Public Finance 101
A teacher's crash course on how NZ government budgets actually work – so you can confidently answer any question your students throw at you.
What is a government budget?
A government budget is a plan for how the country will earn and spend money over the coming year. It has two sides:
- Revenue – money coming in, mostly from taxes.
- Expenditure – money going out, spent on public services and infrastructure.
When revenue exceeds expenditure, the government runs a surplus. When spending exceeds revenue, it runs a deficit – and borrows to cover the gap, adding to government debt.
There are also two types of spending:
- Operating expenditure – day-to-day costs like salaries, benefits, and running hospitals. This is the majority.
- Capital expenditure – one-off investments like building roads, schools, or hospitals. These create assets that last for years.
Budget Bird focuses on operating expenditure – the ongoing choices about where to allocate limited resources.
Where does the money come from?
The NZ government collects roughly $120–130 billion per year in revenue. The vast majority comes from taxes:
Income tax is the biggest source – paid by individuals on wages and salaries. NZ uses progressive rates: you pay more as you earn more (10.5% on the first $14,000 up to 39% on income over $180,000).
GST (Goods and Services Tax) is 15% on almost everything you buy. It's simple and hard to avoid, which is why it raises so much.
Corporate tax is paid by businesses on their profits (28% rate).
Other revenue includes excise duties (fuel, tobacco, alcohol), customs duties, ACC levies, and dividends from state-owned enterprises (SOEs) like Meridian Energy and NZ Post.
Where does it go?
Government spending is dominated by a few large areas. These proportions shift over time, but the broad picture has been consistent for decades:
These top three areas alone account for about two-thirds of all government spending. Click each area to learn more:
Social security & welfare (~30%)
Health (~21%)
Education (~17%)
Law & order (~6%)
Transport (~5%)
Defence (~3%)
Housing & other (~18%)
This is why cutting any of the big three is so politically and socially difficult – and why Budget Bird makes students grapple with exactly this tension.
The Budget process
New Zealand's government budget follows an annual cycle. Here's how it works:
December – February: Forecasts & priorities
Treasury prepares economic and fiscal forecasts. Cabinet sets Budget priorities – what matters most this year (e.g., health workforce, housing, cost of living).
February – April: Budget bids
Government departments submit "bids" for new funding. Ministers negotiate and the Finance Minister makes final allocation decisions, advised by Treasury. (Yes, "budget bids" is where the name Budget Bird comes from.)
May: Budget Day
The Minister of Finance delivers the Budget speech in Parliament. The Budget Economic and Fiscal Update (BEFU) is published with all the numbers. Media, public, and opposition scrutinise the choices.
May – July: Select committee scrutiny
Parliamentary select committees examine each department's spending in detail. Ministers and officials answer questions. This is Parliament's key accountability mechanism.
July 1: New financial year
The new budget takes effect. Departments can begin spending their allocated funding.
December: Half-year update
Treasury publishes the Half-Year Economic and Fiscal Update (HYEFU) – showing how actual revenue and spending compare to forecasts.
Key concepts for the classroom
Trade-offs & opportunity cost
Every dollar spent on health is a dollar not spent on education, housing, or tax cuts. There is no "free" spending – everything has an opportunity cost. This is the core mechanic of Budget Bird.
Fiscal responsibility
Governments can't spend unlimited money. Persistent deficits lead to growing debt, which means more interest payments and less money for services. The NZ Public Finance Act requires governments to manage debt prudently.
Intergenerational equity
Budget decisions today affect future generations. Cutting education spending saves money now but may reduce the workforce skills (and tax revenue) of tomorrow. Infrastructure investments cost money now but serve communities for decades.
Values & priorities
A budget is ultimately a statement of values. Two governments with identical revenue could produce completely different budgets – because they prioritise different things. This is what makes Budget Bird discussions so rich.
Civic participation
Understanding how budgets work is a foundation for democratic participation. Voters who understand trade-offs are better equipped to evaluate government promises and hold leaders accountable.
Making it real in the classroom
Use these questions to connect Budget Bird to real-world public finance:
"If health costs are rising faster than tax revenue, what are the government's options? Which would you choose?"
"NZ spends about 30% of its budget on social security. Some countries spend much less. What might be different about life in those countries?"
"The government is borrowing money for a new hospital. Is that a good use of debt? What about borrowing for a one-off event?"
"Your team cut education spending to build more houses. What might the long-term consequences of that be – in 5 years? In 20?"
Budget Bird uses categories that map closely to real NZ government budget votes – so students can look up real numbers on treasury.govt.nz and compare their budgets to the real thing.
Figures are approximate and based on recent NZ government budgets. For the latest data, see the Treasury's Budget Economic and Fiscal Update (BEFU).
Test yourself
See how much you picked up. Five quick questions – no pressure.
1. What is the NZ government's single largest source of revenue?
2. Approximately what share of government spending goes to social security & welfare?
3. When is Budget Day in New Zealand?
4. What happens when government spending exceeds revenue?
5. What percentage of government revenue comes from GST?