Government budget cuts: Nicola Willis is prepping for a bonfire of the vanity projects - Ryan Bridge

"It’s not a filleting knife in Nicola Willis' hand but a meat cleaver," writes Ryan Bridge.

THREE KEY FACTS

• NZ limped out of recession this week with gross domestic product (GDP) rising 0.7% in the December 2024 quarter.
• The lift in growth was stronger than most economists expected – with forecasts ranging between 0.2% and 0.5%.
• Finance Minister Nicola Willis said the economy had turned a corner, meaning “more opportunities, more jobs and higher incomes”.

Nicola Willis has been quietly working for the last few months on a plan to slash government spending in the upcoming Budget. The knife is being sharpened.

We borrowed a ton of money during Covid and our debt-to-GDP doubled. As anyone with a mortgage knows, borrowed money must be paid back.

We’re now spending more on servicing debt than we do on primary and secondary schools and the Ministry of Justice combined. Now Donald Trump’s trade war is pushing up the cost of servicing that debt.

Willis told me during a discussion on Newstalk ZB this week that this cost will increase in the Budget. It’s chewing through cash like a beagle through a rubbish bin.

Willis’ operating allowance, the amount of new money at play, is already thin.

Since Grant Robertson was in charge and the allowance large, times have changed. It’s been on a strict course of Ozempic. There’s no shortage of votes in need of a cash injection come Budget Day on May 22.

Judith Collins wants to double spending on defence to $10 billion over time, some of which will be capital expenditure but still - ka-ching.

The survivors of abuse in state care must be compensated. It’s the right thing to do, but again, ka-ching. Willis also highlights health, education and police as priorities for extra investment. Ka-ching, ka-ching, ka-ching.

Throw in debt servicing and you’re starting to think about running out of the restaurant and leaving the tab to somebody else. Or raising taxes or levies to make up a shortfall.

Willis says no to that - nothing major coming, except for charities, though that won’t light the world on fire.

Yes, we are now out of recession and surprised on the upside by this week’s GDP number. Dairy and beef prices, along with tourism numbers for February, are all picking up and should help first-quarter growth, along with falling interest rates. But there remains a risk to global growth and therefore our export earnings and associated tax take from trade wars.

Add all this together and you’re left with one unmistakeable course of action. Cuts.

Willis has been beavering away for months on a plan across all of government - to cut programmes that were nice ideas but don’t work.

The Finance Minister has looked at cutting entire ministries and agencies but says it costs more to delete them in the short term than would be saved. So none of that this time around.

But if you’re working on a project, a programme, a piece of work that has no tangible benefit to a decent chunk of taxpayers, then brace yourself. You’re on the chopping block and Willis is coming your way. The apron’s on and it’s not a filleting knife in her hand but a meat cleaver.

Willis has dropped other hints about her intentions over the past few months.

Items to look out for include potential changes to corporate tax rates and incentives for multinationals. Part of the problem with our current account deficit is offshore companies sending their profits overseas. Accelerated depreciation on manufacturing technology would help boost wages, productivity and growth.

Also look for an agreement between coalition partners allowing wealthy foreigners to buy homes worth more than $5 million, rather than the $2m floor price scuttled by New Zealand First after the last election. Willis’ update last week was that this issue is currently at the “leader-to-leader” stage of discussions.

There may be two months till Budget Day but, as always, the pre-Budget announcements will start trickling well before that.