Budget 2026: A better story, if you believe the assumptions

Article #459

For decades I have written about the Budget from the outside. This year, I was fortunate enough to be there in person – in the lockup, with the Treasury’s forecasts and supplementary documents in front of me before the Minister rose to speak. There is value in having the source material itself, rather than seeing headlines that come after. What follows is my read.

The Budget Economic and Fiscal Update released on 28 May tells a more reassuring story than the Half Year Update did back in December.¹ Deficits narrow earlier. The cyclically adjusted OBEGALx, the operating-balance measure favoured by Finance Minister Nicola Willis as it strips ACC’s volatile revenue and expenses out of the historical OBEGAL, returns to surplus in 2028/29; a full year sooner than previously forecast.² Tax revenue holds up better than feared. And on the Treasury’s fiscal-balance measure, which tracks the actual cash impact of government on the economy, policy keeps supporting demand through 2026/27 before tightening from 2027/28 onwards.³

On the surface it is a better-than-expected set of numbers. As always, the trouble is what sits underneath them.

The forecasts assume real GDP growth lifts from 1.2% this year to a peak of 3.2% by 2028. This would be a sharp acceleration after three years of contraction or near-zero growth.⁴ They assume unemployment peaks at 5.5% and then drifts back down to 4.3%, and that net migration recovers towards its long-run average having run at barely a quarter of that recently. Each assumption is plausible on its own. The sticking point is that the recovery needs most of them to arrive together, and roughly on schedule.

Inflation is the assumption that should give readers the most pause. In these forecasts, it takes a less-than-linear, lurching path: CPI surges to 4.0% this year, driven in part by higher fuel prices flowing from offshore conflict, before the forecast has it dropping abruptly to 1.6% in 2027, then settling around 2%.⁵ That near-halving in twelve months is a heroic call. It looks more heroic still when you separate out domestic, non-tradeable inflation, the prices generated here at home, in services, rates and rents – which Stats NZ measured at 3.5% in the year to March, with electricity up 12.5% and council rates up 8.8%.⁵

Ask any local who has just opened a new rates letter, renewed an insurance policy, or braced for yet another ramp-up in winter power prices. The cost-of-living squeeze people are actually feeling is not the tidy headline figure the forecast leans on. And a great deal does rest on that figure, because inflation feeds wage expectations, interest costs and the tax take all at once. If domestic prices prove stickier than assumed, the path back to surplus gets harder.

The forecasts also assume the Government will deliver on ambitious savings tracks at Health New Zealand, Kāinga Ora and the Ministry of Social Development – all organisations that have run material operating deficits.⁶ Every line of the recovery requires for something to land more or less perfectly. The Treasury’s own statement of specific fiscal risks runs to dozens of substantial items; a catalogue of expensive surprises waiting to happen.⁶

Meanwhile, the wave of cost coming our way is neither theoretical nor distant. It is here now.

Defence capability needs roughly $6 billion in new funding over the next two Budgets just to deliver the existing plan. The Health Infrastructure Plan identifies more than $20 billion over the next decade. The school property pipeline signals a significant uplift. Treaty relativity payments and pay equity settlements remain live cross-portfolio risks.⁶

Nowhere is the pressure clearer New Zealand Superannuation. NZ Super payments are forecast to climb from $24.7 billion in 2025/26 to $31.2 billion by 2029/30, an average increase of about $1.6 billion every year. This is the single largest driver of core Crown expense growth, with roughly half of that uplift simply more people turning 65.⁹ Against that backdrop, the decision to recommence contributions to the Super Fund is genuinely welcome – but light on detail for what is, on any honest reading, the largest looming fiscal pressure of the next two decades.

That’s the sobering side. There is a more encouraging side too, and parts of it land particularly well for our Hawke’s Bay region.

The tax package is sensibly targeted rather than flashy. Lifting the Foreign Investment Fund de minimis threshold from $50,000 to $100,000 of shareholdings is a solid, practical move. Combined with allowing the revenue account method for unlisted shares held by any New Zealand resident, it removes a barrier to migration for skilled people and cuts compliance costs for ordinary investors – who should never have been tangled in rules built for complex international structures.⁷ The accompanying changes to charities and not-for-profit settings, including a $100,000 annual cap on individuals’ rebate claims, tidy up a system that had drifted from its purpose.⁷

But, not everything in the package is so easily defended. One such outlier is the Emerging Managers’ Programme, a scheme backing first-time and emerging fund managers who invest in startup companies, with the aim of helping those funds build capacity, scale and a track record.⁸ No, you’re not reading that wrong: the Crown is effectively backing unproven managers who are backing unproven companies, stacking emerging-manager risk on top of early-stage venture risk. The mind boggles slightly.

There is somewhat of a rationale behind it – New Zealand’s venture ecosystem is thin, exits like Xero and Rocket Lab show what is possible, and the next generation of managers has to come from somewhere. But it sits oddly in a Budget otherwise sold on discipline and rebuilding buffers, and it will be worth watching closely how the guardrails are drawn.

Closer to home, the Budget delivers tangible benefits to Hawke’s Bay. Cash-strapped, debt-laden councils such as Hastings stand to benefit from changes giving them a share of consents value, a scaling mechanism that better matches revenue to the growth that creates the work. Funds have been earmarked for design and enabling works at Hawke’s Bay Hospital, alongside the wider Regional Hospital Redevelopment Programme.⁶ There’s also a $400 million reserve fund for state highway resilience projects aimed at keeping critical routes open during severe weather – something Hawke’s Bay residents understand the importance of more than most. Cyclone Gabrielle is not yet three and a half years behind us, and the Treasury itself rates comparable events as reasonably possible, at least once every four years, within the forecast period.⁶

The bottom line? This is a Budget Update that asks New Zealanders to take a fair amount on faith: that growth returns on cue, that inflation halves to target while domestic prices still bite, that savings targets are met, and that the events outside the Government’s control stay kind to us. The genuine wins for investors, charities, regional councils, hospital patients and motorists on vulnerable routes, deserve acknowledgement.

The risks deserve to be taken just as seriously.

The Treasury has done its job. It has shown us the figures and, in the supplementary information, told us plainly what could go wrong. The question is whether the rest of us are reading both halves of the document, so there aren’t surprises down the road if certain elements don’t stick the landing.

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Nick Stewart

(Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe,
Ngāti Waitaha)

Financial Adviser and CEO at Stewart Group

• Stewart Group is a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm providing personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

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REFERENCES

[1] The Treasury (2026). Half Year Economic and Fiscal Update 2025. Wellington: New Zealand Government, 16 December 2025.

[2] The Treasury (2026). Budget Economic and Fiscal Update 2026: Supplementary Information: Underlying Fiscal Performance (Cyclically-adjusted and Structural Balance Indicators), B.3, pp. 47–49. Wellington: New Zealand Government, 28 May 2026.

[3] The Treasury (2026). Budget Economic and Fiscal Update 2026: Supplementary Information: Fiscal Stance (Fiscal Balance and Total Fiscal Impulse Indicators), B.3, pp. 42–46.

[4] The Treasury (2026). Budget Economic and Fiscal Update 2026. Wellington: New Zealand Government, 28 May 2026; see also ‘Budget 2026: 10 things you need to know’, NZ Herald, 28 May 2026.

[5] The Treasury (2026). Budget Economic and Fiscal Update 2026: Supplementary Information: Detailed Economic Forecast Information, Table 2 (CPI) and Table 6 (Labour Market Indicators), B.3, pp. 33, 37; non-tradeable inflation of 3.5% from Stats NZ (2026), Consumers Price Index: March 2026 quarter, 21 April 2026.

[6] The Treasury (2026). Budget Economic and Fiscal Update 2026: Supplementary Information: Unchanged Specific Fiscal Risks and Contingent Liabilities, B.3, pp. 6–30.

[7] The Treasury (2026). Budget Economic and Fiscal Update 2026 — Supplementary Information: Tax Policy Changes, B.3, pp. 39–40; and Inland Revenue / The Treasury (2026), 2026 Tax Expenditure Statement, 28 May 2026.

[8] The Treasury (2026). Summary of Initiatives in Budget 2026, B.19, p. 9: Emerging Managers’ Programme. Wellington: New Zealand Government, 28 May 2026.

[9] The Treasury (2026). Budget Economic and Fiscal Update 2026, Fiscal Outlook — drivers of New Zealand Superannuation expense growth. Wellington: New Zealand Government, 28 May 2026.

Death and Taxes

Article #458

This Thursday, Nicola Willis will deliver Budget 2026. The headlines will be familiar: tight control of spending, focus on health, education, defence and law and order, a return to surplus.[1] To her credit, the Finance Minister has shown discipline.

On Tuesday, in her pre-Budget speech to Business North Harbour, she announced 8,700 public service job cuts over the next three years, $2.4 billion in savings, the merger of agencies, and AI as “a basic expectation” across government systems.[2] The public service had grown from roughly 48,000 in 2017 to over 63,000 by the end of 2024, a 33 percent expansion in six years against largely flat productivity growth. Trimming it back toward 1 percent of population is overdue.

The harder question is timing. The coalition has been in office for two and a half years. The electoral mandate was fresh in late 2023. Decisions of this magnitude, with this kind of political cost, are easier early in a term and almost impossible to deliver in election year without the optics looking opportunistic. The reforms should have been made then.

That delay matters because the bond market is a fickle lover when a country is carrying heavy debt and producing little productivity growth. Fitch has placed New Zealand’s AA+ rating on negative outlook, citing rising challenges in reducing debt after years of delayed fiscal consolidation; debt to GDP is projected to reach 56 percent by 2027.[3] The 10-year government bond yield is sitting near 4.7 percent. Every basis point on that yield translates into real money in interest costs. Markets are watching, and they are no longer giving New Zealand the benefit of the doubt.

This is the fiscal context in which the campaign begins.

Budget Day on the 28th is not really the main event. It is the starting gun for the election campaign that ends on 7 November. And the backdrop against which that campaign will be fought is grim.

The NZX 50 touched fresh lows this week. The Gross Index, which includes reinvested dividends, has delivered a total return of around 3 percent over the past five years.[4] That is less than 1 percent per year in nominal terms. Strip out dividends, and the price-only index is in negative territory. Once you factor in cumulative inflation of around 20 percent, New Zealand investors have gone backwards by close to 17 percent in real purchasing power. No other major Western bourse can claim that distinction. The S&P 500 has roughly doubled. The ASX 200 is up around a third. The FTSE, long the laggard of major markets, has still delivered around 30 percent. Even the Nikkei, dormant for two decades, has delivered roughly 70 percent.

This matters because when the stock market is not creating wealth, politicians look for ways to redistribute existing wealth. That is the genuine political logic of the moment, and it is amplified by the mechanics of MMP. Labour cannot govern alone. To form a government, it will need the Greens and almost certainly Te Pāti Māori. Whatever Labour campaigns on, the coalition partners will demand more.

Labour has confirmed it will campaign on a capital gains tax targeted at residential and commercial property, with revenue ringfenced for free GP visits.[5] The Greens have gone further, proposing a 2.5 percent annual wealth tax on net assets above $2 million, and a 33 percent inheritance tax on lifetime gifts and estates above a $1 million threshold.[6] Te Pāti Māori has signalled wealth taxes as a coalition bottom line.[7] Fitch has reportedly been briefed on tax measures beyond what Labour has publicly disclosed.[8]

The Greens’ inheritance tax proposal is the one to pay closest attention to. It is, in everything but name, the return of estate duty. And it is worth remembering, on the eve of a Budget that opens an election year, why New Zealand abandoned that tax in 1992.

Estate duty was sold as a tool of equity. In practice, it became a destroyer of family legacies. By the early 1970s, rates had climbed as high as 40 percent, with thresholds catching far more than just the wealthy.[9] For families whose wealth was tied up in illiquid assets, the death of a patriarch or matriarch triggered financial catastrophe.

The Hawke’s Bay orcharding sector provides stark examples. Local orchardists who had spent decades developing pipfruit operations found their estates assessed at development values rather than agricultural income values. Families faced duty bills exceeding several years of profit. The choice was bleak: sell blocks to developers, or take on crippling loans.[10] Many spent thirty years or more servicing that debt, an entire generation lost to a single tax assessment. A block of land that had taken a grandfather forty years to develop into productive orchard could be lost to an unexpected death and an Inland Revenue assessment within eighteen months.

The Waikato dairy sector tells the same story. Multi-generational farms were forced to sell down herds and land to meet duty bills. The remaining operations often lacked the scale needed to remain viable, and some families saw their children leave farming altogether.[11] It was not incompetence that ended these legacies. It was a tax code that demanded immediate liquidity from operations that simply do not generate it.

Rural service businesses, the stock and station agents, transport firms, processing contractors, faced the same pressure. Many took on outside investors to meet duty bills, and those investors eventually engineered buyouts. The consolidation of New Zealand’s agricultural service sector during the 1980s owed much to estate duty’s destabilising effect.[12]

Defenders argued at the time, and will argue again, that proper planning could avoid these outcomes. Two things are worth saying about that. First, the planning itself was a deadweight cost. Families spent thousands on lawyers and accountants navigating frequently changing rules rather than reinvesting in their enterprises.[13] Second, deaths do not arrive on schedule.

What does prudence look like in practice? It looks like reviewing trust structures that may have been set up two decades ago under different rules. It looks like understanding which assets sit where, who owns what, and what the liquidity profile of an estate actually is on any given day. It looks like considering whether life insurance has a role to play in funding potential tax liabilities. It looks like beginning the conversations between generations that families instinctively defer.

The lesson from estate duty is not that all tax is bad. It is that taxes on illiquid family assets transfer productive wealth from those who built it to whoever has the ready cash to buy at distress prices. That is not redistribution. It is destruction. And it is being proposed at a moment when fewer families have the financial cushion to weather it, against a stock market that has produced no real wealth for half a decade.

Thursday’s Budget will not settle this debate. It opens it. Families with farm, orchard, or business assets ought to be reviewing their structures now, seeking wise counsel from advisers who understand both the tax architecture and the fiduciary weight of decisions made under pressure. None of this argues for selling out of New Zealand equities at the lows: capitulation at the bottom is the parallel mistake, the same wealth destruction by another route. The answer is diversification and counsel, not retreat. The families who recovered from estate duty were almost always those who took advice early. The ones who lost everything were those who waited until the tax was already in force.

History rhymes. It does not, thankfully, repeat. But only if we are paying attention.

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Nick Stewart

(Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe,
Ngāti Waitaha)

Financial Adviser and CEO at Stewart Group

• Stewart Group is a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm providing personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

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REFERENCES

[1] The Treasury, Budget 2026, 28 May 2026, treasury.govt.nz/publications/budgets/budget-2026

[2] NZ Herald, Nicola Willis’ public service cuts to save $2.4b, 8700 jobs to go, 19 May 2026; 1News, Thousands of public service jobs to go, major Govt shake-up announced, 19 May 2026

[3] Fitch Ratings, New Zealand AA+ outlook revised to negative, March 2026; Trading Economics, New Zealand 10-Year Government Bond Yield

[4] S&P/NZX 50 Gross Index, 5-year return data to 20 May 2026, NZX and Yahoo Finance

[5] NZ Herald, Labour’s capital gains tax: Chris Hipkins celebrates ‘progressive’ policy, 28 October 2025

[6] Become Wealth, Wealth Tax NZ: What It Means and Who Would Pay, April 2026; Green Party Alternative Budget 2025

[7] RNZ, Te Pāti Māori proposes suite of changes in new tax policies

[8] Scoop News, Fitch Report Exposes Labour’s Secret Tax Agenda, 29 April 2026

[9] Inland Revenue Department, Annual Report 1975 (Wellington: Government Printer, 1976), 23-25

[10] P.J. Skellerup, “Estate Duty and the New Zealand Horticultural Sector,” NZ Journal of Agricultural Economics 3, no. 2 (1979): 45-52

[11] Ministry of Agriculture and Fisheries, Agricultural Statistics 1980 (Wellington: Government Printer, 1981), 67-89

[12] R.M. Sandrey and S.R. Reynolds, “Structural Change in New Zealand Agriculture 1972-1987,” Review of Marketing and Agricultural Economics 58, no. 1 (1990): 15-28

[13] NZ Law Society, Submission on Estate and Gift Duties Amendment Bill (Wellington: NZLS, 1983), 8-12

Air New Zealand: The Worst of Both Worlds

Article #452

Fifty percent government-owned, operating like a budget carrier, charging premium prices, Air New Zealand occupies the most uncomfortable position in aviation. It’s neither fish nor fowl: not quite private, not quite public, delivering neither the efficiency of true competition nor the service standards of genuine public ownership.¹

Welcome to the warm embrace of collectivism. It’s getting warmer, and not in a good way.

The Flightless National Carrier

The symbolism writes itself. Air New Zealand, like the kiwi, has become a flightless bird, grounded by contradictions, unable to soar because it refuses to commit. Government ownership was supposed to protect the national interest. Instead, it has created an airline that enjoys privileges without facing consequences: government contracts, preferential treatment, implicit bailout guarantees, all without the full discipline of the market or the scrutiny of complete public accountability.¹

When things go wrong, taxpayers are on the hook. When things go right, shareholders collect the dividends.

New Zealanders know this intimately: the airline received NZ$2.3 billion in Crown support during COVID-19.² The structural trap was set long before the current crisis.

The World is on Fire. Air NZ has a Newsletter.

On 8 April 2026, CEO Nikhil Ravishankar sent customers a carefully worded email. “Kia ora Nick,” it began warmly. He wanted to update customers on jet fuel prices. Fuel had surged from around US$85–90 a barrel to above US$200, effectively doubling Air New Zealand’s daily fuel bill from NZ$4 million to NZ$8.5 million. Schedule cuts for May and June were confirmed. More were promised to be “deliberate and carefully considered.”³

Warm. Reassuring. Human, even, which is ironic, given what you encounter when you actually try to contact the airline.

This crisis is not Air New Zealand’s alone. Iran’s effective closure of the Strait of Hormuz, through which over 20% of global seaborne jet fuel normally flows, has sent shockwaves through the entire industry.⁴ More than 14,000 flights globally have been cancelled since late February 2026.⁵

Ryanair’s Michael O’Leary has predicted summer cancellations of 5–10% across Europe.⁶ United Airlines’ CEO Scott Kirby has warned his carrier’s fuel bill could double to US$20 billion.⁷ Lufthansa’s CEO has assigned teams to contingency planning.⁸ SAS has cancelled over 1,000 flights in April alone.⁹ Energy analysts at Kpler warn that even if the Strait reopened tomorrow, prices would not fall quickly: production has been taken offline, and the market hangover could last well into 2027.¹⁰

The difference between Air New Zealand and those carriers is structural. Most are pure private enterprises; they face consequences. Air New Zealand faces a shareholder with a printing press.

The Numbers are Brutal

Forsyth Barr’s March 2026 report is stark: Air New Zealand could book a net loss of $226 million in FY2026, and $148 million in FY2027 if fuel costs remain elevated.¹¹ Macquarie analysts warn that capacity cuts will fall primarily on domestic and Tasman routes.¹² The share price has reflected the outlook, trading near its 52-week low at $0.48, down sharply from $0.64.¹³

The airline has already trimmed near-term capacity by 5%, with more reductions almost certain.

Watch for the Capital Raise

Here is what the CEO’s warm email does not say: if losses of this magnitude materialise over two financial years, Air New Zealand will need to raise capital. When it does, the New Zealand government, as 50.1% shareholder, faces an unavoidable choice. Participate, and write another substantial cheque from the public purse to protect its stake. Or decline, dilute, and begin the slow retreat from an ownership position it has held for decades.

Either outcome implicates taxpayers. Either outcome exposes the central absurdity of the current arrangement. Budget 2026… hold your breath.

Chatbots and Contempt

Try contacting Air New Zealand’s customer service, and you will discover the true face of modern collectivist enterprise: woeful service, declining standards, and a corporate structure that treats human interaction as an inconvenience to be automated away.

You are more likely to engage with a chatbot than a human, and the human, when you eventually find one, operates like a chatbot anyway—scripted, bounded, unable to resolve anything of substance. The airline’s answer to its service failures is not better people or better training, but better systems for apologising for the absence of both.

The Hospital Pass

That’s what recommending Air New Zealand has become, and nowhere is the gap between price and product more vivid than in business class, where Air New Zealand’s structural contradictions are most expensive to observe firsthand.

The airline’s new Business Premier cabin, rolling out across its Boeing 787 fleet through 2026, retains a herringbone configuration. Passengers sit angled toward the aisle rather than toward the window, the opposite of the reverse herringbone suites now standard on Qatar Airways, Singapore Airlines and Cathay Pacific.¹⁴ Standard Business Premier seats come equipped with a sliding privacy screen. Not a door: a screen.

A door costs extra. Specifically, NZ$820 (approximately US$487) extra on long-haul.¹⁵ There are four of them on the entire retrofitted aircraft.¹⁶ Aviation analysts reviewing the product have described the standard offering as “fairly underwhelming” compared to what the competition offers.¹⁷

You’d book Qantas if you could, but with Emirates disrupted by Iranian airspace closures, rerouting flights away from Gulf hubs, alternatives from New Zealand are thinner than they have been in years.¹⁸

Choose

New Zealand deserves better than this muddled middle ground. Our national carrier should be either a source of genuine pride (fully public, properly accountable, serving citizens) or a true competitor, privately owned and driven to excel.

Full public ownership means genuine accountability: real service obligations, routes chosen for public benefit, consequences for failure. Full privatisation means real competition, no bailouts, market discipline for a product that currently charges a premium for the privilege of facing a stranger across a narrow aisle.

What we have instead is the comfortable middle ground that serves nobody.

Make a choice. Commit to something. Because right now, our national carrier charges like Singapore Airlines, seats you in a layout from 2005, asks NZ$820 extra for a door, deploys a chatbot when you complain, and may shortly be asking the government for more money.

That’s not the warm embrace of collectivism. That’s the slow squeeze.

Nick Stewart

(Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe,
Ngāti Waitaha)

Financial Adviser and CEO at Stewart Group

• Stewart Group is a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm providing personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz