Budget 2026: Our key insights

Budget 2026: Our key insights

New Zealand’s coalition Government has delivered this term’s third and final Budget

Many, including credit rating agencies, have continued to press for restraint; Moody’s recently revised New Zealand’s outlook to ‘negative’ underscoring the importance of balancing the budget and curbing debt. 

The Government’s approach to this Budget reflects these calls for restraint as it attempts to reprioritise spending and deliver on core pledges, without jeopardising the path to surplus which looks set to occur in the 2028/2029 fiscal year. 

What does Budget 2026 look like?

Cost-cutting measures 

In the lead-up to Budget 2026, significant cost-cutting measures were announced, aiming to free up resources for key priorities: 

• The Government unveiled a sweeping public service restructure to reduce ~8,700 public sector roles (about 14% of core staff) by 2029, merging various agencies and harnessing new technologies like AI. This plan is expected to save $2.4 billion over four years. 

• Annual new spending is being held to historically low levels, with $2.1 billion operating allowance signalled (reduced from prior projections of $2.4 billion).  

• The fees-free tertiary education scheme (final-year) implemented in 2025 has been abolished. The savings from this have been redeployed within the education sector. 

Targeted new spending 

Despite limited fiscal headroom, the coalition has confirmed targeted new spending in some areas considered crucial: 

• The health sector will receive increased funding to support essential operational costs, along with some additional services that will also be funded.

• Defence and border security has seen an uplift in spending, including an allocation of $1.58 billion to modernise maritime security (drones and naval fleet upgrades);  

• Rail is set to receive a significant funding boost for investment programmes (yet to be fully defined and approved). 

• In education, as well as additional funding for facilities upgrades, the school lunches programme has been expanded, and a dedicated fund will go toward improving literacy and numeracy in schools.  

• Social housing policy settings are changing, with a boost in support for low-income families, but with a tightening of eligibility criteria leaving some with higher incomes in social housing worse off.  

• Support via a government-backed loan scheme to transition away from dependence on natural gas (which has been the cause of significant cost pressure for many businesses recently). 

• Corrections and the Police are set to receive additional funding for frontline staff. 

• Other measures including the control of wilding pines, limited additional funding for the Roads of National Significance, and construction of additional social homes. 

What is changing in the tax space?

Budget 2026 was always expected to consolidate existing tax settings, rather than contain any significant changes to the tax system. Inland Revenue has received further funding to recover tax debt. 

The coalition has firmly ruled out any broad new taxes on personal wealth or capital, so it is no surprise nothing like this has been included. Announced changes include: 

• An additional levy on banks has been introduced via the thin capitalisation framework, a topic of debate amongst the coalition partners, which has likely protected general taxpayers from any increases in other taxes or duties. 

• The Foreign Investment Fund (FIF) rules are set to change (again), with a doubling of the de minimis exemption to $100,000 (from $50,000) for trusts and individuals, and the extension of the Revenue Account Method which defers FIF income to all taxpayers (until now only available to new migrants).  

• Shareholder loans that remain outstanding 6 months after a liquidation or removal of the company are set to be taxed in the hands of those shareholders, a narrowed (and much more palatable) version of a broader plan to tax shareholder advances, put out for consultation last year by Inland Revenue. 

• Fringe Benefit Tax rules are set to be simplified, particularly in relation to motor vehicles and the need to keep logbooks. 

• The Research and Development Tax Incentive (RDTI) scheme has been amended slightly, with a reduced cap on non-administrative internal software products and the ability to claim the incentive earlier (within the relevant tax year), assisting cashflow. 

• Tweaks to the not-for-profit (NFP) tax rules and exemptions, with a cap introduced on donations tax credit rebates of $33,333 per individual per year, an increase in the net income a NFP organisation can earn without paying tax to $10,000 (from $1,000), and confirmation of the longstanding ‘mutuality principle’, exempting income and related expenditure on transactions between members and their associations. 

• Changes to the Non-Resident Contractors Tax (NRCT) regime, including an increase in the income threshold triggering NRCT to $75,000 (from $15,000). 

• Amendments to the Financial Arrangement (FA) rules to lessen impacts on migrants with ‘low risk’ arrangements including personal bank accounts.  

The Government has already implemented some targeted tax measures which this Budget is not set to change, including:  

• A temporary boost to the In-Work Tax Credit, in lieu of a general reduction in fuel taxes when prices spiked, as a cost-of-living relief measure. Additional funding has been set aside in reserve for extension of this and other similar regimes. 

• The Investment Boost deduction will continue to be available to businesses to incentivise the purchase of assets. 

• Easing thin capitalisation settings slightly – which caps excessive interest deductions on cross-border intercompany debt – to ensure they “strike the right balance” between protecting the tax base and encouraging inbound investment, particularly in debt-heavy infrastructure projects. 

What do we think?

All of the above suggests that while many will be disappointed there is no further significant funding or tax relief coming down the line to offset rising costs, we will at least see a predictable tax environment – a relief in itself for planning ahead – albeit possibly only until the November election. 

Strengthening the country’s balance sheet by cutting spending, in light of ongoing economic volatility worldwide, is a textbook move to build financial resilience. However, in a weakening economy, many will ask whether the Government should be doing more to support activity through increased investment and spending, rather than focusing primarily on cost-cutting. At a time when households and businesses are already under significant pressure, fiscal restraint can risk becoming counterproductive and deepening the slowdown.  

There are strong and differing views on this across the political spectrum, with debate focusing on whether the country’s ‘credit card’ is maxed out. Only time will tell which strategy proves to be the right one. 

We will cover off the tax changes noted in further detail in subsequent articles as further commentary is released.  

If you wish to discuss the impact of the Budget on you or your business, please reach out to your Nexia advisor, or one of the team.