By Lucy Craymer and Praveen Menon
WELLINGTON (Reuters) -New Zealand on Thursday set new spending for the current fiscal year at its lowest in a decade, keeping a tight rein on its fiscal purse even as it warned of softer GDP growth and a “trade shock” to the economy from the global tariff war.
The South Pacific nation’s economy contracted last year and its recovery has been hobbled by tepid consumption and heightened uncertainty over sharp shifts in U.S. trade and economic policies.
“The global situation is concerning,” New Zealand Finance Minister Nicola Willis said following the release of the 2025 budget in Wellington. “We can’t control what other countries do with their tariffs, what we can control is our conditions.”
As previously flagged, the government set new operating spending for the current fiscal year ending June 30 at NZ$1.3 billion, the smallest amount in a decade as it remains focused on fiscal prudence despite the rising external headwinds to growth.
The Treasury downgraded its expectation for economic growth in the new financial year, citing the global trade war that has raised challenges for policymakers worldwide.
“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 said in its budget statement. “The global trade shock is hitting a New Zealand economy that is recovering from last year’s contraction.”
TIGHT FISCAL PURSE
Since coming to power in late 2023, the centre-right government has tightened the purse strings in an effort to cut what it sees as wasteful spending but critics say the fiscal discipline is undermining an economy at a time of rising external risks.
“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 said in her budget speech.
The finance minister pledged to boost spending in areas such as defence, foreign affairs and health and overhauled the Kiwisaver national pension fund.
The government forecast a budget deficit of NZ$14.74 billion, narrower than a deficit of NZ$17.32 billion its half-year fiscal update in December. It does not expect to return to surplus over the forecast five-year period if its nationwide accident insurance scheme is included.
Gross domestic product growth is expected to slow to 2.9% in the 12 months ended June 30, 2026, down from forecast growth of 3.3% at the December update. For the same period, it expects inflation to track at 2.1%, unchanged from the prior forecast.
Net debt excluding advances was forecast to peak at 46% of gross domestic product (GDP) in 2027/28. In December, the government had expected it to peak at 46.5% of GDP in 2026/27.
Prime Minister Christopher Luxon said tough choices had to be made on what the government spent money on.
“We are confident we have put Kiwis hard-earned taxes where they will have the most impact,” Luxon said.
(Reporting by Lucy CraymerEditing by Shri Navaratnam)
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