Chapter 1
Chapter 1
Finance Minister Nicola Willis warned New Zealand not to expect a lolly scramble in Budget twenty twenty-six, and anyone holding out hope for an election-year surprise may come away disappointed.
The Government's Budget, unveiled on Thursday, instead primarily focuses on infrastructure upgrades, targeted new spending in health, and funding to progress reforms in the education sector.
Narrow changes to tax settings have also been announced, including the introduction of a new bank levy, something the Herald first began reporting in July last year that Nicola Willis could be considering. It will only pull in less than one percent of the total profits of the four main banks, with coalition disagreements stopping further change. Here are the ten main things you need to know about Budget twenty twenty-six:
Banks are being slapped with a new levy, the revenue from which will be used to fund their regulation. But in the scheme of the banks' overall profits, they'll only take a small hit.
The Herald first revealed in July last year that the Government was considering the appropriateness of tax settings applied to banks. One option speculated upon was a major bank levy, similar to what is imposed in Australia.
Budget twenty twenty-six confirms Finance Minister Nicola Willis is progressing a new prudential levy on banks, non-bank deposit takers, insurers and other financial market participants to help pay for their own regulation.
This would be consistent with what happens in other countries, she said, and mirrors the approach taken by the Financial Markets Authority and the Commerce Commission "which fund much of their activity through levies on financial market participants".
It's estimated to recover around two hundred nine million dollars over four years, though the Government says the revenue from the levy will be less than one percent of the total profits of the four big banks.
"This levy will ensure the cost of regulation and supervision is borne by financial market players rather than taxpayers," Willis said.
Asked by the Herald why she didn't go further than a measure that only generates less than one percent of the banks' profits, Willis said she considered various options but couldn't get agreement for anything further with her coalition partners.
The levy, expected to be introduced mid-twenty twenty-seven, will be paid to the Reserve Bank, which will then return it to the Government through an increased dividend.
Tax rules are also being changed for the charitable and not-for-profit sector to ensure it's "strong, fair and has integrity", according to Revenue Minister Simon Watts.
The adjustments include increasing the amount a not-for-profit organisation can earn without paying tax, from one thousand dollars to ten thousand dollars, and capping eligible donations at one hundred thousand dollars to limit risks that arise when a donor makes a gift to a charity they control themselves. Various technical changes are being made to strengthen the tax system, like allowing businesses to get research and development tax credits sooner, a new way of calculating some Foreign Investment Fund tax on unlisted shares for New Zealand taxpayers, and simplifying fringe benefit tax rules for private motor vehicle use. New Zealand will return to surplus in twenty twenty-eight/twenty-nine, a year earlier than previously forecast, if the Government's preferred measure is used.
Using OBEGALx - which reflects the operating balance before gains and losses and excluding ACC - New Zealand will have a surplus of two point six billion dollars in twenty twenty-eight/twenty-nine, which Willis said would be the first surplus in a decade and an improvement on the nine hundred million dollar deficit forecast when Treasury last opened the books in December.
However, if you use the OBEGAL metric - which doesn't exclude ACC's revenue and expenses - a surplus isn't reached until the following year.
OBEGALx has improved, according to the Treasury, due to increased tax revenue and a smaller than previously forecast Budget package that is front-loaded. There is, however, an increase in benefit payments.
Prime Minister Christopher Luxon said that "against a challenging backdrop, we are staying the course on responsible fiscal repair while supporting economic growth to create jobs and lift wages".
He said the Government's "financial discipline translates into real economic security, with Budget twenty twenty-six rebuilding New Zealand's financial buffers".
"Without a responsible path back to surplus Kiwis would face the real risk of higher debt, higher interest rates and higher taxes."
Looking at some of the other headline economic and fiscal indicators, real GDP is projected to be one point two percent in the twenty twenty-six year and over the forecast period will peak in twenty twenty-eight at three point two percent. Willis said the economy will grow on average by two point seven percent over the four years.
The annual inflation rate will be four percent this year, up from two point seven percent in twenty twenty-five, before returning to the target range of one to three percent for the rest of the forecast period.
This has been heavily affected by the impacts of the conflict in the Middle East. The Treasury said in the Budget Economic and Fiscal Update that higher fuel prices add about one percent to the headline inflation figure this year.
"Overall, the Budget Economic and Fiscal Update is characterised by a slower near-term recovery and a sustained medium-term upturn. The outlook remains subject to a high degree of uncertainty as to the evolution of the conflict, as well as broader economic risks from geopolitical tensions, trade policy and the financial markets."
Unemployment will also peak this year at five point five percent and then fall to four point three percent in twenty thirty.
Net core Crown debt continues to rise throughout the forecast period, from one hundred ninety-one point eight billion dollars this year, to two hundred forty-six billion dollars in twenty thirty. As a percentage of GDP, it also rises from forty-two point four percent this year to a peak of forty-six point one percent in twenty twenty-eight and then falls to forty-four point four percent in twenty thirty. This is below what was forecast in December.
"This improvement in the country's books is reflected in the Government's borrowing programme," said Willis.
"New Zealand Debt Management has lowered its forecast issuance of government bonds by six billion dollars over the next four years, the first downward revision to the bond programme since twenty twenty-one."
When it comes to house prices, Treasury has revised down its expectations. They are still forecast to rise, but more modestly than the last projections in December.
This is "due to weak migration over twenty twenty-five, the end of the interest rate easing cycle,
subdued domestic momentum, and the impact of recent policy reforms on supply".
Prices are forecast to grow at an average annual rate of three to four percent over the forecast period, down from six to seven percent forecast in December.
"Over the outlook, house prices rise as annual net migration lifts to an assumed net forty thousand people while demand for residential property increases as economic conditions and the labour market improve."
This Budget invests an average of two point one billion dollars per year in net new operating spending. This is new spending on initiatives and day-to-day services.
That figure consists of three point eight billion dollars in new operating spending initiatives, but is offset by one point seven billion dollars in operating saving initiatives.
When the new spending initiatives are broken down, health is the big winner, receiving one point four six billion dollars. There's also five hundred three million dollars for education and tertiary education, three hundred eighty-eight million dollars for defence and intelligence, two hundred sixty-nine million dollars for law and order, and more.
In terms of the savings, the education portfolio has found three hundred fifty-four million dollars, while the social housing and welfare changes have found two hundred fourteen million dollars.
On top of the new net operating spending, there is capital spending. This goes towards infrastructure, like roads and hospitals. In this Budget there is five point seven billion dollars of capital spending, primarily in transport, and defence and intelligence.
Overall, there are one hundred ninety-one new spending initiatives and eighty-eight savings initiatives. The Government's summary of initiatives breaks these down by different areas.
There are some initiatives that aren't included in a specific portfolio. One of these is the savings the Government is forecasting from its previously announced reforms to the public service. Over the years forecast, about one point nine six billion dollars is being saved, which is on top of the savings each department is finding in their baselines.
The Government has stashed away four hundred fifty million dollars to be used if the fuel crisis, caused by the Middle East conflict, worsens.
Willis is describing the funding as an "emergency savings account", which she says she hopes not to use but believes is prudent given the unpredictable nature of the United States' war with Iran, which has choked the world's fuel supply.
The fund is designated for the next financial year and adds to the Government's fuel support and security measures, which includes one hundred fifty million dollars to increase fuel storage and temporary increases to the In-Work tax credit and mileage rates for care and support workers.
Several million dollars have also been set aside in the areas of Corrections, Police, Health and Education to address cost pressures associated with the fuel crisis in the current and next financial year.
It comes as Treasury forecasts fuel prices to fall, albeit admitting that could change if the conflict worsens oil supply. The forecasts predicted a petrol price of two point seven one dollars per liter by December and a diesel price ten percent lower than December twenty twenty-five levels.
The Government's five point seven billion dollars in capital spending is going towards hospitals, schools, roads, rail, defence assets, social housing and other local infrastructure, Willis said. This includes a new tower block with one hundred fifty-eight beds at Whangarei Hospital, and designs and redevelopments for regional hospitals in Tauranga, Hawke's Bay, and Palmerston North. "Budget twenty twenty-six delivers more than six hundred eighty million dollars of capital spending for the health system,
including investment to strengthen hospital infrastructure, expand capacity, and ensure patients and staff have access to modern, resilient facilities," said Health Minister Simeon Brown.
This will also support the acquisition of land for a new hospital south of Auckland, upgrades to Auckland's Mason Clinic, the new Dunedin Hospital inpatient building, and the establishment costs of the new medical school at the University of Waikato.
"In addition to this package, Health New Zealand will invest a further nine hundred thirty million dollars over the coming year in new clinical equipment, technology upgrades and hospital facility improvements nationwide."
Up to ten schools will be redeveloped, while land will be acquired for future school sites in high-growth areas like Queenstown. There are also up to two hundred thirty-two new classrooms expected to be constructed.
The next stage of the Waikato Expressway, from Cambridge to Piarere Road, will receive funding - one point seven seven three billion dollars - in this Budget.
Transport Minister Chris Bishop said this road was a critical freight and economic link connecting Auckland, Waikato and the Bay of Plenty with the central and lower North Island.
"This project has been talked about for years. Now we're getting on with it."
KiwiRail gets one point zero seven five billion dollars for planned network investments between twenty twenty-seven and twenty thirty, alongside about one hundred six point nine million dollars to continue critical metropolitan rail infrastructure renewals.
"New Zealanders invested sweat, blood, and tears to build their national rail network, but previous governments let it rot," said Rail Minister Winston Peters. "We are putting New Zealanders' rail assets to work once again."
Other transport resilience projects are being funded. There's also up to two thousand two hundred fifty additional social houses, new courthouses in Rotorua, new police stations in Greymouth and Whanganui, upgraded defence training facilities.
The health area is receiving the most new operating spending in this Budget, with Brown saying the funding uplift will deliver tens of thousands additional treatments, including in planned care, for cancer, and in general practices.
A notable initiative funded through Budget twenty twenty-six will create a legal entitlement allowing new mothers to stay for up to three days at a hospital or primary maternity unit after birth. This will cost about thirty-four point four million dollars over the forecast period.
The Government will also lower the starting age for free bowel screening from fifty-eight to fifty-six, which is expected to allow more than two hundred thousand additional New Zealanders access. That comes at a cost of forty-five point five eight million dollars.
Cyber security across the health system will also get a one hundred fifty-three point six million dollar boost for new monitoring and response capabilities. There is also three hundred million dollars being invested by Health New Zealand in upgrading many digital services and devices.
The education system is receiving a two point one billion dollar injection, with Education Minister Erica Stanford saying Budget twenty twenty-six puts a focus on secondary school achievement and assessment.
"This Budget provided substantive investment into the development of our national secondary curriculum, providing resources for students and essential professional development for teachers."
That includes sixty-one million dollars for resources for the refreshed curriculum, while twenty million dollars will go towards professional learning and development for secondary school teachers to implement the curriculum and new national qualification.
In terms of vocational learning, there is fifteen million dollars to enable the new Industry Skills Boards to develop at least eight new industry-led secondary subjects and sixty-nine million dollars to nearly double the number of places in Trade Academies to twenty thousand by twenty thirty. This is where some of the money saved from scrapping the fees-free scheme is going.
Stanford said these investments would ensure students have "practical, job ready skills" that are relevant to business and industry.
To deliver the new national qualifications, which will replace NCEA, there is ninety million dollars in funding for the New Zealand Qualifications Authority.
Additional cost pressures are funded, like paying for increased KiwiSaver contributions improvements to payroll technology, learning support, students with high health needs, deaf education services, and higher demand for English for Speakers of Other Languages.
To pay for a two percent increase in operating grants for schools, there is one hundred sixty million dollars, while five hundred fifty-nine million dollars will go towards growing and maintaining school property.
The Government is acknowledging New Zealand's rising prison population by providing four hundred eighty-seven million dollars to address pressures in the Correction systems. This will include funding the employment of hundreds of extra prison officers.
There's also three hundred ninety-one million dollars to support frontline policing and money to fund the replacement of police's automated biometric identification system.
"The biometric system is fundamental to core policing. It allows officers to identify offenders using fingerprints and link them to specific crime scenes, incidents and criminal histories," said Police Minister Mark Mitchell.
Funding is being provided to other groups, like Pasifika Wardens, Neighbourhood Support New Zealand and Community Patrols New Zealand.
Associate Justice Minister Nicole McKee announced forty-four point nine million dollars to implement the new Arms Act and establish the Firearms Safety and Education New Zealand, a new regulator.
"This funding will enable the separation of firearms regulation from Police, improving the trust and confidence of licensed firearms owners while allowing Police to focus on enforcement."
Jamie Ensor is the New Zealand Herald's Chief Political Reporter, based in the press gallery at Parliament. He was previously a TV reporter and digital producer in the Newshub press gallery office. He was a finalist in twenty twenty-five for Political Journalist of the Year at the Voyager Media Awards.