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The Government is today releasing what is expected to be a trove of documents relating to Budget 2025, revealing new details of how various policies were developed and officials’ views on them.

Among the policies announced in May’s Budget 2025 were changes to KiwiSaver contributions, the introduction of Investment Boost, adjustments to Working For Families, new rules around JobSeeker eligibility, and longer medicine prescriptions.

There was also confirmation that $12.8 billion previously allocated towards the pay equity scheme had been returned to the kitty after the Government’s controversial tightening of the regime. There has already been a document dump on how this came about.

The documents are being released today as part of the annual Budget proactive release. This is when the Government lifts the lid on many of the until-now confidential papers written during the Budget process.

The Herald will be looking through the documents – there’s often hundreds of pages – to see what new details are available. We will publish them in this story afterwards.

The Government has uncovered an $8.5 billion hole in funding future public services - despite suggesting $19.7b in cuts.

In 2024, Cabinet agreed to create “performance plans” for each public department.

These plans were to “provide assurance to Ministers that each department has a plan to deliver within baselines over the medium term”.

Initial plans were submitted in November 2024 and 41 of the 45 plans were digested by Treasury officials (exempted plans include security agencies, the charter schools agency and the Ministry for Regulation). An April Cabinet Paper from the office of Nicola Willis reveals what they say.

The plans estimated that there would be $27.9b in added “cost pressures” over the four year forecast period. This increase is to fund the increased cost of delivering existing services.

The plans were also asked to find “reprioritisations” - these are cuts that can be made to a department’s spending and funnelled into those cost pressures. These totalled $19.7b.

This left a cumulative $8.4b “unfunded” hole in cost pressures over the years to 2028/29.

Of the cost pressures, 67% sat within a handful of departments: Education, Defence, Health, Disability and Transport. The names of five other departments were redacted.

The cost pressures mainly come from an $8.6b increase in inflation in goods and services and a $5.9b increase in the volume of services as the population becomes larger and older.

OF the “unfunded pressures”, 98% could be found within four plans covering the Ministry of Health, Social Development, Transport, and MBIE.

Treasury said finding savings was essential.

“Treasury advises that we need a period of sustained operating surpluses over the medium term, whereas we are currently running a structural operating deficit of more than 2% of GDP. Bending the curve is essential to our fiscal strategy,” the paper said.

A table detailing cost pressures. Table / Treasury

Getting rid of Best Start would “increase child poverty”

Treasury and IRD told the Government that getting rid of the BestStart tax credit, a $73 a week tax credit would “likely increase child poverty to some extent”.

The payment was introduced by the Ardern Government as part of the 2018 Families Package. It was universal to all parents in the first year of their child’s life, and means tested for the next two years. Budget 2025 extended the means testing to the first year.

The Government received advice on repealing the tax credit entirely.

“Ultimately, repealing BestStart would reduce household incomes for current recipients. This would increase child poverty (to the extent that ‘poverty’ is measured based on household incomes), and the change would likely have some impact on hardship,” Treasury and IRD officials said.

“In our view, the size of the impacted population and the level of impact for that population were strong factors in our preliminary assessment that repealing BestStart would have a high impact on child poverty.

“This impact could be mitigated to some extent by the re-investment of funds from the repeal of BestStart into other measures that reduce child poverty.” officials said.

They also noted that broader economic conditions had an impact on child poverty.

Data showed a large number of families on higher incomes received the payment, including more than 20,000 families earning more than $150,000 a year, and about 25,000 families earning between $100,00 and $150,000 a year. These families have had the tax credit removed under the changes.

Various options considered over KiwiSaver Government contribution

Ministers received advice on getting rid of the Government’s annual contribution to KiwiSaver, before then considering various ways to restrict eligibility. This was assessed alongside lifting the minimum employee / employer contribution rate to 4%.

In February, the Finance and Revenue ministers received a briefing from Inland Revenue on the impact of removing the Government KiwiSaver contribution (GVC), along with increasing minimum employer and employee contribution from 3% to 4%.

Officials said removing the Government contribution would have “a negative impact on KiwiSaver balances”.

“It represented roughly 9% of all contributions into KiwiSaver balances last year. Even without behavioural change, removing the GVC would result in lower KiwiSaver balances for people who would have received it.”

Removing it would also likely lead to people choosing to stop contributing themselves.

“However, officials are of the view that the GVC is unlikely to be significantly boosting household retirement savings. The available evidence suggests it mainly shifts where people save rather than increasing total savings. Therefore, officials recommend ending the GVC due to its high cost and limited effectiveness.”

Removing it from July 2026 would save about $3.54 billion over the forecast period.

Another briefing later in February presented six different options for the contribution’s eligibility.

These were:

• Restrict GVC eligibility to those earning $57,143 for one year, remove the GVC entirely from 1 July 2027.
• Restrict eligibility to those earning $57,143 or less.
• Restrict eligibility to those earning $75,000 or less.
• Restrict GVC eligibility to those 18+ and under 25
• Restricting eligibility to the first 3 years of KiwiSaver membership
• Restrict eligibility to the first 5 years of KiwiSaver membership

Each of these options resulted in savings, ranging from $2.4 billion to $4 billion depending on what the Government did with the employee contribution rates.

Inland Revenue said limiting eligibility by income would “introduce significant complexity’ to the department’s systems compared with other options.

By March 5, a briefing shows ministers had decided to seek further advice on halving the contribution, the option they eventually announced.

A little over a week later, the ministers were also seeking information about extending the minimum employer contributions and GVC to those aged 16 and 17, something they ended up doing.

Further advice on March 19 looked at means testing the GVC, including at 180,000. The Government announced on Budget Day that those earning more than that would not receive the contribution.

Finance Nicola Willis got various options on KiwiSaver changes. Photo / Mark Mitchell

Government considered scrapping film subsidies

The government considered either scaling back or fully scrapping rebates for international film productions.

Finance Minister Nicola Willis wrote to former Broadcasting and Communications Minister Melissa Lee seeking her opinion on the future of the international Screen Production Rebate.

She asked for options on lowering the cost of the scheme, or terminating it completely.

The scheme provides a 20 per cent rebate to international productions that film in New Zealand. There is no cap.

The government later chose to keep the rebate, which required another $577 million over five years to keep up with expected demand - taking the total pool of available cash to $1.09 billion.

“While industry incentives are not generally our favoured approach, the reality is we simply won’t get the offshore investment in our highly successful screen sector without continuing this scheme,” Willis said on budget day.

Over the past ten years the government has spent $1.5 billion on rebates, with the industry spending $7.5 billion in the country.

Willis advised cuts would have “diminishing returns” and told to keep tax options open

In August last year, Treasury officials briefed Willis on the Budget strategy.

The Government’s overall strategy was to try to fund the increasing cost of existing services by cutting spending elsewhere in the public service, reducing the need for more borrowing.

Treasury advised that in order to do this, the Government may need to find $1.5-$4.5 billion in “additional fiscal headroom”.

“Keeping your options open, including on tax and spending, will provide you with flexibility to make trade-offs when you have more information about the fiscal and economic outlook and the impact of the savings and revenue options.

“Equally, focussing on fewer, but larger, savings options will maintain optionality whilst managing the capacity of Ministers and agencies to develop and implement saving,” officials said.

The Government eventually found about $6.6b in savings a year, $2.7b of which came from changing pay equity rules.

Willis was told that a review of options to save money had suggested “there are likely to be diminishing returns to successive savings exercises of this broad nature (e.g., capturing all agencies and are not specific to functions or themes)”.

“This is consistent with the experience of previous fiscal consolidations, as many of the obvious ‘low hanging fruit’ have already been exhausted,” officials said.

She was told that achieving the “scale of ongoing savings required” would mean using more “more significant fiscal levers” induding changes to welfare, tax relief and revenue.

Willis was warned that a deteriorating economy would make it difficult to deliver the Budget within her self-imposed spending rules, sticking to the operating allowance she signalled in 2024.

“Since Budget 2024, the challenge of delivering Budget 2025 and 2026 within your operating allowances and achieving your fiscal objectives has increased. After precommitments and other non-discretionary spending yet to be agreed, there is $0.6 billion per annum remaining in the Budget 2025 allowance and $1.03 billion in the Budget 2026 allowance,” she was told.

Reserve Bank knocked back for assuming 3.6% inflation rate in funding bid

A newly released document details concerns Treasury had over the amount of government funding the Reserve Bank pitched for before Adrian Orr resigned as Governor.

In a briefing to Finance Minister Nicola Willis, dated February 13, Treasury said it had “significant value for money concerns” over the Reserve Bank’s request for more than $1 billion over five years to June 2030.

The Reserve Bank argued this would meet Willis’ request for the bank to cut its operating expenditure by 7.5%.

But Treasury took issue with the Reserve Bank pumping up the starting point from which it proposed to cut its spending.

The Reserve Bank pledged to shave 7.5% off the amount it had budgeted to spend in the year to June 2025.

However, Treasury noted the amount the Reserve Bank planned to spend in this year included $40 million of unspent funds from previous years.

The Reserve Bank’s baseline was also not adjusted to reflect the fact it was no longer going to be responsible for ensuring the banks, insurers and deposit-takers it regulates comply with anti-money laundering/countering the financing of terrorism rules.

Treasury raised “other concerns” with the bank’s funding bid.

It noted that it assumed funding would need to be adjusted to factor in inflation. However, the rate of inflation it used was 3.6% - a rate that would be outside of its target range.

Treasury said the Reserve Bank was “not sufficiently considering reprioritisation opportunities, such as downscaling non-legislative functions”.

It also said the sum the bank said it needed for capital expenditure included $22 million for “ambiguous contingencies”.

“Capex funding should be grounded in tangible evidence of need for further investment,” Treasury said.

It suggested the Reserve Bank’s funding total $718m over five years.

Separate, previously released documents show Orr clashed with his board over the matter and lost his cool in meetings with Treasury and Willis.

Following Orr’s departure in March, the Reserve Bank made a new proposal for $750m of funding.

In April, Willis decided to allocate it $776m for the five years to 2030.

Tertiary Education: Officials said further “cost-cutting measures” were needed alongside fees increase

Advice from Treasury officials to Finance Minister Nicola Willis, ahead of a meeting with Tertiary Education Minister Penny Simmonds in late December, recommended Willis request Simmonds to “provide a list of provision that is at risk of being cut to support the Budget 2025 funding requests.”

Advice noted current baselines do not cover the expected volume of people seeking to enrol at tertiary providers, and warned “without additional funding, the Tertiary Education Commission will not be able to fund all forecast volume, and decisions will need to be taken about how to prioritise funding to certain courses or learners.”

Officials said as a result of the above, and time-limited funding increases to subsidy rates coming to an end, many tertiary institutions are facing financial difficulties.

“Without increases to funding, further cost-cutting measures will be needed, including reducing the quantity and/or the quality of provision,” officials wrote to Willis.

It was said the “risk” that institutions will cut provision was of “particular concern for universities.

Officials recommended the cost pressure should focus on putting more of the cost onto individuals through “increasing fees” and on mitigating the risk of reducing provision. Advice said the Government currently bears a large proportion of the cost of tertiary education.

Advice noted the importance of preserving departmental capacity to deliver a vocational education and training redesign, saying it was likely the reprioritisation of the scale Minister Simmonds indicated - of $15 million per annum or 18% of a baseline, would “risk adequate support being provided for the changes and the restructures required would distract from core activity.”

Health Minister Simeon Brown. Photo / Mark Mitchell

Treasury: Refuse requests for new health spending

Treasury advised Willis to refuse any requests for new spending in health in this year’s Budget, given the “significant” pre-commitments the Government had already made.

Ahead of a meeting with then-Health Minister Dr Shane Reti and Mental Health Minister Matt Doocey, Treasury recommended in November Willis refrain from adding to the roughly $1.6b already allocated for Health NZ’s cost pressures and the Government’s 13 cancer drugs policy, which represented 67% of Budget 2025’s operating allowance.

It also referenced Health NZ’s need to focus on its deficit.

However, officials acknowledged the potential for new initiatives to be funded and made several suggestions, including extending the length of prescriptions form three months to six or 12 months. The Government chose the latter.

Later in February, however, officials advised deferring the increase to the prescription length. 

“While we recognise the merits of the prescribing length initiative, given the current constrained fiscal environment, we recommend this initiative is deferred if the Urgent and After-Hours Care initiative is progressed.” 

Higher costs, crime in the long term?

Treasury is warning the Government that its drive to cut costs across the justice sector could create higher costs and more crime - relative to its law and order targets - in the long term.

Cost pressures on Police potentially impacting frontline services could be a contributing factor, Treasury added.

A Treasury report from November last year noted that costs could effectively be cut in the short and long term through measures such as “police youth and community partnership services, rehabilitation, and alternative non-court proceedings”.

But agencies “have tended” to push such initiatives out, “given they do not form a part of agencies’ ‘core’ functions”.

“The risk is that in order to make savings and manage within baselines, agencies are creating higher costs for the Crown in the longer-term, and potentially impacting on justice outcomes and the delivery of Government targets,” the report, from November last year, said.

Those targets include a reduction in the number of victims of violent crime, and in the number of serious and persistent youth offenders. The Government is tracking well on both of them so far, though questions have been raised over whether this has anything to do with government policy.

By March, Police had showed Treasury savings options including “reductions in crime prevention activities”, with most savings coming from reduced staff. Corrections had also put forward options that “would result in material frontline service degradation”, Treasury said.

The November Treasury report noted that only Corrections had met its savings target, while Justice reached 60% of its target, while Police was only at 11% of its final target - and holding on by not filling vacant positions.

Treasury recognised Police were in the difficult position due to “politically-challenging reprioritisation options”, which were redacted in the report.

“We understand through our engagement with agencies that portfolio Ministers have rejected certain options in the performance plans that enable managing within baselines. These included reductions in constabulary staff and closures of rural stations and courthouses,” said Treasury advice to Finance Minister Nicola Willis.

Some rural stations have closed this year, including in rural Canterbury.

Treasury also warned that the Police Budget is “likely to become extremely difficult to manage beyond 2027 without new funding”.

“Ministers may need to consider a strategy for upcoming collective bargaining rounds to manage costs,” the report said, noting “remuneration costs become unmanageable beyond 2026″.

Treasury advice to Willis was to tell Police not to expect new funding, including “assuming no new funding for wage increases, particularly for employees, beyond 2026, consistent with the 2024 Government Workforce Policy Statement”.

The Government’s law and order priorities limited the ability to make savings in some areas, the report said, such as in big ticket items including prison capacity (expected to grow) and frontline police officers (where an additional 500 is committed).

Treasury suggested to Willis that Corrections change its remand settings to reduce the prison population, though this is unlikely to square with how the Government wants the public to percieve its crackdown on law and order.

“New Zealand’s remand rate is higher than many peer countries, 44% compared to 37% in Australia, 19% in the UK and 20% in Germany. Changes to remand presents a key opportunity to reduce costs,” Treasury officials told Willis.

Treasury also had some blunt advice for Willis on the Government’s boot camp for serious young offenders: “In the absence of evidence of improved outcomes, we do not recommend prioritising this investment – particularly given existing pressures in youth justice residences and constrained Budget 2025 allowances," its November report said.

The Government funded additional judicial officers against the advice of the Treasury. which said it did not appear to be implementation-ready.

The actual, projected and funded prison population. Photo / Budget document

Earlier:

Overall, in Budget 2025, the Government said an average of $1.3 billion per year would be invested in net new operating spending. The figure comes from $6.7b of new operating spending, supported by $5.3b in savings. There’s also $4b of net new capital spending.

The Budget takes months for the Government to compile and for decisions to be made. With 228 new spending initiatives and 116 savings, the summary provided on Budget Day was itself 88 pages long.

The Government’s central announcement was the Investment Boost tax incentive. It allows businesses to deduct 20% of the cost of new assets immediately from their taxable income on top of normal depreciation. In short, that means a lower tax bill for businesses buying equipment.

It was expected this would lift levels of business investment, with longer-run benefits including increasing the level of GDP by 1%, capital stock by 1.6% and wages by 1.5% over the next 20 years. At least half of those benefits are expected over the next five years.

A Kiwibank survey released last week, however, found just a third of its business bankers had reported an uptake of the initiative. Many businesses remained cautious and appeared to be waiting for better economic conditions before investing, the survey found.

“Most of the activity came from businesses either catching up on deferred capex from the past couple of years, or those whose investment plans were already under way prior to the scheme’s announcement.”

The KiwiSaver changes halved the Government’s annual contributions, while lifting the default employee contribution rate from 3% to 4%, which would need to be matched by employers. The new rate is going to be phased in, rising to 3.5% from next year and 4% in April 2028.