Guide to Interpreting Budget Decisions

The annual Budget process primarily focuses on allocating new funding to deliver services and programmes

The annual Budget is the main process for the Government to fund new (or extend or expand existing) services, programmes and policies. It is also the process to provide additional funding for existing activities that are facing increasing costs (e.g., due to increased demand for services that cannot be met through existing funding).

The Budget provides an opportunity to review existing expenditure and make savings through stopping or scaling current activities that may no longer be required, or are assessed as low value for money. These savings are either redirected to funding higher-priority services or helping achieve the Government’s fiscal strategy.

The new funding allocated through the Budget is additional to existing government expenditure, known as baseline expenditure

Most government funding is assumed to continue at the same level every year, in line with an approach known as fixed nominal baselines. In some cases, activities and programmes are time-limited (e.g., in response to an event or pending the outcome of a review) and therefore, funding is time-limited rather than ongoing.

Each year, Parliament provides authority for the Government to spend, borrow and tax. All new and existing expenditure is organised into specific areas of spending known as Votes (such as Education or Health) and funded through appropriations (groups of funding for specific activities), which are included in the Estimates of Appropriations approved by Parliament.

The amount of new funding available at each Budget is set aside in envelopes called allowances

The operating allowance is generally for the day-to-day spending of the government, such as the running of the health and education systems, welfare and superannuation payments, and public servants' salaries, including teachers, doctors, and Police and Corrections officers. Operating funding is usually provided on an ongoing basis, leading to a permanent increase in baseline expenditure.

The capital allowance provides funding for assets that will increase the value of the Crown's balance sheet, for example investment in Crown-owned infrastructure such as schools and hospitals.

Budget allowances are net concepts, where additional expenditure can be offset by savings, reprioritisation or additional revenue.

The amount charged against allowances for each initiative is the total impact across the forecast period

The forecast period is the number of financial years (the period between 1 July and 30 June) that the Treasury looks ahead when outlining New Zealand's financial position to the public. The forecast period covers the current financial year and the next four financial years ending on 30 June (i.e., 2025/26 – 2029/30).

For operating funding, the figure that is counted against the operating allowance is the total spending across the forecast period. Even where an initiative is funded on an ongoing basis, only the funding within the relevant forecast period will be counted against allowances.

For example, the $8 million outlined in the table below is the amount counted against the operating allowance. See example below.

For capital funding, a ten-year total is used instead to better reflect the one-off and often uneven nature of capital investment (2025/26 – 2034/35). See example below.

Allowances and initiatives are presented in Budget material either as an annual average amount, or the total amount across the forecast period

Operating allowances are usually presented as an annual average amount of funding available across the next four financial years. The funding amounts for operating initiatives are presented as the total impact of the initiative over the forecast period, unless otherwise specified.

For example, Budget material will usually say “we are spending $8 million operating over the next four years on this initiative” or “we are spending $2 million operating on average per annum”.

Capital allowances are presented as the total amount of funding available at each Budget. The funding amounts for capital initiatives are always communicated as the total impact of the initiative over the next ten years.

In some cases, operating and capital amounts may be combined in Budget communications. For example, Budget material might say “we are spending $18 million over the forecast period”.