Given that the likelihood of any significant new spending was already tempered by the need for fiscal constraint to address the ongoing structural deficit, the 2026 Budget was never going to be a lolly scramble election year budget. As the Prime Minister liked to call it, this was a Budget ‘for grown-ups’.

That said the Government has chosen not to go down the more politically risky ‘fiscal consolidation’ route at least in the short term (and in an election year) - of spending less than it collects in revenue and /or increasing taxes.

Minister of Finance, Hon Nicola Willis, has chosen not to pull any rabbits out of the hat. There are no sugar hits.

FIF advocacy answered

In a welcome development the Government has raised the Foreign Investment Fund (FIF) threshold from $50,000 to $100,000, the first increase in 25 years and a sensible measure we have been recommending for some time. This will ensure fewer taxpayers who invest overseas are subject to FIF rules, which tax them on the value of their investments regardless of whether they receive income from those investments.

The four year plan

But otherwise the Budget was absent significant surprises, which is, of itself, not a surprise.

The Government has set out its plan for a return to surplus in 2028/2029. That plan is fiscally prudent but it comes at a cost – or indeed several costs.

The Budget offers scant additional support for Kiwis – individuals, families and businesses – facing strong economic headwinds and spiralling costs. The austerity reflected in the Government’s hard line or ‘tough love’ approach is sensible from a fiscal perspective but hard for everyone in the short term – with the payback from austerity coming down the track in the form of an improvement to the Government’s fiscal position.

In the meantime, more money spent at the petrol pump means less money spent in the rest of the economy and tougher times for everyone. Additional handouts and subsidies for ongoing high fuel costs beyond those already implemented weren’t expected given the ‘tin is empty’ but would have been welcomed by many. Instead, and prudently, the Government has set aside $450 million of funding for additional temporary fuel-related measures should it need it – but any use of this contingency will be “temporary, timely and targeted”.

What is the opportunity cost?

A significant opportunity cost is also inherent in this Budget. The Government is having to spend over $10 billion in 2026/2027 on debt servicing costs before it can make inroads into reducing its debt.

Interest on borrowings is the fifth highest area of Government expenditure after welfare, National Superannuation, health and education. This fact alone should drive an openness to addressing the long-term challenges of unsustainable retirement settings and tax base fragility. The Government has a plan to reduce the cost of the public service but nothing in the Budget suggests a commitment to addressing the long-term challenges of our retirement and tax base settings. This despite the Finance Minister calling out in her Budget speech that the cost of National Super will rise by $1.8 billion in the next year alone, nearly as much as the annual operating allowance.

Successive governments cannot keep kicking these cans down the road. Our survey of Chartered Accountants shows that, for every age demographic, retirement policy settings are the most or second most significant concern. Many Chartered Accountants are also concerned about the sustainability of the tax base in the medium- and long-term.

Four commitments we wanted to see

Earlier in May we called for the Government to make four commitments in the Budget. Those were to:

• review the effectiveness of the Investment Boost initiative that formed the centrepiece of Budget 2025 and costs taxpayers $1.7 billion each year;
• signal readiness to reform the country’s retirement settings that are unsustainable in the medium and long term;
• simplify Fringe Benefit Tax that bolsters the income tax system but imposes a deadweight cost on employers; and
• provide charities and not for profits (NFPs) including mutual associations with certainty about their tax treatment.

We are pleased to see that the Government has made clear commitments in two of these areas:

• It will proceed with simplification of the FBT rules that apply to private motor vehicle use, an initiative we have been recommending for several years.
• It will provide more certainty for charities and NFPs by
  • legislating to ensure that membership subscriptions and levies received by NFPs remain non-taxable; and
  • increasing the tax-free income threshold for NFPs from $1,000 to $10,000.

In what is narrated as a base maintenance measure, donations eligible for the donation tax credit will be capped at $100,000 a year.

Given the significant annual cost of Investment Boost we would like the Government to commit to a robust review of its effectiveness during the four-year forecast period. Given the incentive was introduced only last year it would be sensible for the review to be undertaken after two years’ data is available.

As noted above, retirement settings have been kicked down the road. Although this is a challenging area for any coalition government, turning a blind eye to the challenges ahead is not the answer. The Minister of Finance reassured questioners in the Budget lockup that National recognises changes are needed. The Coalition Government does not have a policy to change the retirement settings but two of the three parties in it do intend to go to the electorate with proposals for change.

Where is the money being spent?

As foreshadowed in the weeks leading up to the Budget, there is only $2.1 billion additional operating allowance available in each of the next four years. The bulk of the additional operating allowance and of the funding reprioritisations has been allocated to health ($5.5 billion increase in funding) and, to a lesser extent, education – in both cases largely to what are described as frontline services.

Outside the core areas of health and education the only major area of new net operating expenditure is defence and intelligence, which receives $1.2 billion (including for defence salaries). Given the global geopolitical climate and years of defence capability underspend this was no surprise.

Capital expenditure increases include:

• Defence and intelligence ($2.3 billion, including on drones and ships).
• Health ($682 million including a new block for Whangārei Hospital and improvements to hospitals in Tauranga, Hawke’s Bay and Palmerston North).
• Education ($501 million mainly on building or redeveloping schools and buying land for new schools in Tauranga and Queenstown).
• Roading (including $1.8 billion on the consented Cambridge expressway extension and $400 million on state highway resilience upgrades).
• Rail ($705 million for renewals and upgrades of the network, athough the detail seems scant at this stage).
• Law and order ($215 million on new courthouses in Rotorua and police stations in Whanganui and Greymouth).

Other narrowly targeted Budget initiatives include:

• $36 million to make the SuperGold Card an official form of ID;
• $156 million to double the number of Trades Academy places for years 11 to 13 school students from 10,000 to 20,000 and to provide 1,000 more Youth; Guarantee places for school leavers with no or low qualifications;
• $109 million for the control of wilding pines; and
• $184 million for Oranga Tamariki to protect and support children.

On the flipside, the new prudential levy on banks, insurers and other financial market participants increases revenue by $209 million over the 4-year period. It is intended to cover the cost of regulation and supervision by the Reserve Bank.

Road user charge and fuel excise increases originally foreshadowed by the previous Government are not completely off the table. Cabinet will decide later this year whether there will be any increases to these taxes from next year. When it is made that decision will be informed by the status of global fuel supply chains.