Bare coffers, big stakes: The Budget battle ahead

Saturday, 9 May 2026

Luke Malpass is politics, business and economics editor.

OPINION: On Thursday, Cabinet met to lock down the final decisions on the Budget. The document will be handed down in three weeks.

The politics of the Budget are going to be simple: the coffers are bare. Any extra spending - of which there will be a maximum of $2.4 billion - has to be borrowed.

There will no doubt be some sort of centrepiece, but it will almost certainly not involve any big spending item - and if it does involve more spending it will be paid for by savings elsewhere.

This Budget, delivered on May 28, will be yet another one dictated to some degree by inflation, and the election campaign that follows will be the second of that nature. The Government has had a good nudge at trying to set up the year as a fight about the long term.

In the short run the economy has barely grown and fiscal repair is very slow. Whether you blame the Government for not being realistic about the size of the budget deficit and the quantum of the budget cuts required, or you think the plan in late 2023 was sound but growth has been so rubbish it has made the plan look worse, is beside the point.

For the coalition as a whole, it will be hoping this narrative is convincing enough they can all ride it back into office, although clearly the two smaller parties are happy that the National Party’s share appears to have been reduced.

So what will the three governing parties - and the Opposition - want to get out of the Budget?

Going from right to left, the ACT Party will position itself as the only true believer in fiscal probity, arguing that the other two parties have been happy to let fiscal drift continue but that ACT found most of the savings contained in the Budget and helped to keep the lid on things.

Recall that in last year’s Budget, David Seymour claimed Brooke van Velden had saved the Budget by scrapping the old pay equity scheme, which had grown into a significant fiscal liability, and replacing it with something else. In a fiscal sense that was the big move that helped keep the Budget in check, but arguably the way it was done - ramming it through under urgency - was a mistake. And one that the National Party largely wore.

That’s what ACT will get out of it.

For the National Party, Nicola Willis’ goal is clear: to defend the Government’s record, to stick to the spending allowances she had set for herself and to try to prove that, even if it is over the longer term, National is a far more trustworthy steward of the nation’s finances than either the political left or NZ First - and that it isn’t full of flinty obsessives like the ACT Party who want to privatise everything or just slash spending regardless of the social cost or dislocation.

Plus, the argument goes, if that had been the case, in an MMP system this Government would just have been tossed out.

Expect Willis to point out more frequently that every new bit of spending is money that has to be borrowed from one person to give to another, or taxed from one sector to give to another.

But while it goes without saying that Willis will go after Labour for all sorts of fiscal sins or plans - real and imagined - it will be NZ First which, in the months after the Budget, she will begin to try to attack in earnest.

And that’s because despite making common cause on some issues and obviously being in government together, NZ First has demonstrated precious little commitment to fiscal discipline. NZ First has always been pretty canny at this - committing to “sensible” and “grown-up” economic management while also wanting the state to spend money on all manner of things and keeping the state actively involved in ownership.

When Willis dug into Winston Peters this past week and raised the possibility that he might go into government with Labour - which he has done two out of the four times, or 50% of the time, he has decided which major party would form a government - it appeared part of the longer game.

In order to get National’s vote up it needs to appeal to voters who have peeled off both to Labour and to NZ First. The problem is that those voters have quite possibly peeled off in different directions for quite different reasons. So trying to paint Peters and his party as irresponsible is one way to try to do it, whether or not it works.

NZ First, meanwhile, will be going back to a tried and tested approach of purporting to be a sensible handbrake on what it says are the excesses of either major party. It would be a surprise if this Budget doesn’t take more money off priority areas broadly considered woke (there is reasonable agreement on that strategy across the Government). And while Peters appears to have dropped the language of sorting out the excesses of “neo-liberalism”, he will continue to make the case for NZ First being the handbrake on its current coalition partners: social conservatives, economic nationalists.

Meanwhile, across the aisle, Labour will have its work cut out. Chris Hipkins has previously said that the party will begin to release more policy after the Budget because it will know how much money it will have to play with.

On both strategic and practical grounds this has been pretty sound, but now the heat will come on Labour. While the Budget Economic and Fiscal Update may well change between May and the Pre-election Fiscal Update, which will probably be released around early October, the broad parameters will be the same.

The economy will probably be expected to grow modestly, but depending on the Strait of Hormuz and fuel prices, tax receipts may well move around somewhat.

So exactly how Labour will attack this Budget remains to be seen. But it seems likely that it will be around choices. Not so much that there’s actually more money than the Government thinks — everyone knows there isn’t — but that the choices the Government has made to try to cut its cloth have been the wrong ones. But the party will probably stay away from specifying the right ones for a while.

Then, over the course of the coming weeks and months, Labour will have to start offering some up.

The Green Party will most likely frame a bunch of the decisions as unjust, as the Government looking after its rich mates, and argue that a socialist policy prescription of far higher taxes and levels of government spending are the appropriate response. Green Party policy documents have generally been sceptical about deficit spending being a bad thing.

It is a cliché in politics that everyone loves a lolly scramble Budget. And that is probably true. But New Zealanders also understand that the past few years since Covid-19 have been really tough and that the public finances need fixing. Equally, higher fuel prices mean that people and businesses are doing it tough.

The Government has laid the ground for a Budget that really beds in the story it has been trying to tell for the past three years. Last year the whole thing got hijacked by pay equity.

Managing the public finances is serious business and not just some bit of stagecraft, but the politics of this particular Budget will be fascinating.