Rising energy costs and Budget cuts set to squeeze Pacific families as pressure builds

New Zealand households are facing renewed financial pressure with a Pacific economist warning that a spike in global energy prices could tip the economy over the next three months just as the Government prepares to deliver its Budget on Thursday.

Wesley Tanuvasa from ASB says the impact of global oil and gas disruptions including tensions affecting the Strait of Hormuz.

The strait carries around 20 per cent of global oil and liquefied natural gas (LNG) and Tanuvasa says these disruptions will be felt quickly in everyday costs.

Speaking with William Terite on Pacific Mornings, Tanuvasa said these conditions will impact New Zealanders “pretty significantly”.

“It's pretty sharp in terms of the impacts in the June quarter. So we called it a ‘contraction’, so negative growth over the next three months. We think it hits us pretty significantly,” he says.

“It's pretty broad-based in terms of the impacts, but you feel the pinch first at the petrol station. We use a lot of diesel in terms of getting stuff across the country, transportation services and whatnot

“It means that those price pressures, especially for diesel, are really hurting industries. So filling up your cars, it's quite expensive right now. In terms of other stuff, you get flow-on effects.”

Listen to Wesley Tanuvasa’s full interview below.

The warning comes as Finance Minister Nicola Willis signals tighter spending in this week’s Budget.

Willis says this includes plans to reduce new day-to-day spending and push ahead with public service restructuring aimed at delivering NZ$2.4 billion in savings.

But critics and community leaders warn that this will actively hurt the frontline services that vulnerable households depend on.

Community and political leaders Pakilau Manase Lua, Chris Bishop and Paul Gilberd debated the impact changes to social housing costs will have. Photo/Composite/File/National Party

Pakilau Manase Lua, a community leader, says the current reality on the ground means communities already face severe housing insecurity, meaning further budget changes will impact small family budgets.

Meanwhile, Tanuvasa highlights the ongoing financial squeeze on homeowners, saying that global swap rates have remained one per cent higher over the last six months due to international geopolitical friction.

Wesley Tanuvasa says mortage rates may go up. Photo/Unsplash

“The way the swap market is performing, it would imply that mortgage rates are only going up. And if they are to continue their push upwards, it would just put pressure on banks to raise fixed mortgage rates.”

In a media release, Social Development Minister Louise Upston says that around 84,000 social housing households face a weekly rent increase averaging about NZ$31 from next year, while private renters will see accommodation support rise by up to NZ$30 a week.

These changes land on communities experiencing the highest rates of household overcrowding in New Zealand, where 40 per cent of Pacific people live in crowded homes according to the 2023 Census.

Government aims to save $2.4 billion in cost-cutting measures announced on Tuesday by Finance Minister Nicola Willis. Photo/PMN Composite

Gilberd says Pacific people are right at the hard end of this action because of established patterns of low and moderate household incomes.

Lua also criticised the $31 rent uptick per week, saying it fractures small budgets for families who can already barely afford bread while juggling utility bills.

Frontline services are also adjusting under Phase Two of the Public Sector Reform programme championed by Willis, which impacts the Ministry for Pacific Peoples (MPP) directly. The MPP is expected to lose nearly a quarter of its total workforce.

Pacific families have the highest overcrowding rates of any ethnicity in New Zealand. Photo/PMN News

Duane Leo, the National Secretary for the Public Service Association, warns that the reduction plan is a wrecking ball through crucial daily services.

Meanwhile, the Government is spearheading digital automation and artificial intelligence to manage these staffing drops, but Fala Haulangi, a community leader and union organiser, says digital solutions fail ordinary families who lack home internet data.

Many will likely look to Willis’s delivery of the final financial allocations for answers, as the budget books will test the Government’s operational theory.

Plans announced by Finance Minister Nicola Willis on public sector reform include reducing more than 8700 jobs, agency mergers and increasing the use of AI. Photo/PMN composite

The outcome will show whether reducing baseline agency budgets by two per cent this year and five per cent in subsequent years can handle an international energy crisis, or if the burden of making day-to-day living harder will ultimately be absorbed by the country's most vulnerable households.

The Budget is due this Thursday, 28 May.