those investments.

Our Government is also acutely conscious of the challenging economic circumstances many New Zealanders have experienced in the past few years as we’ve emerged from a period of very high inflation and rapidly rising interest rates.

The pain is still rippling through our communities. Kiwis feel it in the higher prices they still pay for almost everything, in higher levels of unemployment and in struggling local businesses. The cost of living remains a top-of-mind concern.

The good news is that, despite significant global challenges, a steady economic recovery is now taking place here, with export-led growth gathering strength, business confidence coming off its lows and the primary sector benefiting from higher commodity prices and mostly favourable growing conditions.

Having considered everything happening around the world, the Treasury is continuing to forecast accelerating growth in the New Zealand economy over the coming year, with falling unemployment forecast to follow in the second half of the year.

There’s no magic wand to wish away the price rises baked in over recent years, but getting inflation and interest rates under control has been essential to achieving this economic recovery.

That’s why I always take pause to celebrate that since our Government came to office inflation has returned to normal levels, resulting in a 200 basis point reduction in interest rates.

We must not take this progress for granted.

While some pretend we can fix all the post-Covid damage with yet more extravagant government spending, the economic truth is that they are wrong.

The only way to sustainably overcome cost of living pressures is through successive years of stable inflation, careful investment and sustained economic growth.

Our Government is committed to the responsible fiscal management and growth supporting policies needed to make that happen.

An important part of that effort is getting our own books in order. That’s a big task.

The previous Government’s spending decisions during and after Covid have left New Zealand with a sea of debt and red-ink in the government finances.

Government debt leapt up by almost $120 billion between 2019 and 2024, soaring from under $58 billion to $175 billion.

Those are big numbers, almost too big to comprehend, so let me explain it this way: That amounts to $22,000 more in debt for every New Zealander.

You may well ask: what do we have to show for all that debt?

To give you some further historical context, New Zealand’s net core Crown debt, which once hovered between five and 25 per cent of GDP, rose to around 42 per cent last year. That’s the highest level of government debt New Zealand has shouldered since the mid-1990s.

Servicing that debt is expensive.

The interest bill on government debt has soared from $3.6 billion in 2014 to $8.9 billion last year. That sum is more than annual core Crown expenses for the Police, Corrections, the Ministry of Justice, Customs and the Defence Force combined.

Our Government’s goal is to put net core Crown debt on a downward trajectory towards 40 per cent of GDP and in the longer term keep it below that percentage.

Why? Because allowing debt to keep spiralling would threaten the livelihood of every New Zealander.

We must ensure our country is financially strong and resilient enough to effectively respond to whatever the future may throw: be it earthquakes, extreme climatic events, biosecurity incursions or whatever. We need the world to keep seeing us as a good country to invest in and lend to. Manageable debt levels are an essential foundation for a strong economy and for your financial future.

Achieving lower debt levels isn’t easy: especially because the government books remain out of balance.

The post-Covid ‘structural deficit’ has left a big gap between what the country needs to fund to deliver on the spending commitments previous Budgets have made and what we need to earn to pay for that spending.

The Government is currently borrowing billions to bridge the gap.

Every Thursday afternoon, New Zealand Debt Management issues around $500 million of Government bonds. Some of this is to that roll over existing bonds that have expired, but large chunks of it are for new borrowing.

That level of borrowing obviously can’t go on forever, or else our kids and grandkids will be left with unsustainable debt and considerable economic uncertainty.

Most of you can probably relate to this if you think about your own household budget: sure, sensible borrowing has its place, but no overdraft can be extended forever, and while you can keep giving the credit card a hammering, left unpaid, it does, eventually, get declined.

It’s worth bearing this in mind next time somebody tries to suggest to you that the New Zealand Government needs to spend more on something.

The second question always needs to be: but how will we pay for it?

Our Government’s strategy is to reduce the deficit over time, through a gradual programme of consolidation and careful spending choices.

We are committed to maintaining stability for New Zealanders, by continuing to invest in essential frontline services, infrastructure for growth and social supports like superannuation.

But delivering those things requires us to make careful choices about what we spend elsewhere.

That’s why we’ve committed ourselves to ongoing reprioritisation and fiscal restraint. It isn’t easy, but it is essential.
Believe me, I’d rather we were in clover, with money to spend on all the good ideas we hear. But the reality is that we are governing in tighter times.

Economic growth is essential to our fiscal repair job. It’s simply the most effective way to raise government revenue, and to give us better choices for the future.

Some have suggested a different approach. They say New Zealand should seek to close the deficit by simply adding more and higher rates of taxes to Kiwis’ wages, savings, wealth or capital.

We reject that approach.

Punishing Kiwis with higher taxes right now would undermine our recovery, strangle growth and threaten the economic stability New Zealand needs.

It would pull the rug out from all those businesses and industries who are already just hanging on. And it would send an exodus of Kiwi talent and wealth to Australia and beyond.

It would be exactly the wrong recipe for a country whose future prospects depend on investment and growth.