The government aims to slash costs without raising taxes, but will slashing spending boost long-term stability or cripple New Zealand’s growth? Bernard Hickey asks finance minister Nicola Willis to explain her thinking.

The coalition government plans to significantly cut spending across health, housing and transport with the goal of reining in the sharp rise in post-pandemic spending. It sounds simple in theory, but in reality these drastic cost-cutting measures come with significant risk.

On this week’s episode of When the Facts Change, Bernard Hickey challenges finance minister Nicola Willis on the government’s fiscal plans and asks how it plans to deal with the effects of an aging population.

Willis argues the cuts are necessary after a historic surge in government spending, which jumped from under 30% of GDP to 34% post-pandemic. “I think the expectation that everyone had was post-Covid that will all unwind and we’ll go back to normal. In fact, what we found was a lot of that spending got baked in at a much higher level.”

The government’s target is to bring spending back to around 30% of GDP, which Willis claims is a “moderate” level compared to historical norms. She insists the focus is not just on cutting for the sake of it, but on driving better value from current spending.

However, questions remain about the impact of these cuts on economic growth, especially in infrastructure. While the government continues to invest heavily in infrastructure, some projects have been frozen or delayed, raising concerns about momentum in construction. Willis admits these problems need to be addressed, “if we’re a country that wants to have the infrastructure a first-world growing nation needs, we need to get better at delivery.”

On the broader fiscal outlook, Willis is clear that the government is not planning to change policies around superannuation, despite warnings from Treasury that the current settings are unsustainable. Willis acknowledges there is a need for a national conversation about how we manage superannuation with an aging population, but admits her hands are somewhat tied. “Yes, we should have that discussion, but that is a discussion for an election campaign, and not one that I have a mandate within the coalition government to address.”

Click here for more episodes Bernard Hickey’s economics podcast When the Facts Change