As New Zealand’s budget day looms closer, the government has already revealed one important figure – NZ$2.1 billion – that offers an insight into its approach to spending this year.

That’s the government’s tight operating allowance – or the new money available for ongoing spending. And that’s already been trimmed back from $2.4 billion since its budget strategy was announced in December.

The $300 million cut is small relative to total operating expenses, but still significant.

Operating spending funds ongoing commitments, such as public servants’ salaries, benefits and superannuation payments. It also covers the costs of keeping services running: think medicines for hospitals, or electricity for school classrooms.

Operating allowances, meanwhile, determine how much room the government has for new policies and for meeting cost pressures in these areas.

Ahead of Thursday’s budget, those pressures are already intensifying. The outlook now points to higher near-term inflation than was anticipated when the budget strategy was released five months ago, driven in part by rising oil prices following the US-Iran conflict.

If costs rise faster than operating funding, the government faces increasingly difficult choices over what........

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