UPDATE 2-New Zealand foreshadows job cuts in tight pre-election budget

New Zealand's government plans to cut thousands of public service jobs and avoid pre-election giveaways in the budget next week, Finance Minister Nicola Willis ‌said on Tuesday, as the ruling centre-right coalition seeks to burnish its economic credentials ahead of a close-run November election.

New Zealand's government plans to cut thousands of public service jobs and avoid pre-election giveaways in the budget next week, Finance Minister Nicola Willis ‌said on Tuesday, as the ruling centre-right coalition seeks to burnish its economic credentials ahead of a close-run November election. Prime Minister Christopher Luxon, battling a decline in popularity, was forced to call a confidence vote last month amid an economic slump and rising debt that led to outlook downgrades by two ratings agencies in March and ‌April.

In a pre-budget speech to Business North Harbour, Willis said the government would reduce the core public service to no more than 55,000 full-time equivalent ‌employees by mid-2029, 8,700 fewer than in December last year. The announcement adds to the right-wing government’s tight fiscal policies that have seen new operating spending capped and ongoing cuts to the budgets of government departments that have already reduced permanent and contract workers. The government, elected in 2023, says the fiscal restraint is necessary to reduce debt and debt servicing costs and to help contain inflation. ⁠However, critics ​say spending cuts are hampering the country's ⁠effort to recover from recession, while unemployment remains historically high. "With an election around the corner, it's tempting to proffer another spending band-aid," Willis said, rejecting "free" policies or cash handouts. "Our government is ⁠not going to repeat those mistakes."

The economy, which has been further hit by rising oil prices and uncertainty due to the Middle East crisis, is set to be the key ​issue in the November election. Polls show the election remains too close to call. The May 28 budget will reduce most agencies' operating budgets by ⁠2% in the coming year, followed by a further 5% in each of the following two years, generating NZ$2.4 billion ($1.41 billion) in savings over the forecast period, Willis said.

The New Zealand government last ⁠week ​said it would set new operating spending at NZ$2.1 billion for the 2026-27 year, NZ$300 million lower than it had forecast in December, but would increase capital spending to a net NZ$5.7 billion. "New Zealand simply can't afford another failed spend-up," Willis said. Ratings agencies Fitch and Moody’s lowered New Zealand’s outlook to "negative" from "stable” ⁠due to concerns around the level of debt the country was carrying. Opposition leader Chris Hipkins criticised the government’s proposed cuts to the public sector. “These are ⁠real people with homes and mortgages and ⁠families that are going to lose their jobs. That is fewer people out in the community spending money,” he told media and added the impact would be across the country.

“There is no way they can make those kind of ‌cuts without hitting front line," ‌he said. ($1 = 1.7077 New Zealand dollars)