Budget 2026: A modest Budget for straitened times

Thursday, 28 May 2026

OPINION: Nicola Willis’ third Budget is one of modest consolidation, not economic reform.

Willis has been careful to hose down expectations for this Budget. For months she has been framing it, and the Government’s fiscal management more generally, around the idea that New Zealand needs to be responsible.

As she told The Post on Wednesday morning, there are no rabbits to pull out of the hat.

And indeed, none have been produced.

Catch up on all Budget coverage here: The Post Budget 2026

“Options have been carefully weighed,” Willis said during a speech during her third Budget lockup.

In 2026 Government core Crown spending will be $147 billion, with a $12 billion OBEGALx deficit, that is forecast to rise to $167 billion by 2030, with a $2.5 billion surplus in 2029 rising to $6.1 billion in 2030

Willis is trying, ahead of the election campaign, to ram home the fact that there are real, urgent demands on the Treasury books, but that those must be balanced with credibly getting back towards a surplus - that New Zealanders will understand the necessity of its plan.

The Budget’s spare framing, the Government hopes, will put the pressure back on the opposition as disorganised spendthrifts. Willis’ speech was long on criticism of Labour’s Budget management.

But, in the shadow of the fuel crisis, there has been a $450 million contingency made for undefined cost-of-living or fuel price relief, should it be needed.

This is a fundamentally unchanged strategy to that employed by this Government since being elected: reprioritising existing spending to what it considers the best value or most important programmes, trimming back future spending increases and letting growth (and now possibly a bit of inflation) float the Budget back up into surplus. (Sometimes the things it considers the most valuable were promised in sunnier times when in opposition.)

In plain terms there is more spending than last year, but the forward increases compared to revenue are slightly less than expected in December, pulling the surplus forward. That in turn means a bit less borrowing and debt peaking at a slightly lower level.

Overall net core Crown debt is expected to peak at $246b in 2030. Gross debt, which is very salient to look at given the amount of new capital spending announced, will hit $284b by 2030 as well. These figures are both lower than expected in the HYEFU, which is positive, but they still represent 44% and 51% as a percentage of GDP.

All in all, it is a Budget that delivers against the Government’s stated aims, strategy and priorities. On the broader question of whether it is bold enough to really set New Zealand on a pro-growth path, the answer is far less clear.

This Government has reformed many areas of the state, particularly in planning upcoming changes in the public service. But fiscal settings have not been one of those areas, and this Budget reflects that fact. Dour, not daring.

It also reflects the internal logic of the Coalition. There are three parties with divergent views on both economic necessity and the political desirability of paring back spending quickly.

It is worth remembering that basically every finance minister since the Clark Government has been part of a bigger and more powerful main party. Former finance ministers have not had two reasonably-sized parties positioned on either side of the political spectrum to them - and with all of them in Cabinet.

Due to the numbers served up by New Zealanders, Willis has been in a different position between NZ First’s Winston Peters and ACT’s David Seymour.

She also has had to grapple with the baked-in price hikes in health and education in particular, brought about by the ageing population.

To give a sense of this, if Willis were to keep the nominal dollar amount of this Budget the same as last year, she would have to find $1.8b in savings to make room for this year’s increase in the cost of NZ Superannuation.

That Super question will be one for the election campaign.

When the half-year forecast was released in December, I wrote that it relied on everything going right. That remains the case. Treasury says that there is a 50-60% chance that there will be an OBEGAL surplus in the forecast period. That’s even odds.

Overall, the Budget is expected to be initially stimulatory and then pull back the fiscal impulse with front-loaded spending.

As far as priorities goes, what new money is being spent is going to predictable areas: NZ Super, health, education. New Defence money is being tipped into capital spending and some money has been allocated to transport resilience - making sure roads can deal with floods and storms.

It is all justifiable and explainable and pretty basic, easy-to-understand stuff.

On the retail politics end, there is more money for schools and classrooms, police stations in regions and a bank levy which is designed to make the banking sector pay the Reserve Bank for the regulatory services it provides.

It's a good wee headline for the Government but it is only taking in $209m over four years and will basically just shift Kiwis paying for these service as consumers through their banking services rather than voters through their taxes.

Inflation is expected to spike to 4% this year, which is a best guess based on current best information about the global fuel system and prices. That number is pretty rubbery. On Wednesday the Reserve Bank picked it at 4.3% in the September quarter. It is entirely dependent on events overseas between the Ayatollahs and Donald J.Trump.

New Zealand has not had a OBEGALx surplus (the newish preferred government measure) since 2018/2019. Willis has pulled the surplus forward a year to 2028/2029. And it isn’t a sliver of a surplus either - it is forecast at $2.5b. On the old OBEGAL surplus measure, a surplus is achieved the year after.

This fiscal improvement sees itself reflected in terms of slightly better net core Crown and gross debt, core Crown net debt and residual cash.

However, while there is an improvement in the residual cash position of the Crown, there is no cash surplus anywhere in the forward estimates. By 2030 it is still over $4b in deficit.

While a surplus a year earlier is good, it is still a long way off and surpluses have had a habit of being bumped back over the past few years. There is an election in between that could yield any conceivable result, but if this Government manages to stick to it, it will be able to rediscover the political power of surplus politics, which how now been lost for the best part of the decade.

It gives more economic choices and provides an anchor for spending decisions.

And that is defining the litmus test of economic management as balancing the Budget. It creates an easily understandable line for the voting public.

However, there are a lot of buts.

The economic forecasts seem rosy. Very rosy. The assumed impact of the current fuel crisis - given the ongoing closure of the Strait of Hormuz - appears optimistic and there appears to be pretty positive assumptions around the growth and jobs generated by the massive new capital expenditure announced by the Government.

This is the Budget that Nicola Willis said she would deliver, and it is modestly better than expected. It reflects the natural tensions within the Government.

As a political tool for the Government, it attempts to make a virtue of necessity, dialling up responsibility. Eschewing tempting and expensive cost-of-living relief measures on the basis of not landing your kids or grandkids in any more debt or future taxes than they are currently facing.

The next few weeks will determine whether the public agrees with that assessment.