Budget 2025 – Where is the money going and where is it coming from?
Budget 2025 announced $1.78 billion in new operational spending for health, but what is the investment need in the health sector today?
It's impossible to talk about Budget 2025 without coming back to pay equity, as over half of the new operating spending comes from changes made to the pay equity scheme. This is stated clearly by the Treasury in their Budget Economic and Fiscal Update.
“Overall, the reduction in funding [for pay equity] has created fiscal headroom of $12.8 billion over the forecast period” – NZ Treasury
Budget 2025 includes $6.7 billion in new spending. This new spending comprises $5.2 billion in reprioritised savings, with just over half coming from the reduction in the pay equity scheme. New additional spending is the operating allowance of $1.3 billion– the lowest allowance in a decade.
Without context, government budgets seem to involve large sums of money – $1.3 billion in new money? That’s huge. However, $2.5 billion is needed to simply keep the lights on. So where is the rest of the money needed to keep the lights on? It’s coming from savings taken from 116 different initiatives. Another significant saving comes from the reduction in the Government’s annual KiwiSaver contributions of $0.6 billion.
The government estimates that it has saved $12.8 billion from the changes made to pay equity settlements over the next four years. $1.8 billion has been put towards new capital investments for 2025, which includes $1 billion for investment in hospitals, and $700 million for investment in schools.
This leaves $11 billion (over the next four years) in pay equity savings that have been reprioritised as a $2.7 billion operating allowance each year out to 2029. Let’s put this $2.7 billion worth of spending each year over the next four years, into perspective. The four largest spending initiatives in Budget 2025 are health ($1.75 billion), Investment Boost tax incentives for businesses ($1.66 billion), defence and foreign affairs ($477 million), and education ($381 million).
Let’s talk health
What is the investment need in the health sector today? To keep the lights on, according to Budget 2025, the health sector needs $1.37 billion to meet demographic demand and inflation. Budget 2025 announced $1.78 billion of new operational spending for health ($31 million of which has come from elsewhere in health). This leaves around $413 million per year over the forecast period for health operational expenses, but of which $313 million is pre-committed from previous budgets.
This leaves around $100 million in operating spending left for any extras – for anything new and anything above keeping the lights on
The Association of Salaried Medical Workers (ASMS), in their pre-budget document, estimate that the health sector needs around $2 billion to stand still.
“Two billion dollars will not remedy decades of underfunding of New Zealand’s health system. New Zealand’s total health expenditure (public and private) as a proportion of GDP has remained well below comparable countries for many years. Prior to Covid-19, New Zealand spent 9 percent of GDP on health, while countries including Australia, Canada, the Netherlands and Sweden spent an average 10.7 percent”.
Budget 2025 shows that health spending is set to remain at around 7.1 percent to 7.2 percent of GDP across 2024 to 2027, reducing to 6.6 percent by 2029.
Health funding as a % of GDP, Budget 2025 
Source: Budget 2025
The government has set aside new spending for several health initiatives. The initiatives of note include $27.6 million over four years to support a transition from a police-led response to a multi-agency response for people calling 111 in mental distress. This includes telehealth capacity and expanding co-response teams.
$10 million will be spent on extending the length of time between prescriptions, and $10 million over the next four years on the Crown’s response to the Royal Commission of Inquiry into Abuse in Care (alongside a contingency of $50 million for capital costs). Budget 2025 also sets aside $1 billion for health capital investment across the country – including redeveloping Nelson Hospital, the Wellington Emergency Department, and upgrading Auckland hospitals.
Overall, Budget 2025 is a case of looking behind the couch cushions for spare pennies to balance the books and continue to invest in New Zealand’s infrastructure needs. The jury is out on whether the total sum of $6.64 billion that the government has allocated to businesses (over the next four years) will have the desired effects of increasing productivity, and employment.
Furthermore, any future government wanting to reinstate pay equity back to the way it was, will be met with a substantial fiscal challenge of finding that amount of money once it has been either spent or spoken for. What pay equity will look like in the future remains unclear.