Budget 2026: How will the Government balance its big infrastructure plans with fiscal reality?
Sunday, 24 May 2026
ANALYSIS: The Government has signalled a serious boost to infrastructure spending is coming in next week’s Budget, with $5.7 billion allocated to one-off “capital projects”.
But that will not go far towards solving the underlying tension within our infrastructure system between shiny new projects and maintaining what we already have.
Whether that is hospitals, roads, rail, water or electricity the Government has suggested there needs to be a sea change on how we invest in infrastructure, one that will be solved not through a single Budget but through a cultural change.
It commissioned a report from the Infrastructure Commission which pushed in a radically different direction than what National campaigned on, with far less money for new roads, more tolling, and more money spent on maintenance and health infrastructure.
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But with a fuel crisis battering New Zealand and construction inflation on the rise actually working out a new infrastructure consensus seems harder and harder.
This is best typified by transport, an area where there is always more investment to be made than money to be spent.
Transport funding conundrum
Spending on transport infrastructure is meant to have a simple formula.
Different to other parts of public infrastructure which require taxes and borrowing to operate, roads are meant to be self-funding through the National Land Transport fund (NLTF), which is made up of fuel excise taxes and road user charges.
However, that simple structure has been distorted over the years with nearly half of the fund's money now coming from the Government’s coffers.
Top that off with a lack of willingness by parties to increase the fuel excise tax and road user charges and you have a recipe for a deficit.
Transport and Infrastructure Minister Chris Bishop said last month transport funding was a “bloody difficult situation” that keept him “up at night”.
“I'm the poor sucker who has to deal with seven years of decisions around this, I mean, fuel tax has not gone up since 2020.”
Between 2017-2020 Labour put up the fuel taxes three times, cut them during the Covid-19 pandemic then increased them back up.
It had scheduled three further rises from 2023 but those were deferred by the coalition Government. It was scheduled to go up next year, but Bishop has signalled that’s unlikely.
Change to funding model
Infrastructure Commission chief executive Geoff Cooper told The Post the Government’s current programme of work would not be able to be done through a ring-fenced fund like the NLTF without sizeable increases to fuel taxes.
Cooper said the commission would like to see the transport funding get back to paying for itself either via funding such as tolling or increased funding back to the NLTF - but neither of those options had a simple solution.
If tolling was to make up a major part in paying for a road the commission believed it would need to meet a high bar of usage.
An example Cooper provided would be a road that costs less than $32 million per kilometre, road usage that’s more than 40 thousand vehicles per day and a travel time savings benefit of at least 15 minutes.
On the fuel tax funding model there were limitations on how much people could pay, particularly with the existing fuel crisis.
“At the end of the day these charges come off the household balance sheet and the household balance sheet is constrained, and getting more constrained.”
Not all hope is lost though, as Cooper believed that the existing NLTF funding was enough to maintain and operate the existing transport network alongside some “tactical capital upgrades in a staged and phased way”.
“That is more than what I can say for almost every other publicly provided infrastructure that we have, where we see quite significant issues with respect on getting through a renewal cycle or maintaining an existing asset.”
Transport not the worst off
In the national infrastructure plan the commission released earlier this year hospitals were singled out as one of the most poorly funded areas.
“We are looking at investment levels per capita and seeing a very flat investment trajectory in a world where the group that needs those services is growing quite fast.”
Other areas of concern were electricity markets, energy and flood protection.
In February, Bishop said Health New Zealand now had a long-term capital infrastructure plan, and that the Government was providing a “record investment in both capital and maintenance spending for health”.
With regard to transport Cooper said it was also important to note how demand feeds into road usage.
He said the working age population, and how they travel, had traditionally driven most demand for new roads - but New Zealand’s fastest-growing group was now over-65s, who use roads up to 40% less.
“In the 50s, 60s, 70s and 80s the demand for roading was around sort of 5, 6 almost 7 percentage points every year which is really high.
“In the future that’s projected by MOT (Ministry of Transport) and others to be somewhere between 0 and 1%.
The moderation for demand in the transport sector would need to play out in investment trends over a longer period of time, the chief executive said.
He noted that was a general measure but he expected those trends to be different, particularly for Auckland which he noted was expected to account for 50% of all growth in the future.