Budget 2026: New taxes, spending cuts, and rosy forecasts see earlier than expected return to surplus

And companies that lend to their shareholders before going bust, will be taxed more.

As previously announced, public servants and those in tertiary and education or training will bear some of the brunt of savings initiatives.

The Government is waiting to see how conflict in the Middle East pans out before providing more support to cushion the impact of the conflict. It has put $450 million aside for this support, should it be required.

Taking a step back, the books are forecast to return to surplus a year sooner than expected when Treasury last published forecasts in December.

The deficit is expected to shrink from $15.1 billion in the year to June, before reaching a $3b surplus by 2029/30, according to the traditional surplus/deficit measure – the operating balance before gains and losses (Obegal).

Using the Government’s new measure, ObegalX, which excludes the impact of ACC, the books return to surplus in 2028/29.

Treasury expects to issue $124b of New Zealand Government Bonds in the four years to 2029/30 - $6b less than forecast in December, and about $15b less than economists were expecting.

Net core Crown debt is expected to peak a percentage point lower than previously forecast, at 46% of GDP in 2027/28. Pre-Covid, this figure was below 20%.

As always, the path ahead is dependent on Treasury’s forecasts coming to fruition.

Its outlook is based on the assumption that the oil supply shock is temporary, and this “delays rather than derails” the economic recovery.

Indeed, it sees real GDP growth being low, at 1.2% in the year to June, before accelerating to 2.3% in the year to June 2027, and 3.2% in the following year.

Treasury acknowledges the risks to its forecasts are skewed to the downside.

Indeed, some of its forecasts are rosier than those released by the Reserve Bank on Wednesday.

It sees annual CPI inflation peaking at 4% in the June quarter, before falling to 3.2% in the December quarter.

Treasury also sees the unemployment rate rising a little to 5.5% in the June quarter, before dropping off quite quickly.

It is very bullish on New Zealand’s terms-of-trade, as it sees dairy, meat and kiwifruit exporters in particular continuing to do very well.

This is expected to support the Government’s tax take.

Inflation is also expected to support the tax take, which is expected to rise by more than expenses over the forecast period.

Coming back to the Government, it unveiled new tax measures in the Budget, which the Herald has reported on over the past year, as discussions have been underway between officials and industry.

It expects to raise $209m in the three years to 2029/30 by imposing a new ‘Prudential Regulation and Supervision Levy’ on the deposit takers and insurers the Reserve Bank regulates.

The Reserve Bank will consult with the industry on how the levy will look.

The Government also expects to raise $160m over four years by taxing company loans to shareholders that remain outstanding six months after the company is removed from the companies register.

The Government will tweak rules related to charities, and research and development.

Finally, as the Herald foreshadowed, it will change the Foreign Investment Funds (FIF) regime to support New Zealanders and recent migrants with money invested in offshore assets, like shares.

These changes will benefit investors to the tune of $73m over four years.

They will see the threshold at which investors will become part of the regime, lifted from $50,000 to $100,000.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.