Will’s Word: A risky tightrope walk for New Zealand's economy

The Government is cutting back on new spending this year, dropping its allowance from $2.4 billion to $1.3 billion. Finance Minister Nicola Willis says it's about focussing on priorities like health, education, law and order, while keeping debt under control.

It's a cautious move but it comes with consequences, or in economics speak, it's less stimulus in an already sluggish economy. Less government spending means less support for the economy in the short term.

ASB economist Mark Smith put it well in an RNZ article, saying it puts more pressure on the Reserve Bank to step in, likely by cutting interest rates further to help keep the economy going.

That could be good news for people with mortgages or small businesses needing loans, but let us not forget the global risks at stake at the moment, like rising tariffs and trade tensions. That could make inflation harder to manage and ultimately limit how far rates can fall, right?

So you'd be like ‘William, what does this mean for me? What does this mean for Kiwis’? My take on this is that some may feel the squeeze, especially in public services or wage growth in the public sector, if you work in the sector.

Others might benefit from lowering borrowing costs if the Reserve Bank acts as Mark Smith believes it should. It's a balancing act, isn't it? Tightening now to avoid bigger problems later.

In the end, whether this strategy helps or hurts will depend on how well the Government cuts back the Reserve Bank and its decision making.

It's a careful play, not without risk. But you would argue it's aimed at long-term stability. We shall see.

That's Will's Word.

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