Govt demands Health NZ cut another $510 million

The Kākā by Bernard Hickey

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Govt demands Health NZ cut another $510 million

Treasury cuts growth forecasts again, forcing Govt to delay surplus; Govt demands more spending cuts, starting with $510 million more from regional health; Economy stuck in debt deflation mud

Bernard Hickey

Dec 17, 2025

She tried, but there was not a lot to smile about in the HYEFU for Willis. Photo: Mark Mitchell / Getty Images

Briefly in the news from Aotearoa’s political economy on Wednesday, December 17:

Treasury published its Half Yearly Economic and Financial Update (HYEFU) report yesterday, lowering its GDP growth forecast, raising its unemployment forecast, reducing the Government’s tax revenue forecasts and delaying its forecast for a return to surplus by another year to 2029/30.
Finance Minister Nicola Willis pledged the Government would stick to its strategy of restraining Government spending growth to crunch the size of core Crown spending below 30% of GDP from almost 33% now, in order to cut borrowing. She hopes this reduces mortgage rates to grow the economy faster.
That strategy depends on households and businesses stepping up to borrow, spend and invest to offset the Government withdrawal, as they did through similar fiscal tightenings in the early 1990s, the early 2000s and the early 2010s.
But those expansions were mostly driven by households taking on more debt to spend and invest in residential land. That was possible because household debt was much lower then than today, banks were still shifting from mostly business lending to mostly mortgage lending, and mortgage rates dropped substantially each time.
Household debt to disposable income rose from under 50% of disposable income in 1989 when mortgage rates averaged around 15%, to a peak of 179% in 2009 after mortgage rates fell to 5.5%.
Another surge in lending came as interest rates sagged towards 5% before LVR controls in 2013 and higher bank capital requirements stopped the rise in indebtedness. There was another bounce back in household-debt-to-disposable-income of 175% in 2022 as mortgage rates fell as low as 3%, but the rise in mortgage rates to around 7.5% by late 2023 stopped any further rise.
In my view, the Government’s strategy isn’t working because households simply can’t take on much more debt, banks don’t have much spare capital to generate lending at double-digit rates, and landlords can’t borrow quickly in the face of falling rents and DTI limits.
The end result is a grinding periods of intermittment contractions and small expansions, driven by falling real wages for most households and weakened spending appetites from the rest as they feel the effects of shrivelling household net worth. It is an attritional balance sheet recessions and slow debt deflationary spiral.
Willis amplified the pressure on any households and businesses dependent on incomes from the Government yesterday, saying the need to contain spending growth was even more intense and she had written to ministers to ask for more spending cut ideas ahead of Budget 2026.
This was evident in Marine Lourens’ report for The Post-$ today that Health NZ had been told to find a further $510 million in savings in the coming year.
This ongoing pressure on consumer spending appetites and housing market activity, with Worldline reporting yesterday that retail sales were down 0.3% in the first 14 days of December from the same period a year ago, and REINZ reporting house prices fell 0.3% in November from October, having fallen 0.2% the previous month.

Quotes of the day 2025 v 2024: ‘This time is different’

“At some stage, of course, we’re going to get some upward surprises in the forecasts. I very much look forward to that day, and those upward revisions will help us reduce the deficit further.” Finance Minister Nicola Willis speaking to reporters yesterday (December 16, 2025) while releasing the 2025 HYEFU. Via BusinessDesk-$

“At some stage, we’re going to get some upward surprises in the forecasts. I very much look forward to that day,” Finance Minister Nicola Willis speaking to reporters on December 18, 2024 while releasing the 2024 HYEFU. Via NZ Herald-$