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 not aligned with Government priorities, and redirect this funding to higher-priority services.

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, 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 Multi-year 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.

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 current financial year and the next four financial years ending on 30 June (i.e., 2023/24-2027/28).

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, see table below:

For capital funding, a ten-year total is used instead to better reflect the one-off and often uneven nature of capital investment.

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 might say “we are spending $8 million in operating funding on this initiative” or “we are spending $2 million operating per year”, rather than “we are spending $2 million per annum beginning in 2024/25”.

Capital allowances are always presented as the total amount of funding available across the four Budgets covered by the multi-year capital allowance. 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 together in Budget communications. For example, Budget material might say “we are spending $12 million per year.”

Budget 2024 continues the multi-year funding approach

In Budget 2022, a multi-year funding approach was adopted for a few sectors, with two-three Budgets’ worth of decisions being made to support funding certainty and longer-term planning.

Two Budgets' worth of funding for the Health portfolio was agreed through the Budget 2022 process, with the funding impact counted against the Budget 2022 and Budget 2023 operating allowances. Budget 2024 builds on this, and provides three Budgets’ worth of funding for the Health portfolio, with the funding impact counted against the Budget 2024, and pre-committed against the Budget 2025 and Budget 2026 operating allowances.

The ‘cluster’ process piloted in Budget 2022 provided three Budgets' worth of funding for two groups of agencies in the Justice and Natural Resources sectors. This funding was counted against the Budget 2022, Budget 2023 and Budget 2024 operating allowances.