Nicola Willis’ 2026 Budget plans: Undo Labour’s health reforms and sell assets – but which ones?

On coming into government, Willis said she accepted Treasury’s advice that sticking with the status quo “would give forward certainty to Health NZ about the budget it would have”.

She was disappointed with the results.

“Quite famously, Health NZ had a bit of a disaster … It didn’t stick to its budgets at all, which undermined what we were trying to achieve with its forward funding approach,” she said.

The system means the current National Government is actually still operating with the multi-year health budget set by Labour. That three-year budget ends this year, and the Government is looking to go back to a system of annual funding to restore discipline.

“I am considering that together with the Health Minister quite carefully,” Willis said.

Willis said she was also dissatisfied with the relatively blunt and untargeted way health was currently funded. The way the system currently works in most cases is that ministers hand over large sums of money to delivery agencies, which then have a great degree of discretion on where it goes (the Government sometimes funds explicit things outside of this bulk funding, like vaccination programmes, which often have their own appropriation).

“We are contemplating the question of should we be giving ourselves more discretion to direct that more surgically in the future,” Willis said.

This means Budget 2026 could feature far more proscriptive budgeting for health, and a return to the old year-by-year funding model. Willis said the Government would still increase health funding every year.

Willis spoke to the Herald as part of her end-of-year media round, shortly after learning that the economy grew 1.1% in the third quarter, a rare bit of economic good news in a year that has been short of it.

Willis was in the middle of putting Budget 2026 together, writing letters to ministers about her plans for the Budget and inviting them to organise their bids for funding accordingly.

The difference in this Budget is that for most ministers, there’s no additional funding on offer. Willis said she was getting rid of the idea that departments could expect inflation-compensating upward adjustments to their spending levels.

She said departments now “start from the presumption that there isn’t going to be more cash coming in”.

All agencies now put together “performance plans”, which force them to think about how they’re going to live within this new, tighter regime.

The plans must set out how each department is going to deliver what the Government asks of it and manage cost pressures within the department’s baseline funding.

“They are a tool that puts the focus on medium-term sustainability, rather than on annual Budget initiatives,” Willis said in her Budget Policy Statement in December.

In reality, they are likely to mean continued restructuring of the public sector, as more and more roles are restructured out in order to free up funding for the delivery of core services.

Willis revealed two “areas of focus” for the Budget. The first is affordable energy, which will include a return to focusing on fossil fuels and their ability to offer reliable firming capacity.

“We will, at Budget, have an energy package which demonstrates our fiscal and regulatory commitment to affordable energy and electricity,” Willis said.

“We know through history global economics that affordable energy is essential to good growth … that has been an advantage to our economy,” Willis said, before noting that in recent years, electricity prices have spiked and put immense pressure on households and industrial users, with many of the latter closing.

“We still need an energy system that can cope when the sun doesn’t shine and the wind doesn’t blow,” she said.

Willis said the Government had told the gentailers, of which it is the majority owner, that it is “willing to invest in” any “ideas for ensuring that we have better firming capacity”, although Willis would not say what these were, citing commercial sensitivities.

The Budget may also include funding for a new Liquified Natural Gas (LNG) terminal, allowing the country to import LNG in lieu of domestic supplies. Some analysis has warned the plan could require hundreds of millions of dollars of investment.

The Government has done some policy work on the potential to add LNG to the energy mix, but critics of the system have pointed out the gas is expensive, even before factoring in the cost of getting it here.

“We’ve also indicated we’re exploring an LNG facility so we have security of supply for firms,” Willis said.

She said there was evidence that the forward electricity price for firms, which is the price commercial and industrial users can be exposed to, had been driven by a risk premium that factors in the elevated chance of supply shortages.

“If we can get that risk premium down, then that lowers overall energy prices,” Willis said.

“The problem definition” of New Zealand’s energy crisis was important, implying the problem is not a lack of renewables, Willis said.

“We are getting healthy investment into renewables, the challenge is even those renewable firms having access to firming contracts so that if we don’t have the weather and conditions that we would wish for, we still have confidence that there is enough fuel for electricity,” she said.

“Anyone in Parliament who says that coal and gas don’t have a place in New Zealand’s renewable energy future is barking and hasn’t analysed the problem.”

The other area of Budget focus will be “the start-up ecosystem” and keeping it “healthy and vigorous”.

Willis teased two changes here. The first is looking at the settings of the two Crown-owned funds that invest in and grow local start-ups: Elevate and Aspire.

The funds have had some success recently, with Elevate-backed agritech firm Halter’s latest funding round valuing the company at $1.65 billion, making it officially a “unicorn” (a firm with a US$1 billion valuation).

Willis said she had been “looking at the settings of those funds to make sure that they are matching capital where it should go.”

She’d also been talking to groups of investors about how to get more private funding into start-ups.

Willis said investors were looking at the Active Investor Plus visa, which allows people who invest in New Zealand to live here. There are changes that could be made to that visa to encourage more start-up investment.

Willis said there was “a lot of capital” in the world and she wanted to connect Kiwi start-ups to that capital.

“Not every economic reform needs to come with a fiscal price tag,” she said.

The National and Act parts of the coalition have been teasing running on asset sales in the 2026 election, with National talking up “asset recycling” – selling one asset to pay for building another.

The political focus (and the focus of the publicly released Treasury papers) has been on the potential to sell down parts of the Government’s commercial portfolio, which comprises the state-owned enterprises (SOEs) and mixed-ownership companies like Air New Zealand and the power companies.

Willissuggested this focus might be misplaced. She noted recent Treasury figures put the value of the commercial portfolio at $99b (although other analysis says this figure might be inflated).

The social portfolio, which is assets like hospitals, schools, state highways, and conservation land is worth $314b and the financial portfolio, which includes ACC and the Super Fund, is worth $158b.

Willis’ remarks suggest people’s focus may be better directed at the recent sale of Chorus securities (dubbed “monetisation”), or the sale of old and disused Crown property like schools.

“Rather than simply focusing on how well are the SOEs performing, we actually need to look at how well our asset management is performing across those bigger areas too,” she said.

“New Zealand has ... not a good record of selling things that are no longer needed so we can rebuild things that are.

“[A] classic example being, if a school is no longer being used then we should sell that land pretty quickly so that we can build another new school,” she said.

Another example Willis cited was the Chorus securities sale, which was backed by asset-sale sceptics NZ First.

“The value of assets on New Zealand’s social infrastructure balance sheet will increase,” Willis said.

“The question is actually about how readily you can build the new things you need. If we’re quicker about managing the assets we no longer need you can get there,” she said.

Willis also floated the idea of using the Government’s assets to offer “concessions” to private firms.

This would likely see a private firm pay a fee to the Government in return for a concession to run a private enterprise using Crown-owned assets. The assets would remain in public ownership.

Unveiling the Half-year Economic and Fiscal Update (HYEFU) in December, Willis repeated a wish she’d made a year earlier that one day it would be nice to get an upside surprise in the forecasts – so far, she’s had an almost unbroken series of downward revisions.

While Treasury Secretary Iain Rennie said the downgrading in the fiscal forecasts is more to do with economic conditions than Government policymaking, it hasn’t stopped Willis copping a lot of the blame.

Willis told the Herald there were two areas where she’d asked officials to measure what effects the Government’s reforms were having on the economy.

The first was Investment Boost, a $6.6b tax incentive for firms to bring forward investment. There’s little concrete data for the effect the scheme is having because it only began last year and the current tax year doesn’t end until March 31, after which firms still have some time to file their tax returns.

“Treasury and the IRD have been contemplating how do we measure the effect of something against no control group – we don’t know what would have happened without Investment Boost,” Willis said.

She said the IRD was going to do some surveys of the uptake of the scheme.

“We are conscious of two things: when the economy was facing the challenges of the second quarter, that is not a time businesses are feeling they are able to invest regardless of a tax credit,” she said, although Investment Boost only began at the end of quarter 2.

“At the same time, when we committed to Investment Boost it was never meant to be a short-term stimulatory measure; it was meant to be a long-term driver of economic growth,” she said.

She noted Treasury’s December HYEFU forecasts for Investment Boost’s positive impact on wages and GDP were unchanged from May, suggesting they continued to have a positive outlook on its impact.

Willis said she had also asked Treasury to look at the Government’s Resource Management Act (RMA) reforms and “consider what upward pressure that could put on growth over the coming years”.

If Willis is lucky, that could mean Treasury tweaking upwards its GDP trajectory, although whether this would happen during the crucial near-term, four-year forecast period seems marginal, given the long lead time for reforms.

“At a high level [Treasury] absolutely agree that better converting our natural resources into economic activity, reducing the cost of that, the complexity of that, creating more certainty about consenting conditions are positives for growth.

“How that translates in a forecast sense when you need to both look at the implementation timeline of RMA … well, that’s an open question,” Willis said.