The New Zealand government has unveiled its 2025 national budget with the most restrained new spending allocation in ten years, citing growing international trade risks and subdued domestic growth.
Finance Minister Nicola Willis confirmed the operating spend for the fiscal year ending June 30 has been set at NZ$1.3 billion, as the centre-right government looks to maintain fiscal discipline despite economic headwinds.
“The global situation is concerning,” Willis said during the budget presentation in Wellington. “We can’t control what other countries do with their tariffs, what we can control is our conditions.”
The announcement comes at a time when New Zealand’s economy is recovering from a contraction last year. Treasury officials have revised down GDP growth expectations, pointing to impacts from international trade disruptions tied to U.S. tariff actions.
“Actions by the United States to impose near universal tariffs and counter measures by some countries have led international agencies to lower their global growth forecasts,” the Treasury noted. “The global trade shock is hitting a New Zealand economy that is recovering from last year’s contraction.”
The budget outlines key shifts in government spending priorities, including increased funding for health, defence, and foreign affairs. It also includes changes to the Kiwisaver pension scheme. However, the government is still forecasting a deficit of NZ$14.74 billion for the current financial year, slightly improved from December’s estimate of NZ$17.32 billion. A return to surplus is not expected within the five-year forecast, when factoring in the national accident insurance costs.
Despite these challenges, Prime Minister Christopher Luxon defended the government’s choices. “We are confident we have put Kiwis’ hard-earned taxes where they will have the most impact,” he said.
Economists and analysts have raised concerns about whether the tight fiscal strategy might limit the country’s economic recovery. Zoe Wallis, investment strategist at Forsyth Barr, commented on the broader implications: “A weaker macro backdrop, lower tax take and heightened global uncertainty has meant that what was already going to be a tight Budget has been crunched even tighter.”
She also highlighted Treasury’s projections that the cash rate could drop to around 2.5% by mid-2027 and stay at that level through to 2029, a longer easing cycle than current expectations from the Reserve Bank of New Zealand or market forecasts.
As New Zealand works to stabilize its finances, debt is projected to peak at 46% of GDP in 2027/28. That is a slight revision from December, which had forecast a peak of 46.5% in 2026/27. Meanwhile, GDP growth for the year ending June 2026 is now expected to slow to 2.9%, compared to a previous estimate of 3.3%, with inflation tracking steady at 2.1%.
“The government is not promising that today’s Budget will solve all New Zealanders’ problems. But we do promise that the decisions we are taking now will set our country up for a better future,” Willis added during her speech.
