She talks to ODT political editor Mike Houlahan about the challenges of budgeting in the midst of a fuel crisis.
Drafting a Budget is not an easy task for any minister of finance.
Even at the best of times, it involves months of policy papers, Budget bids, reviews of economic forecasts, and meetings with coalition partners to accommodate their wishes.
But, thanks in no small part to United States President Donald Trump, these are not the best of times. Inflation and unemployment - already high but previously forecast to start dropping - may well increase yet further due to the impacts of spiralling fuel costs created by the US and Israeli strikes on Iran.
While a ceasefire is holding in the region, it seems decidedly shaky and the usual flow of oil from the region is yet to resume.
That has meant that this year’s Budget - to be delivered on May 28 - has required more writing, and then rewriting, than usual, Ms Willis said.
‘‘Budgets are always an iterative process because things come in, things come out, and it all depends on how many savings you’re able to deliver, what investments you’re able to do on the other hand.
‘‘This year, of course, the fuel crisis did mean that our forecasts for what would be happening in the economy shifted and we’re reopened at several intervals, which does change the economic picture into the future years... while we totally recognise that those higher fuel prices are having significant impact for many Kiwi businesses, for many Kiwi families, actually we’re still going to see the economy growing, but just a bit delayed from what could have been the case without that conflict in the Middle East.’’
‘‘You’ve seen us, for example, secure another nine days’ worth of diesel and storage tanks to store it at Marsden Point so that we have the buffers and reserves able to stop having to restrict use of fuel. And so while we’re still prepared for that possibility, being pro-active as it were, it’s not something that we’re actively anticipating at this time.’’
All Budgets begin with the Treasury forecast as the starting point but it is very difficult to be in the business of economic forecasting. Ms Willis said that, in line with what many countries and international bodies were doing, her latest Budget had started with a central forecast, and then ran scenarios spinning off from there - best cases and worst cases.
Ms Willis does not start from entirely behind the eight-ball. The economy is still growing, albeit by less than forecast pre-conflict, and the government’s latest set of accounts showed a lower deficit than predicted and also that Crown debt was lower than forecast.
However, at roughly the same time she announced that the Budget operating allowance - the amount of new expenditure - would be lower than originally announced.
‘‘I feel, and our government feels, there is a very profound responsibility to get our books back in balance,’’ Ms Willis said.
‘‘New Zealand’s books have been in deficit since 2019, which is to say we are borrowing just to stay still, and that’s not sustainable. We’ve been in what’s called a structural deficit.
‘‘The last government bequeathed us a situation where we were structurally spending more than we were earning and so our debt has roughly tripled in nominal terms, doubled as a proportion of the economy. Credit rating agencies around the world are looking at us very closely now saying, hey, you better get on track to get your books back in order or you’re not going to look like the good credit risk you’ve been in the past.
‘‘We were elected with a job to do to get the books tidier, to make sure we’re bending that debt curve down and we’ve stuck to it in this Budget.’’
Tightening the belt has been Ms Willis’ message, and in the past fortnight New Zealanders have seen what she means by that.
Firstly it was revealed by New Zealand First leader Winston Peters that the tertiary education fees free scheme was about to be scrapped - saving an estimated $350 million annually - and then this week Ms Willis announced an extensive review of the public service head count, which could potentially save $2.7 billion over a four-year period.
The end of the fees-free scheme could have ramifications for the South, as Dunedin’s economy is reliant on the annual influx of university students - many of whom are from elsewhere in New Zealand. Anything which might be a disincentive to further study has potential to be a blow to Otago.
‘‘The good news is that we remain heavily invested in tertiary education. We recognise its vital importance, not only to Dunedin and the region, but actually to the country and to the future of our young people and of any New Zealander who wants to train for jobs and contribute to our economy,’’ Ms Willis said.
‘‘So New Zealand has one of the most heavily subsidised tertiary education systems in the world. By the time you count in all of the student support, the heavy subsidy we already put in for universities, it’s about 82% of the total cost of tertiary education that is covered by the taxpayer. The fees that we ask students to borrow are only a tiny slice of the overall cost to the taxpayer of providing tertiary education, so we’re already very generous.’’
Ms Willis argues that the fees-free scheme did not increase participation in tertiary education, nor did it particularly help young people from lower-income homes into study.
‘‘Our judgement has been that scheme hasn’t been effective, it wasn’t well targeted. We say yes to supporting students into tertiary education, yes to supporting kids who are upskilling, who are going into trades training. But let’s be a bit smarter about how we do it.’’
As for how the government intends to do so in future, the Budget may well reveal that.
As for how the government intends to pay for it, the same day that the ODT spoke to Ms Willis she unveiled plans to reduce the number of public servants over the next three years, potentially saving almost $3b.
‘‘It’s just about what we can afford,’’ she said.
‘‘And we can’t afford an inexorable growth in the public service because every dollar that we’re using to pay for administrative functions in government is a dollar not available to get you your hip operation faster. It’s a dollar that’s not available to invest in ensuring that kids are getting the really high quality education they need. It’s a dollar not available for repairing our roads, for building new classrooms. So we just judge every dollar by what’s going to make the biggest impact for everyday New Zealanders.’’
Ms Willis said the planned cuts, and the Budget overall, would be driven by the need to provide value for money to the tax payer. The cuts were an ‘‘in principle target’’ which she believed that the public service was capable of achieving.
Ultimately, the government needed to make sure its own financial house was in order, and that was what it was setting out to demonstrate in Budget 2026.
‘‘People expect that on their behalf and it can’t just dig into an ever bigger debt hole,’’ Ms Willis said.
‘‘But we’re able to do that while also investing significantly in our health system - health expenditure as a proportion of the economy is now larger than it’s ever been. We are able to invest in the resources that our kids need in their classrooms. And we’re starting to see those achievement rates increase. We’re able to invest in more police on the front line and into some major infrastructure projects which will prepare New Zealand for the future.’’
