Associate Finance Minister Chris Bishop trying to get a closer look at this year's Budget cover being held by Finance Minister Nicola Willis after it came off the printer.

The success – or otherwise — of today’s Budget will depend as much as anything else on the views of one man, Reserve Bank Governor Adrian Orr.

If the Bank concludes that the deficit track is either unconvincing or too lax, then despite the “back pocket boost” tax cuts, the “squeezed middle” will stay squeezed because the Bank will have no reason to bring down the Official Cash Rate in the immediate future.

That is the political challenge Finance Minister Nicola Willis faces today. Can she do enough to persuade the Reserve Bank to bring down the OCR as soon as possible?

Too much jam today and she risks the OCR remaining high and an antagonistic electorate in 2026; not enough jam and the Government, already stalling in the polls, could find itself in the sort of negative post-Budget political territory that National did after the “Mother of All Budgets” in 1991.

Yesterday, unveiling her no-frills Budget cover at the Petone printing plant producing the hard copies, she emphasised the short-term benefits the Budget would bring.

She said that on Monday, she had ducked out of the Beehive to watch her children compete in school cross-country races.

 “There were lots of parents there who had done the same thing, ducked out for half an hour to watch their kids race, and I looked around me, and I looked at those people, and I thought, you know, I’ve spent a lot of time in my Beehive office, but this is actually who it’s all about,” she said.

“And I know that tomorrow I’ll be able to look every one of those parents in the eye and say, we’re delivering today.”

That is a big call. The challenge will continue to be the mortgage payments.

CoreLogic reported last August that mortgage repayments as a percentage of gross annual average household income had reduced to 49% but remained well above the long-term average of 38%.


StatsNZ says that in the year ended June 2023, compared with the year ended June 2022, measures of housing costs showed that the average weekly expenditure on total mortgage payments increased from $475.00 to $605.60 (up 27.5 per cent).

And Stats reported last June that the median weekly income for wage and salary earners was $1273. For a two income household earning $120,000 the “boost” would be $126 a week.

The question is whether those tax cuts could be inflationary and thus cause the Reserve Bank to hold the OCR up for longer.

ANZ Bank economist Miles Workman, in the Bank’s Budget preview, said the net impact of tax and spending cuts that will accompany them would be likely to be marginally contractionary on balance “insofar as households save a portion of their tax relief or spend a greater proportion on imports than the Government would have.”

In Parliament yesterday, Labour’s Finance Spokesperson, Barbara Edmonds, asked Willis whether she was confident that her Budget would not exacerbate inflation or unemployment.

Willis: “Yes.”

However, the Reserve Bank will look not only at the short-term impact of the spending and tax cuts but also at the long-term track for the deficit.

Willis is promising more long-term forecasts in the Budget today.

“We are setting out a plan not just for next year, but actually for the next three years, the next five years, the next ten years because, as New Zealanders understand, when you’re turning around the country, it’s not all achieved within a matter of months,” she said.

“And we need to make decisions today that will set us up for the long term.”

That can only mean a continuation of the spending cuts euphemistically known as the “reprioritisations”. According to Willis, they will be highlighted today with their own page in the Budget document.

But the updates to this graph will be most closely studied by the economists in the Budget.

This shows the deficit and how it moved over the six months from the Budget to the HYEFU. In the BEFU, it turned into a surplus in 2025-26, but in the HYEFU, the surplus had moved to 2026 – 27, and even then, it was a paper-thin sum of only $100 million.

It will not be surprising today if it moves out again another year.

POLITIK BusinessNZ President Andrew Hunt with Finance Minister Nicola Willis at the EMA last week

Last Thursday, Willis warned the Employers and Manufacturers Association (EMA) that economic activity had flattened, and output had fallen sharply per person.

“You see this in your own businesses and your own lives,” she said.

“We also see this in the Government’s books. Tax revenue forecasts have dropped considerably, making it much harder to get the books in good shape.”

That sounds like another deficit revision is on its way.

Nevertheless, speaking to journalists after that speech, Willis was optimistic that the Budget would not raise interest rates.

“Treasury’s analysis is based on their own forecasts, and they look at what the impact of different fiscal settings and the advice that I’ve been given is that if our government had kept to the higher spending track left to us by the last government, then it is likely that interest rates would have hit to be a little higher,” she said.

“But overall, because of its contractionary impact, our budget will mean that interest rates can be a little lower than they’d otherwise be.”

But the business people at the EMA had other questions about the economy, beyond the big fiscal numbers that will be released today.

Speakers from tech startups wanted to know about access to capital.

“One of the challenges we face is that actually, people get a better return from buying a house because there is no capital gains tax,”  said one speaker.

Willis acknowledged the problem.

POLITIK Associate Finance Minister Chris Bishop and Finance Minister Nicola Willis with this year’s Budget

“We want to make it easier for firms to access capital,” she said.

“There’s actually not a shortage of capital either, actually, in New Zealand or in the world.

“You know that KiwiSaver funds are growing rapidly.

“Wouldn’t you like to see more of that being invested in tech in some of our venture funds onward.

“So we’re thinking about how that can be achieved. But we also need to make it easier for an international investor. “

But those are questions for future budgets.

Today is all about the fiscal fundamentals: taxes and spending, and how the decisions there may impact monetary policy.