Budget 2026: fiscal responsibility or managed decline?

The government says Budget 2026 is about fiscal responsibility. Economist Tayla Forward says its fixation on debt and surplus risks deepening New Zealand's economic woes.

The government's 2026 Budget has been sold as a lesson in restraint.

Branded a "no sugar hits" Budget, Finance Minister Nicola Willis says tighter spending, a return to surplus and lower debt are needed to safeguard New Zealand's future.

There's little new spending on offer. Instead, the Budget continues public sector cuts and scraps the Fees Free scheme for tertiary students. The government's argument is simple: fiscal discipline today will put the country's finances back on track.

But what if the problem with our economy isn't what we've been told it is?

That's the argument of economist Tayla Forward in a new interview with Public Interest, who says the real question is not whether New Zealand can afford to invest more in public services and infrastructure, but whether it can afford not to.

"When we're seeing tiny Budgets year to year, we're seeing governments shirking responsibility for the economic decline that we're all watching," she says.

"Ultimately I think what this Budget represents is abandonment."

A fellow of the World Inequality Lab in Paris and a former Treasury analyst, Forward argues New Zealand's deeper fiscal challenge is not excessive debt but chronic underinvestment.

“This government refuses to recognise the benefits of public goods, services, and investment. For Willis, it seems that all public money spent is money burned, effectively. It's only ever costly and never beneficial, so of course when you're underestimating the benefits of public expenditure, you're going to be catastrophically underestimating the damage done by cuts,” says Forward. 

“And so with this government's approach we can see a dangerously unbalanced consideration of fiscal risk.” 

“This government has only considered the risk of excessive debt, and has not considered the flip side of that, which is the risk to economic fundamentals that comes from underinvestment.”

"When we fail to invest in education, healthcare, infrastructure and climate adaptation, that's not fiscal responsibility. That's reckless."

Beneath the debate over debt and deficits lies a question of political priorities. 

Who, exactly, is the government trying to reassure?

Forward argues that much of the language surrounding fiscal responsibility is aimed not at voters – but at bond markets. Returning to surplus, keeping debt low and demonstrating fiscal restraint are all signals intended to convince lenders that New Zealand remains a safe and profitable investment.

The problem, she says, is that this can elevate the concerns of financial markets above the needs of the public. "[Willis] thinks effectively that she's answerable to bond markets before she's answerable to the working people in New Zealand."

For Forward, that helps explain why the government appears more concerned with debt levels than with crumbling infrastructure, struggling public services or the long-term investments needed to reverse economic decline.

But the real limits, according to Forward, on what governments can achieve are not financial but practical: the skills, infrastructure and institutions needed to deliver what society requires.

“New Zealand is in economic decline. And rebuilding our capacity to deliver on our collective ambitions will require more than reversing budget cuts and trying to unburden the economy with tax cuts.”

True fiscal responsibility, Forward says, means ensuring governments can “do what governments do, can deliver public services that underpin a thriving society.”

Watch the full interview with Tayla Forward below.