The Budget with an identity crisis
Saturday, 21 March 2026
OPINION: Finance Minister Nicola Willis half-jokingly asked MPs for suggestions on what to call the May Budget when she addressed Parliament’s Finance and Expenditure select committee in January.
It turns out she was smart not to decide on the branding too early, given she is now having to plan for three different scenarios based on the scale of the fallout from the Middle East conflict.
The last one was dubbed the “Growth Budget”, when Willis reached for the defibrillator with her flagship Investment Boost policy in an attempt to try to revive business investment.
The pulse on growth is still weak, though. Stats NZ estimated on Wednesday that the economy grew only 1.3% - about half the pace of the Australian economy - last year.
Read more:
Investment Boost emerges as possible fault line in run-up to Budget 2026
Treasury advises Government to consider long-term view when weighing up fuel relief
But with the fiscal outlook darkening as a result of the conflict in the Middle East, grabbing the pads and giving the economy a second jolt may not be an affordable option.
On Monday, Willis said the advice she had received from officials in the wake of the conflict was the worst case scenario was that the economy would grow 2.5% this year.
During an update on Thursday, she walked back that expectation somewhat, saying only that advice suggested the economy would “keep growing this year”.
The advice on the worst case for inflation? “How long is a piece of string,” was her response. And fair enough, too.
With no quick resolution to the Middle East conflict in sight and the risk of a worldwide scramble for diesel on the horizon, the standard for Budget success may simply be preventing a big slide in Kiwis’ standard of living.
Willis could probably do worse than dub this year’s Budget the ‘Resilience Budget’.
What does resilience mean in an economic context?
Willis has always emphasised it definitely means retaining headroom for the Government to borrow more money in the event of a major natural disaster.
According to the Treasury, that may dictate keeping net core Crown debt below 50% of GDP.
It is currently expected to peak at 46.9% of GDP in the year ending June 2028, but it appears highly likely that will blow out further in the Budget forecasts.
Not only does lower growth mean less tax, Willis noted on Thursday that the Iran conflict was already pushing up wholesale interest rates and hence the likely cost of servicing the Crown’s existing $184b debt.
There seems to be a level of cross-party agreement on Treasury’s 50% debt guideline.
Labour’s finance spokesperson, Barbara Edmonds, has signalled she respects the guidance, even if Labour Party leader Chris Hipkins has been more equivocal.
The anticipated fuel crisis and Covid also show economic resilience can involve recognising a role for economic diplomacy.
In October, Trade Minister Todd McClay inked an agreement with the Singaporean Government on “trade in essential supplies” with the goal of ensuring food and fuel continue to flow between the countries during times of crisis.
One provision was a crisis-response arrangement under which both countries agreed to refrain from export curbs during times of supply-chain disruption.
Keep such agreements coming.
Beyond that?
More inconveniently for any right-of-centre government, significantly improving resilience probably involves broadening the tax base to provide additional ways to raise funds in a crisis.
That would mean putting in place, even at a very low level, an additional tax that could — unlike a capital gains tax — be counted on to reliably raise extra money in tough times instead of (or as well as) in boom times.
Inheritance taxes are by far the most common option that fit that bill, overseas.
Building up more in-country reserves of fuel and other commodities, substituting some key imports by assisting domestic production, and diversifying exports would all help, if not in time for this particular crisis.
Resilience is likely to mean mixing metaphors and putting fewer eggs in the dairy basket, as well as reducing reliance on imported fossil fuels.
It could sensibly involve listening to the best advice on maintaining strong bank capital requirements to ensure they stay afloat in a crisis, and improving social cohesion by reducing income and wealth inequality.
At this point, the Resilience Budget may be starting to look less politically appealing, and there are alternatives.
The Treasury’s chief strategist, Struan Little, appears concerned the Government may opt for populism by putting short-term relief for households from rising fuel costs ahead of the country’s long-term interests.
His blunt advice, delivered in a speech on Thursday, was “not to let the price of ‘91’ at the pump today distract us all from the cost of net core Crown debt tomorrow”.
A tax grab on bank profits to fund immediate relief for motorists, while perhaps avoiding blowing out debt, might be another option for Willis.
Call that the “Running on Fumes Budget”, if you will.
And there’s always the Bike to Work Budget as a last resort.