Rt Hon Christopher Luxon
Prime Minister

Good afternoon everyone.

Today my intention is to put this year’s Budget in context.

First, I want to speak briefly about our economic recovery here at home, and why I remain confident despite international uncertainty.

Then I’m going to make the case for the two big priorities of Budget 2025, fiscal consolidation and economic growth: why they matter and some steps we’re taking to make them happen.

It’s fair to say Budget 2025 arrives against a challenging international backdrop.

Trade tensions overseas have seen growth forecasts revised down across the world, as exporters and consumers come under sustained pressure.

The sharp deterioration of financial markets in early April have somewhat recovered in recent days and weeks, but markets remain volatile.

Experts offshore are leaning into the uncertainty.

The Bank of Canada even chose to publish two separate scenarios in their latest statement, instead of one single set of forecasts.

I don’t blame them for having a bob each way.

For a small, open economy like New Zealand, the international environment clearly matters a lot, but I remain confident about our recovery.

Inflation remains anchored below 3 per cent, and interest rates continue to fall, supporting households with the cost of living and providing the foundation for a domestic economic recovery.

The Official Cash Rate has fallen considerably, from 5.5 to 3.5 per cent, with economists picking further cuts are on the way soon.

I acknowledge for households, interest rate relief will be a slow and steady process.

For example, according to the Reserve Bank, average interest rates on outstanding mortgages have only now fallen for just 4 months in a row, having previously risen for 37 months in a row.

The good news is that financial relief for households will keep rolling, with around $60 billion of mortgages set to roll-over in just the next three months.

In short, the trend is our friend, even if I know many families and businesses won’t be feeling that relief quite yet.

At the same time, an export-led recovery is now well underway in regional New Zealand.

Dairy prices are strong, despite global headwinds, supporting farmers to pay down debt and put more money back into rural communities.

Fruit exports are booming, hitting $5 billion in value in the 12 months to March, driven by a big jump in kiwifruit sales.

The tourism industry is also growing rapidly, with visitor numbers continuing to recover, now hitting 86 per cent of pre-COVID levels.

Total tourism expenditure was up 23 per cent in 2024.

It’s not surprising then that the recovery is looking brighter in regional New Zealand, and the South Island in particular.

Just last week Westpac highlighted that in Otago, Canterbury, and Southland, consumer confidence and growth in retail activity is outpacing the rest of the country.

Our government is working hard to support that rural recovery.

A steady diet of pro-growth deregulation, a strong focus on RMA reform, and fresh efforts to break into new markets offshore are highlights of that agenda so far.

We know the difference quality trade agreements can make to our growth prospects. For example, in the 12 months since the EU FTA came into force, exports to the European Union grew by 25 per cent.

For exporters, that’s worth an additional $1 billion.

Whether it’s CER, the CPTPP, the China, UK, or more recent UAE and GCC FTAs, our farmers and exporters are blessed by a latticework of trade agreements, negotiated successively by Ministers and diplomats over many years.

Clearly India will be an important next step, and it was positive to see Minister of Trade Todd McClay announce on Monday that the first formal round of FTA negotiations kicked off this week.

That brings me to this year’s Budget.

It won’t surprise you to learn that lifting New Zealand’s long run economic performance has been our primary focus in designing Budget 2025.

Yes, that has shaped decisions we have made on individual initiatives, some of which I’ll touch on shortly.

But our fiscal strategy, including our desire to return to surplus, and the wider impact on inflation, interest rates, and growth has also been front of mind.

You might have seen Nicola Willis announce last week that this year’s operating allowance would be smaller than previously signalled, at just $1.3 billion.

That will be the smallest operating allowance in a decade and ensures Treasury can still forecast a surplus within the next four years.

That was the right decision for several reasons.

First, it represents a fresh commitment to necessary fiscal consolidation.

In recent years, New Zealand has been living beyond its means and that has come at a significant cost.

Since 2017, net core Crown debt has risen by around $120 billion.

Put another way, that’s $60,000 in additional debt for every household in New Zealand.

As a proportion of the economy, debt has ballooned from just 21.6 per cent of GDP in 2017, to around 43 per cent of GDP today, higher than it has been at any time since the 1990s.

At the same time, the cost of servicing our national debt has more than doubled, from $3.5 billion in 2017, to almost $9 billion today.

In some areas, spending more is the right thing to do.

In health, education, law and order, defence, and transport my government is prioritising significant new investments.

Each of those areas are a priority for New Zealanders and they require more funding to deliver the quality services Kiwis expect.

But that comes with trade-offs.

Spending more on everything, as some commentators have called for, would mean larger deficits, more debt, and ultimately fewer choices in future budgets as the cost of servicing our debt grows even larger and the prospect of returning to surplus evaporates.

Managing and responding to critical risks is also more challenging with high levels of public debt.

New Zealand was well served in the Global Financial Crisis, following the Christchurch Earthquake, and during COVID because successive Ministers of Finance made difficult choices to ensure New Zealand had low levels of public debt.

Our responsibility is to do what we can to leave a similar inheritance for future administrations.

Second, a smaller allowance supports lower interest rates and stronger business activity.

Sadly, recent experiences have forced us to re-learn the fundamentals of economics, including the reality that if governments borrow and spend too much, interest rates are forced higher to compensate, putting pressure on family budgets and private sector activity.

The good news is that the converse is also true.

More restrained fiscal policy supports interest rates to remain low, enabling businesses to grow and families to get ahead under their own steam.

ANZ’s initial estimate last week was that the smaller operating allowance would support interest rates being 5-10 basis points lower than otherwise.

Meanwhile, Treasury has estimated that with a tighter budget package, interest rates would be up to 30 basis points lower by the end of the forecast period.

For a family with a mortgage, or a farmer or entrepreneur taking on debt to grow their business, that means real financial relief and more opportunity to get ahead.

Careful spending, low interest rates, and robust private sector growth sits at the very heart of our government’s economic strategy, as we create jobs, boost exports, lift incomes, and promote innovation and investment.

Prudent fiscal management also supports our economic reputation offshore.

For a small-open economy like New Zealand that’s critical.

It means we can borrow more affordably when we have to, and guarantees that even in periods of global turmoil, we are a trusted destination for trade and investment.

Third, the smaller operating allowance was the right call because keeping our word matters.

Nicola Willis has been consistent in her commitment to deliver a path back to surplus and to maintain debt at prudent levels.

Conditions can and do change, but it is a credit to her that Budget 2025 demonstrates a return to surplus, despite a challenging global backdrop.

That’s the result you expect when you anchor Budget decisions in your fiscal strategy, instead of allowing the pressures of the day to drag you off course.

I know there are some commentators calling for larger allowances and more spending.

They need to be honest that those decisions will mean more debt, more deficits, and an indefinite delay to New Zealand’s return to surplus.

More debt and more deficits is a fiscal strategy – but for a small, internationally-exposed country like New Zealand, it’s also an incredibly risky one.

At the same time, just as grey clouds bring silver linings, even tight Budgets present opportunities.

In Budget 2025, we will be taking further steps in our long-term mission to lift economic growth and boost productivity.

Earlier this year, we published our Government’s Going for Growth Agenda, which outlines a range of actions we are taking to get the New Zealand economy moving and realising its vast potential.

Each of those actions fits into one of five pillars we have identified as critical to lifting economic growth and improving New Zealanders’ standard of living:

• Developing talent,
• Encouraging innovation, science, and technology,
• Introducing competitive business settings,
• Promoting global trade and investment,
• And delivering infrastructure for growth.

Each of those pillars will have strong representation in Budget 2025.

Today I want to touch on just a few of them – and some small steps we are taking to underpin our growth mission.

Encouraging science, innovation, and technology is one of those key pillars.

In January at my State of the Nation, I spoke briefly about our vision for the sector.

I want to see a much sharper focus on commercialisation, stronger ties to the business community, and rapid access to ideas and innovation from overseas.

Capital investment will be critical to our growth journey, but New Zealand won’t achieve a step-change in our living standards if we invest more but continue to lag behind the global technological frontier.

In Budget 2025, we will be allocating the funding we need to give effect to the changes I announced earlier this year, including the establishment of three new Public Research Organisations.

I also know that following a review of the Research and Development Tax Incentive that kicked off last year, the business community has been looking for some certainty on the future of the programme.

That review was required in law, and the final report has not yet been tabled in Parliament.

However, I can confirm today that we are retaining the RDTI in this year’s Budget so businesses have the certainty they need to keep investing and keep going for growth.

Promoting global trade and investment has also been a focus of my government in 2025, even before the recent bout of uncertainty offshore.

As I said earlier, part of that task has been to bring fresh energy to New Zealand’s proud history of achieving trade agreements offshore, with Minister of Trade Todd McClay finalising two new trade agreements in the Middle East, while we continue to work hard towards a trade agreement with India.

But promoting New Zealand as an attractive destination for investment, and a shelter from the global storm, has also been a personal focus of mine.

In March, the government hosted an Investment Summit here in Auckland, with attendees representing an estimated $6 trillion in capital, as we showcased opportunities to partner with the Crown, Iwi, and the private sector.

We are seeing some real progress, including an outstanding deal worth around $1 billion signed by Waikato Tainui and Brookfield Asset Management to further develop the Ruakura Inland Port.

But of course, I want to see more.

Yes, that means getting the structural settings right, including rewriting the Overseas Investment Act, so major investments from offshore are consented faster and more reliably.

But for small countries – who have to compete hard for share of mind and share of wallet – we also need a team of national champions constantly making the case for New Zealand as an outstanding place to do business.

In January, I announced that team would be led by Invest NZ, an entity specifically responsible for attracting investment to New Zealand, and providing the critical concierge services that have allowed other countries like Ireland and Singapore to punch above their weight.

I can confirm today that funding will be allocated for Invest NZ in Budget 2025, ensuring they can crack on and get the job done.

Modern, reliable infrastructure – and my government’s efforts to deliver more of it to communities right across the country – will also play a major role in our Going for Growth plan.

It’s why capital expenditure, including for frontline services like health and education, will be a priority in Budget 2025.

As I acknowledged earlier, the operating allowance in this year’s Budget will be a little smaller than previously signalled.

However, total capital expenditure allocated in the Budget is a little higher than forecast at $6.8 billion – split across health, education, defence, transport, and other portfolios.

When that is offset by savings identified in this year’s budget, it means the net capital allowance is $4 billion, compared to $3.6 billion previously signalled in the Budget Policy Statement.

For businesses, that investment represents an opportunity to develop critical skills and capability, promoting growth for many years to come.

For Kiwis, it will mean another big investment in the quality frontline services, like health and education, they deserve.

The two remaining pillars, our efforts to develop talent and to promote competitive business settings, will also feature prominently in the Budget, but I won’t be making be making announcements in those areas today.

However, as Nicola Willis confirmed last week and I can confirm again today, there will be a small number of measures in this year’s Budget designed to make it easier for businesses to invest, whether they are based here or offshore.

If we really want to create high-paying jobs, lift incomes, and make New Zealand a hub for innovation and investment, we need to make our business environment much more attractive.

I’m optimistic that Budget 2025 will take some positive steps in that direction.

The Minister of Finance was right last week to say Budget 2025 won’t be a lolly scramble.

It’s not that we can’t afford it, although frankly we can’t.

It’s not that it wouldn’t feel good, because it might, for a little while.

No, it’s that we have a responsibility to stay disciplined and keep our eyes on the prize.

So far, we’re making real progress.

Inflation is down, interest rates are falling, exports are rising, and the economy is growing.

For many New Zealanders, the prospect of a growing economy and rising incomes means a real shot at getting on top of the cost of living.

Now is not the time to put that risk.

In Budget 2025 that means staying focused, getting back to surplus, and maintaining a relentless focus on economic growth.

But for Kiwis, it’s about more than just the dollars and cents.

Lower inflation means less stress and less heartbreak, as prices stop skyrocketing and families finally stop falling behind.

Lower interest rates means a house becomes a home, not a source of pain and frustration as mortgage repayments crush weekly budgets.

And more economic growth means thriving local businesses, higher wages, more jobs, and ultimately more money in your back pocket.

It means a chance to get ahead and beat the cost of living.

And it means we can have confidence that our best days lie ahead.

New Zealand is the best country on Planet Earth.

With the right choices, I think we can make it even better.

Thank you.

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