Government consumption expenditure

IBISWorld expects government consumption expenditure to grow by 3.1% in 2025-26, reaching a total of $59.9 billion. Despite the government's efforts to limit overall spending, this increase is expected because new spending allowances in the Budget are typically counted as increased day-to-day spending. A significant portion of government expenditure is allocated for health services, which are challenging to reduce, particularly as New Zealand's growing and ageing population creates extra demand for services like health and education. Rising wages and prices are also driving up the annual costs required to maintain the quality of public services, supporting the expectation of moderate increases in government spending on services.

The majority of government consumption spending is attributable to the Central Government, which accounted for approximately 86.2% of total expenditure in the 2024-25 fiscal year (the latest available). However, local government consumption has increased slightly as a share of total expenditure over the two years through 2024-25. Local government consumption spending has increased at an average annual rate of about 7.0% over this period, while central government consumption spending has remained broadly flat. The Central Government is responsible for functions as taxation, law and order and defence, while it is also responsible for advancing the economic and social wellbeing of the country. Local governments are responsible for the general administration of territorial authorities in New Zealand. This includes various expenditures related to roads, transportation, water supply, planning and regulation, culture and recreation and sports facilities.

Over the past five years, growth in local and central government spending has contributed to increased government consumption expenditure. In particular, government consumption expenditure has increased more rapidly since the Labour-led government was elected in late 2017. Government consumption expenditure has been focused on health, education, infrastructure, lifting the incomes of Maori and Pacific peoples, investing in new technologies and transitioning to a more sustainable economy. Pandemic-related economic uncertainty and efforts to boost the recovery of the tourism sector also led to a heightened growth rate in government expenditure over the two years through 2021-22. Overall, IBISWorld forecasts government consumption expenditure to rise at a compound annual rate of 2.7% over the five years through 2025-26.