Nicola Willis warns many departments will get no extra money in 2025, confirms Māori language bonuses can stay

Finance Minister Nicola Willis reading Budget 2024. Photo / Mark Mitchell

Finance Minister Nicola Willis has warned most Government departments not to expect cost pressure top-ups in next year’s Budget. Instead, they will need to fund the increased cost of operation by finding cuts and efficiencies. It came as Willis released a workforce statement confirming the Government could continue to pay employees bonuses for Māori language skills, despite those bonuses generating controversy last year.

Not every department will be affected. Budget 2024 set a multi-year health Budget that saw funding increase by $1.43 billion this year followed by a $1.37b increase next year.

During the early years of the Key-English Government Finance Minister Bill English ran zero Budgets that effectively included no new spending across most categories. That meant departments had to pay for cost increases by looking within their own baselines for savings.

Willis outlined the strategy in Parliament on Wednesday, saying it was one of three legs to her Budget strategy for 2025, the other two legs being to set a “very high bar” for new spending initiatives, and to run a second cutting exercise, similar to the one in Budget 2024.

“With a small number of exceptions, Government departments should expect to receive no additional funding in the Budget. They must manage cost pressures within their baselines and if they want to do new things, they will need to reprioritise from existing activities,” Willis said.

She said the Government had introduced “performance plans” for each department. These plans will force departments to say how they plan to deliver their services within their allocated funding envelope in the medium term.

“That will almost certainly involve trade-offs. Performance plans must be clear about those trade-offs so ministers can be clear about those decisions. Performance plans will also set out any risks to financial sustainability, performance or delivery, Willis said.

She said the plans would shift focus towards fiscal sustainability and away from an annual “lolly scramble” for new money in the Budget.

The Government published a Cabinet Circular detailing the plan. It warned departments that “[u]nless agreed through the Budget process, Performance Plans should not include new or additional funding.

“Further, Performance Plans do not constitute a Budget submission, initiative, or ‘bid’. Where a Performance Plan suggests further funding is needed, there is no guarantee that this funding will be provided,” it said.

Treasury warned Budget 2025 will be tight, noting that departments would need $2.5 billion in additional cost-pressure funding just to stand still. Willis set the Budget 2024 operating allowance. She told the House on Tuesday about $1b of that was left.

Labour’s Finance Spokeswoman Barbara Edmonds told the Herald Willis was preparing for “zero Budgets” for public services.

She said the decisions would inevitably have an impact on public services which she argued would need to be cut if there were no funding increases.

Willis also published a Workforce Policy Statement which outlined how departments should deal with workforce matters including remuneration, negotiation of employment agreements, pay equity, diversity, data and information.

The statement said employment in departments needed to be “fiscally sustainable and respond to the current fiscal context and any current budget advice”.

Interestingly, given recent controversy, the statement explicitly protects departments’ right to pay additional allowances to staff with Māori language skills.

“The payment of allowances in addition to base salary may be acceptable in limited circumstances, for example, to recognise skills or duties which are occasional, rather than core to the role.

“The payment of allowances can be justified where the agency can demonstrate that payment of that allowance will be an effective way for the Crown to uphold its obligations including under Te Ture mō Te Reo Māori 2016/the Māori Language Act 2016 or any other Act or obligations,” the statement said.

Last year, the Government said it would look at the payments. Willis initially said that National did not support the bonuses, but softened her position.

“I accept there will be many circumstances where receiving a bonus for te reo Māori use could be relevant to the job at hand,” Willis told RNZ last year.

“I think if you’re in a government agency and you’re engaging with iwi Māori, or you are working with Māori communities where te reo Māori is used as a primary language, then it would be really relevant to make your public service accessible for that community,” she said.

National’s Simeon Brown, now a Cabinet minister, was quoted by the Herald in July 2023 saying if National won it would “remove” the payments.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.