New Zealand Slashes Spending in 2025 Budget Amid Global Trade Headwinds

New Zealand unveiled its 2025 budget on Thursday, setting the lowest new spending in a decade at NZ$1.3 billion, as the government adopts strict fiscal discipline in response to global economic uncertainty. Finance Minister Nicola Willis emphasized the need for cautious policymaking amid what she called a “global trade shock” driven by widespread tariffs and softening global demand.

The economy, which contracted last year, continues to struggle with weak consumer spending and external risks stemming from shifting U.S. trade policies. The Treasury downgraded GDP growth expectations for the 12 months ending June 2026 to 2.9%, down from 3.3% forecasted in December. Inflation is expected to hold steady at 2.1%.

Since taking office in late 2023, the centre-right government has prioritized cutting what it deems unnecessary expenditures. Critics argue, however, that the aggressive cost-cutting approach may hinder economic recovery just as external pressures mount.

Despite the tight budget, the government has pledged increased investment in defense, foreign affairs, and healthcare. It also announced reforms to the national Kiwisaver pension scheme. The budget projects a deficit of NZ$14.74 billion—smaller than the NZ$17.32 billion estimated in December—but does not foresee a return to surplus within the next five years if the accident insurance scheme is factored in.

Net debt excluding advances is projected to peak at 46% of GDP in 2027/28, slightly better than the previous estimate of 46.5% in 2026/27. Prime Minister Christopher Luxon defended the spending choices, stating that the budget prioritizes areas with the highest impact for New Zealanders.

With global trade tensions escalating, New Zealand’s cautious fiscal stance signals a focus on stability over stimulus, aiming to safeguard long-term economic resilience.