Budget 2026: Here’s what we know is in the Budget and what we think is likely to come

As the economy has deteriorated, that first goal has become harder and harder to achieve. At the end of 2024, the Government shifted the goalposts, unveiling OBEGALx, a new way of measuring the surplus that would make achieving its target easier. At the end of 2025, it shifted them again, kicking out its goal of returning to surplus by another year to 2028/29.

Having done all this, Treasury’s December forecast showed Willis missing her 2028/29 goal by $900 million – and that was before the Iran war. The war means the Government will have to look extra hard for savings and new revenue if it is to hit its target.

On the other side of the fence, the Government promised to maintain and even improve public services. It’s tended to do this by cutting spending from things it disagrees with ($44 billion in the last two Budgets) and redirecting the money to areas it considers more worthy, such as uplifts in health and education baseline spending.

Overall, the Government has cut discretionary spending by more than it has spent money elsewhere, meaning that over time, the books will return to surplus – if the economy plays ball, which so far it has not.

Housing Minister Chris Bishop and Social Development Minister Louise Upston have announced changes to try to save the Government cash. Photo / Michael Craig

How much money has the Government got?

Earlier this month, Prime Minister Christopher Luxon announced that Willis cut $300m from her operating allowance, the pot of money made available for new discretionary spending. She’s now got $2.1b left to play with, although, as we’ll see, a lot of this has already been spent.

Willis’ public service cuts have saved another $2.4b, although this is across the four-year forecast period. The annual average savings from these are $600m a year.

The Government is axing the final year fees-free policy. Last year’s Budget put the annual cost of this at $150m or $600m over the four-year forecast period.

Housing Minister Chris Bishop’s switch-up of housing support is roughly fiscally neutral ($387.5m in savings minus $374.3m in expenses, leaving net savings of $13.2m). However, changes to the temporary additional support scheme by his colleague Louise Upston will save $195.6m.

Together, those savings equal $3.2b over the forecast period – although much of that money is likely to be reinvested back into the Budget and not saved.

What’s been announced?

Governments tend to announce a lot of their spending before the Budget so they don’t get drowned out on the day itself (or, if it’s bad news, so that it doesn’t overshadow the Government’s big day).

This year is no exception. Here’s a round-up of what the Government has announced so far:

Health

The biggest item of “new” spending to come out of the Budget wasn’t even announced by this Government, it was a $1.37b uplift to Health NZ’s baseline spending announced by the outgoing Labour Government, but matched by the incoming coalition and committed to in Budget 2024. That money, coming as the final year of a three-year package, will come out of this year’s operating allowance. It works out at $5.48b over four years.$35m over four years for ambulance services $15.5m over four years to extend specialist paediatric palliative care.

Education

$212.4m to continue the free school lunches programme in 2027, which will likely be split across the next two fiscal years. There will be $2.9m for “exploring new approaches to make the programme better”.$131m over an undefined period for Teaching the Basics Brilliantly, the Government’s flagship back-to–basics education reform.

Defence

Defence has emerged as a clear winner of this Budget, with an $880m boost to its operational funding over four years and $700m of new capital funding. The lion’s share of that funding goes to cost pressures and increasing pay.

Cost of living

The Government’s cost of living measure, announced in response to the Iran war, will be charged against Willis’ allowance this Budget. It was a temporary $50 per week increase for 143,000 working families with children, costing $373m.$48m to cover potential losses from a new Crown-backed loan scheme to companies looking to invest to reduce gas consumption.

Other spending

Now, guessing how much money has been spent or not spent is a fraught activity, given the many confusing ways these things can be accounted for.

However, a quick tally of pre-announced spending works out at about $6.78b over the forecast period (the vast bulk coming from health) or about $1.7b a year in new spending – coming in under Willis’ $2.1b allowance.

That leaves some money left to spend – plus any money that ministers choose to offer up in savings. Willis has once again asked ministers to fund any “new” spending with cuts to existing spending lines.

What’s left?

The Government has tried to position itself as “pro-growth”, but so far the economy has refused to play ball. There’s been some speculation about creating a fund to grow small firms into larger ones, a little bit like the Elevate venture capital fund (which operates slightly differently as a fund-of-funds).

NZ First Leader Winston Peters told TVNZ’s Breakfast that the Government was going to “make a Budget” out of the NZ Super Fund. Willis was asked about these remarks in the House and denied the Government was raiding the Super Fund, but she later added context to the answer by noting that, in 2019, Labour diverted some contributions to the Super Fund into the venture capital fund it created that year. Maybe the Government will use this tactic again.

Another area for potential reform is a new charge on migrants coming to New Zealand. Though not as significant as the $6 daily charge proposed by the Act Party, something akin to the levy charged by the British Government on new migrants to help pay for healthcare is an idea that may find an airing in the Budget.

There’s also a coalition agreement promise to fulfil: a pledge to return some of the GST collected on the construction of new houses back to councils. Act leader David Seymour strongly hinted this would make its way into the Budget during an appearance on Ryan Bridge TODAY last month.

Willis played down any expectation of a lolly scramble in Question Time on Wednesday, much like all of her predecessors have done. But like her predecessors, there’s good reason to believe that this year, with an election five months away, she’ll have found room for something significant.