Why Budget repair will be part of this election - for everyone

Saturday, 14 February 2026

Luke Malpass is the politics, business and economics editor.

OPINION: Every morning Treasury Secretary Iain Rennie gets up and checks the Bloomberg app on his phone.

He told The Post this in an interview on the sidelines of the New Zealand Economic Forum at the University of Waikato on Friday.

He checks Bloomberg, basically, to see what is happening on international markets. And more pointedly, what Donald Trump has said.

In Rennie’s words: “Markets are okay until they're not okay. So it’s that, I think the thing I’m worried about is a very volatile environment. And do we get some break that’s more than just day-to-day noise, but something more significant.

“So that’s probably what keeps me up at night.“

Rennie had finished a keynote speech where he talked about New Zealand’s fiscal situation and continued to lay out the Treasury’s view on it.

In essence his message has not changed much since the Treasury released several reports last year. New Zealand gets a shock worth about 10% of gross domestic product every 10 years, and the fiscal response to these shocks - the amount of money government has spent mitigating them - has then not been matched by sufficient savings once things improve to get ready for the next one.

In the case of the current structural deficit - that is, stripping out cyclical factors, the Government spending more than it brings in in revenue - there are two factors hitting the books right now.

The first is demographic. The cost pressures on health and superannuation of an ageing population are no longer in the future - even though many people, politicians and institutions, act like it. They are here now.

The other matter is that while some Covid spending was very easy to turn off - wage subsidies, for example - much of the spending was not quick, only loosely related to Covid-19, and has now been baked into the bottom line of the Budget.

Rennie’s message is basically that that will have to be fixed, and while the finer points and timing will be settled through the political process, whoever is in government will have little choice but to continue fiscal repair.

“We aren’t mere hostages to fortune”, he said in his speech. But he did note, with a hint of warning, that the longer New Zealand waits, the fewer choices there are to fix it and the sharper those choices will be.

All of those things are the preconditions at home. But it is what might happen internationally that has Rennie concerned.

These were significant themes of the forum hosted by the University of Waikato over the last couple of days. (Disclaimer, The Post was a partner for the forum this year).

How will New Zealand pay for the demographic crunch, how AI is going to change and shape the world - which has become more realistic and less panicky over the past year - and how New Zealand will be able to navigate the changing international order were taking up a lot of the thinking at the conference.

The international environment remains extremely fraught and will continue to throw up new and challenging choices for New Zealand over the coming few years.

Europe is continuing to grapple with its security threats and the Russian invasion of Ukraine, rejigging defence spending priorities and thinking about what its own defence looks like.

It is exactly a year since US Vice President JD Vance travelled to the Munich Security Conference to castigate Europeans on alleged cultural failure and an insufficient fealty to American ideals of free speech. More worrying than military-backed Putin gangsterism apparently. That speech rocked the European security establishment as an explicit sign that the potentially existential threat of Russian imperialism for some countries was of little concern to the US.

“The threat that I worry the most about vis-a-vis Europe is not Russia, it’s not China, it’s not any other external actor. What I worry about is the threat from within. The retreat of Europe from some of its most fundamental values: values shared with the United States of America,” Vance said at the time.

Fast-forward a year and the US has bombed Iran, captured the Venezuelan president, Trump has met Vladimir Putin in Alaska. “Liberation Day” came, markets eventually made Trump correct course but left the US with much higher tariffs. And then there’s Greenland.

US foreign policy remains America First, but also sclerotic, driven by things the president decides to care about at any particular time.

But it is clear that the nature of the rules-based order, as tellingly put by Canadian Prime Minister Mark Carney a few weeks ago, has changed, and in ways not favourable to a small country like New Zealand.

Yet, as former New Zealand trade minister and ambassador to the United States Tim Groser said at the forum, it shouldn’t be considered that the whole system is broken and there are a lot of like-minded countries still committed to it. But it will work differently.

Meanwhile the febrile post-Covid nature of politics continues apace. In the UK, Sir Keir Starmer looks highly unlikely to be prime minister for much longer, having been caught up in the Epstein files scandal as his hand-picked US ambassador, Peter Mandelson, is being investigated over sharing government material with the disgraced financier.

In Australia, Anthony Albanese’s popularity took a massive hit after the Bondi shootings, while the Liberal Party has just replaced leader Sussan Ley with Angus Taylor, the management consultant farmer who was involved in his former life in helping convince New Zealand dairy farmers that the creation of Fonterra was in their interests.

The world in which we now live is fundamentally more unstable than it was. And perhaps the biggest markets risk in the coming year is that of overvalued AI stocks. In common with the internet, it isn’t that AI is a passing fad, far from it. But the returns implied by some of the AI valuations, which are in turn financing investment in computing power, seem heroically large - at least in the short term.

There is also the other result of AI - that new updates to Claude or ChatGPT could smash valuations of more traditional tech companies that are very valuable, because they can do their work.

There are a lot of scenarios to be bearish about in how AI might affect markets. But the overall effect on the economy could be a disinflationary boon to productivity by making formerly time-consuming or labour-intensive tasks automated, faster and cheaper.

Coming back to what Rennie said keeps him up at night, it is clear that getting the public finances in order should be a strategic priority of the New Zealand state. Running the books in such a way that the unexpected can be absorbed and then paid back will only become more important in this world, not less. There are known unknowns over which New Zealand has no control, but the budgetary position is not one of them.

As the election year heats up it will be interesting to what extent the various political parties understand this and cut their cloth accordingly. It is unlikely that the question will be more debt versus less debt, but how he deficit is reduced and closed, what the trade-offs are to enable that to happen and over what time period.

Will these issues weigh on the election? Quite possibly.

Either way, the challenges of the coming years will test the political mettle of everyone in the New Zealand system.