Budget 2026

Health

Health receives the single largest allocation in Budget 2026, including a $5.5 billion operating increase across the forecast period for cost pressures and to support population demand. Additional new investments total $300 million in operating funding across the forecast period. These initiatives include $34 million for three-day postnatal stays, $33m for lowering the age for bowel screening to 56, and $16 million for specialist paediatric palliative care. An additional $54 million is allocated to Pharmac to purchase medicines.

Budget 2026 also sets aside $682 million of capital investment, including a new tower block for Whangārei Hospital, and funding for enabling works for redevelopment at Tauranga, Hawke’s Bay and Palmerston North. There has been an undisclosed amount of funding set aside for the acquisition of land south of Auckland for a new hospital. Further funding is provided to continue work on Dunedin Hospital and the new medical school at the University of Waikato.

Education (including Tertiary) 

Budget 2026 provides $2.0 billion of operating funding and $501 million of capital funding for education over the forecast period.

This includes $131 million to strengthen teaching and learning, with a focus on helping students meet standards in reading, writing and maths. A further $74 million supports the implementation of a refreshed curriculum and new national qualifications.

The Budget also includes $470 million of capital investment to redevelop up to 10 schools, deliver up to 232 additional classrooms, and purchase land for new schools.

Final-year Fees Free will end at the end of 2026, generating savings of just over $1 billion. Some of these savings will be reinvested in vocational pathways, including $87 million for 1,000 additional Youth Guarantee places for young people with no or low qualifications, and $69 million to double Trades Academy places to 20,000 for Year 11 to 13 students.

Additional education investments include $212 million to continue the Healthy School Lunches and Early Childhood Education Food programmes in 2027, and $25 million to increase funding rates for foundation education providers.

Defence and foreign affairs

Aligned with the Government’s intent to increase defence spending as a proportion of GDP, Budget 2026 provides $2.3 billion in capital funding and $1.2 billion in operating funding across the forecast period to strengthen New Zealand’s defence and intelligence capabilities.

Investment is directed at retaining existing Defence Force personnel and workforce recovery in key areas, improving military base facilities and Defence Force housing across New Zealand, and maritime platform restoration activities ensuring the Anzac-class frigates and HMNZS Canterbury remain operational. 

$21 million in funding is provided to increase focus on Defence Science and for establishing a Technology Accelerator to strengthen national security and innovation.

For foreign affairs, $110 million is provided for international development cooperation focused on the Pacific, and $145 million is allocated to maintain a resilient, safe and secure offshore diplomatic and trade network.

Transport

Budget 2026 provides capital investment of $1.8 billion to extend the Waikato Expressway from Cambridge to Piarere, alongside $400 million capital investment for a package of state highway resilience upgrades.

$705 million capital and $477 million operating funding is provided to renew and upgrade New Zealand's rail network.

Revenue and tax

Budget 2026 includes a targeted revenue and tax package focused on reducing compliance costs, maintaining the integrity of the tax system, and supporting investment, capital and talent retention in New Zealand.

The key tax measures include simplifying the fringe benefit tax rules for private motor vehicle use, changes to the foreign investment fund rules to support investment and internationally mobile talent by ensuring tax is paid only on realised gains and dividends, and amendments to the tax settings for charities and not-for-profits. The package also includes additional Inland Revenue funding for compliance and debt collection, signalling continued focus on overdue tax debt, data-led compliance activity and areas where the Government sees integrity risk.

The proposed prudential levy on banks and other regulated financial institutions is also notable. It is framed as a levy to help recover the cost of regulation and supervision by the Reserve Bank, rather than as a general tax. However, it is a revenue measure and raises the broader question of how cost-recovery levies should be distinguished from sector-specific taxation, particularly where material amounts are raised from a defined sector.

Public service transformation

Budget 2026 advances the Government’s public sector transformation programme through baseline savings that aim to right-size the public sector, improve the efficiency and productivity of government spending, and enable a more digitally driven public service. The transformation includes agency baseline reduction targets totaling $2.4 billion across the forecast period, underpinning the Government’s goal of reducing core public service FTEs to 55,000 by June 2029.

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