The government has freed up "billions" of dollars through additional public service cuts to be redeployed into "New Zealand's most pressing priorities".
Finance Minister Nicola Willis announced at a speech to the Hutt Valley Chamber of Commerce on Tuesday morning the government is halving its operating allowance - the new money it has available to spend at the May Budget - from $2.4 billion to $1.3b.
That will result in only a small number of government departments receiving additional funding this year with Willis characterising 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. We have also found room for modest measures to support business growth and to provide some carefully targeted cost of living relief," Willis said.
"We expect government agencies to adjust themselves to New Zealand's limited fiscal means. This will require restraint in public sector wage increases and an ongoing commitment to getting more impact out of every dollar spent."
Willis - with the help of associate finance minister David Seymour - has undertaken a significant savings drive ahead of the Budget to identify billions of dollars of spending that could be reprioritised.
"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."
With all that in mind Willis said it had put pressure on the government being able to stick to its fiscal strategy.
At the half year update in December a small surplus was expected in 2029, and Willis said it remained her intention to return to a surplus a year earlier if possible.
Finance Minister Nicola Willis makes a pre-budget speech to the Hutt Valley Chamber of Commerce. Photo: RNZ / Sam Rillstone
That all took place, however, before US President Trump's "Liberation Day".
Despite that, Willis confirmed on Tuesday morning the government remained committed to that goal.
"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 said.
"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."
Labour Party leader Chris Hipkins told Morning Report the government may as well give public servants a ticket to Australia, "because Nicola Willis is hanging out a very clear sign there's no hope here for them".
The biggest cuts the government had made so far was cuts to investments in the future, he said.
Borrowing in the last budget for tax cuts was "absolutely reckless and irresponsible" and something the government could not afford then or now, he said.
Charities tax delayed a year
Speaking to media after her first pre-Budget speech, Willis said all ministers around the Cabinet table get the difficult fiscal times the country is facing and why their new initiatives are unlikely to be funded.
"They understand the situation we're in."
"We've taken a slightly different approach this year, our first thing is to say to ministers, don't be expecting new money for your intiatives unless you've also come up with some savings," she said.
"We've also said to most departmental agencies, don't be expecting new funding, and then we've gone through carefully and targeted some specific areas for savings."
Willis said she would love to give cost of living relief to every family in this year's Budget, "but that's just not our economic reality right now".
"We've come up with a very small number of highly targeted measureds on the cost of living that are targeted at the groups of people we think can really do with the support, but I do want to be careful with your expecations, the measures are modest."
The May Budget was finalised after Trump's tariff announcements.
"We took all of that into account but the big thing here is we made quite a solemn commitment to New Zealanders that we would be responsible economic managers and manage the books well."
"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."
Willis has also confirmed plans to push ahead with a charities tax at this year's Budget has been pushed out by a year.
"We had a short consultation period - more than 900 submissions - and what officials have advised us is that there are some real complexities to work through.
"I'd hoped that we could make the changes by the Budget, but actually it's really important we get these changes right."
While some commentators had estimated a charities tax could collect billions in revenue, Willis said "people had overestimated what that would look like".
"IRD's estimate was at the most it would be worth around $50 million a year, and for that sum of money it wasn't worth taking the risk."
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