Nicola Willis and the Budget of managed expectations

Thursday, 28 May 2026

Andrea Vance is National Affairs Editor for The Post and Sunday Star-Times.

OPINION: In her pre-Budget interview with The Post, Finance Minister Nicola Willis was preoccupied with dead rabbits.

Labour had already killed the bunnies, she said. There was nothing left to pull out of the hat.

But Budget 2026 was never really about rabbits. It came down to persuading voters to swallow the dead rat.

Ministers have spent the last few weeks Cassandra-ing their way around the business circuit and lowering expectations to ankle height. There would be no lollies, no tricks, no rabbits. Even the hat was at risk.

Read more:

• Treasury sees surplus in 2029, but warns of ‘general uncertainty’

• Budget 2026: Coalition serves meat and two veg, but an early surplus for dessert

• Live: Budget 2026 -‘responsible’ as Willis says? Or ‘more cuts, more pain’

Before this Budget, the country was facing a grim stew of lacklustre growth, stagnant living standards and a depressing array of fiscal pressures.

So it was a genuine surprise to open the Budget Economic and Fiscal Update (BEFU) and find an outlook noticeably rosier than December’s forecasts. Between Christmas and autumn, Treasury appears to have suffered an attack of the Pollyannas.

Despite war in the Middle East, volatile fuel prices and a weakening global outlook, the numbers improved rather than deteriorated.

But this optimism rests on a fragile assumption that the current shock is a temporary detour, and the economy will swiftly bounce back to its pre-shock trajectory.

In the lock-up, Willis insisted these were “setbacks rather than derailments,” promising the economy would eventually “bounce back strongly.”

On that basis, Willis argued that “sugar hits” of cost-of-living relief were unnecessary and fiscally irresponsible, a diversion of funds from long-term stability for short-term election-year sweetness.

It’s a clean line in theory. In practice, National is selective. In 2024, the government delivered a package of tax cuts justified explicitly as cost-of-living relief to lift disposable incomes. Back then, it was defended as vital household support, not fiscal indulgence.

Still, after weeks of dire warnings and in the here-and-now of a US-Iran war, any Budget that funds hospitals, roads, and defence while delivering an earlier return to surplus can be cast as competence rather than constraint.

The Budget isn’t light on spending. Health, education, and defence dominate the new allocations, alongside a $7 billion capital investment injection for roads, rail, and regional infrastructure.

But there is a trick. It is is built on careful sequencing.

Much of this new spending is offset by pre-announced savings, including the axing of fees-free tertiary education and deep cuts to public service baselines. By maintaining a tightly controlled operating allowance, Willis has reshaped the coalition’s priorities, allowing her to boast an earlier return to surplus.

OBEGALx is now forecast to move back into the black in 2028/29, a year earlier than previously expected.

But here’s the real sleight of hand. That surplus sits on a highly volatile foundation: stronger-than-expected nominal tax revenue, inflation doing the heavy fiscal lifting instead of actual productivity growth, and a savings profile heavily back-loaded into the later years. So, much of the repair happens on paper, and much of it happens later.

Treasury has cautioned that weak GDP growth, stubborn inflation, and fuel shocks cloud the horizon. The coalition is treating these risks as temporary speed bumps rather than structural roadblocks. But if the economic shock proves persistent, the fiscal margin will evaporate quickly.

Naturally, election-year coalition tensions simmer just beneath these figures. Each party secured enough to declare a win, but not enough to derail the government narrative.

ACT supplied the ideological scaffolding of efficiency and targeting, alongside a $400 million council housing growth scheme and relief for early childhood centres. NZ First scored the visible, voter-friendly wins: a $40 million SuperGold card upgrade and over $1 billion for rail investment.

However, with the election looming, those internal fault lines had to bubble to the surface.

Superannuation is the open wound in both the coalition’s fiscal strategy and its internal dynamics. Willis used a commentator's question to accuse parties (NZ First) who refuse to touch the universal pension of acting purely in self-interest.

The comment landed awkwardly on Shane Jones, sitting to her left, who uneasily deferred to David Seymour. Seymour didn't miss a beat, reiterating ACT’s long-standing push for reform: “things have to change.”

The tense exchange underlined the real constraints in this Budget. Willis has delivered a “responsible Budget” only insofar as coalition politics will allow. She spoke of “tough choices” made around the Cabinet table, but the hardest fiscal choices have simply been deferred into the future.

Meanwhile, voters are being asked to swallow the dead rat of fiscal restraint at the checkout and the fuel pump. But when it comes to the biggest, fastest-growing cost in the country’s future, the coalition itself still refuses to swallow it.