The Luxon government won the last election by claiming that it alone possessed the managerial competence to fix the nation’s cost of living crisis. Three years later it is again patting itself on the back for refusing – in an election year!– to offer anything substantial to alleviate a cost of living crisis that has gotten measurably worse on its watch.
In Budget 2026 there was also no discernible plan to lift the country’s dismal growth and productivity figures. As Business Canterbury CEO Leanne Watson damningly put it:
At first glance, there isn’t a clear, cohesive growth story running through this Budget, particularly when it comes to lifting productivity, encouraging investment, and supporting the private sector to expand. Many of the initiatives announced will have positive impacts across the business community, but nothing that will substantially shift the dial on driving economic growth and productivity.”
For this dereliction of duty, Finance Minister Nicola Willis has asked for – and largely received – a big round of applause. She didn’t give us lollies in election year! What a trouper.
Meanwhile, unemployment is forecast to remain over 5% for the next three years , youth unemployment sits at its highest levels in a decade, the statistics on children living in poverty are horrendous, company liquidations are at their worst levels in 11 years, and the swelling ranks of the homeless are evident on the streets of every New Zealand city. In the year to February, there was a net loss of 34,430 New Zealand citizens fleeing the country and that’s actually an improvement on what we’ve seen over the course of the past three years.
In the face of these storm clouds, the essence of the government’s message to New Zealanders yesterday was: suck it up people, trust us, and hope. Budget 2026 relies on several highly optimistic assumptions. In no particular order: the Treasury forecasts assume that inflation will peak at 4% (it is probably running at closer to 5% already); growth will somehow accelerate from 1% currently to 2.7% on average over the next four years; unemployment will stay over 5% for years and eventually fall; hundreds of thousands of new jobs will be created, mainly by infrastructure projects; employment will rise; wages will rise faster than inflation; and if all of this comes to pass, New Zealanders can expect better times ahead for themselves, their kids and their grandchildren. Somewhere out there, over the rainbow.
Even this rosy future is based on Treasury’s core assumption that the Iran war/Strait of Hormuz impasse will resolve itself in next to no time, that business-as-usual will resume, and that the price of Brent Crude oil went be back down at $US77 a barrel by the middle of next year. Just in case it doesn’t, Budget 2026 has put $450 million aside in a “rainy day” fuel fund.
That example is instructive. Rather than use the $450 million (or other means at its disposal) to ease the burden on households facing rising fuel bills and related price rises – by say, making public transport free, or subsidised – Willis has locked away the funds for a future rainy day that may never arrive. For many New Zealanders, what they’re already experiencing is the worst of rainy days.
Overall, there was simply no sense of urgency about anything in yesterday’s Budget. Willis aims to cut, hope and stay the course until an uptick in the business cycle comes to save those of us by then with our heads still above water.
Doth protest too much
Yesterday, Willis announced that she will be returning the government books to surplus a year earlier, in 2028/2029. No doubt, low income households all around New Zealand will be over the moon at this glad news and at the enticing prospect that by the end of the decade the nation’s borrowing costs might thereby be reduced, somewhat. But hold the champagne. Arguably, this alleged success has been achieved by an accountancy sleight of hand designed to make a surplus easier to conjure, by removing some problematic entities – e.g. ACC- from the calculation.
That’s not all. As Audrey Young pointed out in the NZ Herald yesterday:
On her preferred measure of surplus, ObegalX, the books will get back into surplus in 2028-29, years earlier than forecast at the half-yearly update in December. But even on the orthodox measure, the one most economists use, the books are tracking to get back into surplus by 2029 – 30. In December, there were no surpluses forecast over the next four years.
Hmm. Lets get this straight. By the measure most economists use, Willis isn’t getting the books back int surplus a year earlier. More to the point…economic conditions have weakened since December as the Iran war stomped all over those fabled green shoots of economic recovery. So how can it possibly be that the forecasts for growth have gotten rosier?
What I’m hinting at is that there might be a credibility problem here. To the point of overkill Willis claims she is being ”responsible” and “sensible” and “prudent” and “careful” in restraining government spending. Christopher Luxon has called it a Budget for adults. In the circumstances, it could also be called fiddling while everything else around us goes up in smoke.
Health, no wealth
To be more precise. Yes, Vote Health will receive an extra $5.8 billion, a sizeable increase overall. But a significant chunk of that increase is going into the capital expenditure related to much-needed upgrades of a small number of rural and provincial hospitals in the North Island. Fine. Yet As NZ Doctor magazine has pointed out, the operational spending to do with the provision of health services within the current public health system is up by only 3.9%, which is less than the going rate of inflation, even before all the Iran war effects on prices are known.
This inadequate level of extra operational funding means that there will be too few staff to adequately care for the patients in those extra hospital beds that the capital expenditure will nominally create. On Vote Health, the government appears engaged in an expensive game of smoke and mirrors.
No lollies in election year? A three day post-natal hospital stay is a useful pitch to women voters, from a government that has alienated them by scrapping pay equity. In a similar case of gestural politics, the age threshold for free bowel screening will be reduced from 58 to 56. That’s well short of the free access to match Australia that both Christopher Luxon and Chris Hipkins promised on the campaign trail in 2023. (Australia now provides free bowel cancer screening from age 45. Sigh.)
In New Zealand, ethnicity is a significant marker in the incidence of bowel cancer. Given the higher (and earlier) incidence of bowel cancer among Māori and Pasifika, it isn’t ”prudent” or “responsible” or “sensible” to decline to provide free bowel screening here from age 50. It could equally be called “callous.”
In another sign of regression in public health, Pharmac has been denied any extra funds for new medicines. Interestingly, extra funds have been tagged to meeting the extra costs that Pharmac may incur thanks to – presumably – supply disruptions and price hikes for our key medicines in the wake of the Iran war. (Do we need to be a little or a lot worried by this prospect?)
The tokenism prize in Budget 2026 has to go to the $200 million tax on banks, spread over the next four years. Reportedly, this tax is being earmarked to pay for the Reserve Bank’s annual monitoring of the banking system. Spread over the five major banks, that’s about $10 million a year for each of them. You may recall that former RB governor Adrian Orr resigned after battling the government over a funding boost for the Reserve Bank, to meet its running costs. Looks like he was right.
Just to put that $10 million annual levy in context…as Business Desk has reported, the nation’s five biggest banks are currently racking up a total of nearly $10 billion in profits between them after tax, or $1,820 taken in profit each year from every man, women and chid in the country. If this doesn’t justify a windfall tax on banks, what would? After all, such a tax could be used to fund improved public services. Just saying.
Instead, the government is choosing to starve public services, in order to lavish funds on its friends in real estate, and to finance massive projects in roading and Defence. As always, scarcity is a political construct.
Dishing out the choice cuts
Budget Day used to provide a once-a-year peek behind the curtain into the workings of the financial wizards. Not anymore. Much of Budget Show Day is pre-announced, and pre-paid by transferring funds in advance between priorities. Even so, there were a few mega-sized lollipops on show yesterday. About 80% of us live in cities. We – and the environment – would benefit greatly from major investment by the state in fast, reliable urban transport infrastructure. Instead, the government is persisting with its slate of woefully inefficient, climate damaging Roads of National Significance.
These projects will gobble up billions while the government elsewhere preaches the virtues of austerity and belt-tightening. Oh, and National also seems to be still wedded to spending $1 billion on that LNG terminal.
Roads, roads and more roads. As Matt Lowrie pointed out on the Greater Auckland site late last year, the Northland Corridor alone is threatening to consume 10% of the entire infrastructural spend by successive New Zealand governments over the next 25 years. Our standard of living may decline but hey, we’ll be able to drive really fast out of Whangarei.
Even so, the numbers are staggering. The section between Whangarei and Te Hana is expected to cost $15.3-18.3 billion, and this doesn’t include the cost of the Warkworth to Te Hana section which is expected to start construction [in late 2026] and was most recently estimated to cost $2.9-3.8 billion.
Combined, that’s $18.2-22.1 billion – which is incredible for a road that for most of its length carries only 10-15,000 vehicles a day.
To put the cost a different way: if usage of the road more than doubled to 30k vehicles per day (which is more than most parts of the Waikato Expressway) over a 30 year span, that would still work out at nearly $70 per trip including the cost of operating and maintaining the road.
There’s a sobering message here for any South Islanders contemplating secession. All of the rural/provincial hospital upgrades listed in yesterday’s Budget are in the North Island, and only two of the slate of 17 Roads of National Significance are in the South Island.
Other examples of bucketloads of money being poured into the government’s preferred areas? Yesterday, Defence got another instalment of the government’s eventual $12 billion spend-up on the military. For now, the Navy will receive an $880m boost to its operational funding over four years and $700m of new capital funding. More, much more is still to come.
Lynda Topp isn’t the only one bemused by how this can be such a priority, given the levels elsewhere of unmet need. The costly hardware/software gear envisaged (a) would be incapable of playing any role in defending this country and (b) could only be usefully deployed within Cold War alliances (with China being swapped in for the Soviet Union) that no longer offer us any reliable level of protection at all, within the Trump era.
Fortunately, no credible military threat is predicted to emerge in the Pacific region over the forecast period. Regardless, taxpayers are still on the hook to spend vast sums of their money on combatting a phantom enemy in the Pacific while actual needs are going unmet here at home, because of the insufficient funds left over.
Again, and in contrast to Luxon’s claim, this is not a Budget for adults. The spending spree on Defence looks more like big kids playing G.I Joe, at the public’s expense.
Finally..
On the eve of Budget Day, Ruth Richardson of the Taxpayers Union claimed that we don’t have an affordability problem in New Zealand but a growth problem. Nice to know that Richardson can easily afford the rising costs at the supermarket and petrol pump. (Empathy was never her strong suit.) Yet even on her own terms, it is hard to see anything in this year’s Budget that looks remotely like a plan to foster economic growth and lift productivity.
Quite the reverse in fact. The plan to cut thousands of public service jobs, slash operational funding and gut the state’s “backroom” institutional knowledge (and IT capacity) looks like a systematic exercise in dumbing down the state. Along the way, it will do further damage to Wellington’s faltering retail economy, and inflict significant harm on the state’s ability to promote economic growth in partnership with the private sector.
So far, Willis and the nation’s corporate chieftains have shown a naive faith in the magical ability of AI to pick up the slack, and deliver major productivity gains. Unfortunately, the research evidence to date suggests that the net labour productivity gains achievable from AI are being significantly over-stated.
But that’s entirely in line with the cargo cult mentality behind so much of Budget 2026. Do next to nothing on the face of a social crisis, call that being sensible and prudent. Cross fingers and hope. Because things have got to get better don’t they?
Footnote One : As usual, the Labour Party has under-mined its own criticism of the Budget’s shortcomings by having no alternative vision to offer. As I’ve said before, African elephants have a gestation period of roughly 22 months. Yet that’s a significantly shorter time than what the Labour Party claims to need before it can say anything substantial about how things would be different if it was running the show.
Footnote Two : It feels almost Dickensian to be congratulating oneself for being a sensible steward of public money by denying more gruel to those on low incomes, even while one’s own colleagues are shamelessly living it up large on the expensive entitlements that come with high office. Marc Daalder had a good article on Newsroom this week on this general subject.
Almost singlehandedly, Social Development Minster Louise Upton has upended the narrative of trust and thrift. That trust vanished entirely when Stuff revealed that on top of her $320,000 ministerial salary, Upston also claims a $52,000 a year accommodation supplement from the taxpayer for living away from home, even though she owns (apparently mortgage-free) an apartment in Wellington in which she does not reside.
These inconvenient truths surfaced in the same week that Upston (a) raised the rent on low income tenants in social housing, (b) increased the ratio of their own income they have to pay before qualifying for housing assistance, and (c) cut nearly $200 million out of the funds available for hardship grants.
To date, Upston’s defence strategy has been to dig herself into a bigger hole. She says she’s feeling “comfortable” with what has been revealed. She says she obeyed the rules around the entitlements and besides many other MPs from parties across Parliament are doing the same thing. That’s a problem, not an escape clause. It is a message that low income New Zealanders will be taking on board. Cabinet Ministers are willing to make the challenges being faced by the poor even worse, while indulging their exclusive entitlements to the hilt.
The ACT Party has called this a “tough-love” Budget. Again, that’s so Victorian. (The poor will be taught virtuous self-reliance by their experience of adversity.) As we know from past experience, tough-love policies are never self-administered. Invariably, they involve politicians having the “courage” to inflict pain on other people. Funny that. Courage used to signify a willingness to risk personal pain in order to protect the vulnerable. Not much sign of that ancient virtue either, in Budget 2026.