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New Zealand heads toward the 2026 election facing three interconnected difficulties that are shaping voter sentiment: a deepening cost‑of‑living crisis, a perception of political instability within the governing coalition, and unresolved attacks on our constitutional integrity through co‑governance.
These pressures have been intensified by global events, particularly the conflict in the Middle East, which Treasury warns could worsen inflation, slow growth, and push unemployment higher than previously forecast.
The cost-of-living squeeze remains the most immediate concern for households as fuel prices escalate and the increases flow through to food, power and all other goods and services. In a scenario analysis released in recent weeks, Treasury outlined the potential impacts of a sustained disruption to global oil supplies. In the best-case scenario where oil stays around US$110 per barrel, inflation could reach 3.9 per cent, GDP growth slow to 2.0 per cent, and unemployment hit 5.3 per cent by the June 2026 quarter. A moderate scenario would see inflation at 5.2 per cent, growth at 1.5 per cent, and unemployment at 5.4 per cent. In the worst-case scenario, where the conflict is prolonged with oil prices near US$180 and sustained supply-chain disruptions, inflation could spike at 7.4 per cent, GDP growth could fall to 0.8 per cent, and unemployment could reach 5.7 per cent. For context, annual inflation last peaked at a 32-year high of 7.3 per cent in June 2022.
These projections underline how vulnerable New Zealand has now become to external shocks, and they help to explain why consumer confidence has fallen sharply with households bracing for further price rises.
Public services are also under strain, particularly the health system, which continues to grapple with workforce shortages and extended waiting times. With infrastructure backlogs persisting in regions still recovering from severe weather events and years of under‑investment, these challenges compound household anxiety.
All of this needs to be understood in the context of the coalition agreements. Those pledges were set out in two formal arrangements – one between National and ACT, and the other between National and New Zealand First – supported by National’s own commitments to rebuild the economy through three primary frameworks: the 100-Day Action Plan, the 100-Point Economic Plan, and a detailed Fiscal and Tax Plan. Together, these documents formed the basis of the coalition government’s work programme for the three‑year term.
Against that background, it’s important to recall the challenges the new government inherited. After six years of Labour’s reckless mismanagement of the economy, the incoming coalition faced a country in recession. Growth had stalled, inflation was high, and families were struggling as the cost‑of‑living escalated. To counter excessive government spending, the Reserve Bank had aggressively raised the Official Cash Rate, substantially increasing mortgage interest payments for most households. The government’s books showed a growing deficit, and the current‑account gap had widened sharply, signalling the country was spending far beyond its means while its productive engine had stalled.
Compounding this, after four years of restrictive immigration controls, Labour abruptly opened the borders, resulting in record‑high net migration. This placed additional pressure on housing, infrastructure, and social services, further straining an already fragile economy.
The coalition’s fiscal plan rests on three pillars: returning the Crown’s operating balance to surplus, reducing core Crown expenses as a share of GDP toward 30 per cent, and placing net core Crown debt on a clear downward trajectory toward a prudent range below 40 per cent of GDP. However, weaker‑than‑expected economic growth, lower tax revenues, and persistent spending pressures have seriously delayed progress.
The problem was that, instead of confronting those targets head on when first elected, by aggressively reducing government spending through line-by-line reviews to eliminate poor quality expenditure, and by reversing Labour’s escalation of public service staff numbers from 47,000 when they took office in 2017, to 63,000 by the time of the election, National opted instead for a ‘softly, softly’ approach.
This was the strategy successfully used by former Finance Minister Bill English during the Global Financial Crisis: hold expenditure steady, grow the economy, and allow the size of government to fall naturally toward the long‑standing benchmark of 25 per cent of GDP, which many economists regard as the optimal size of government.
Unfortunately for the coalition, that strategy has not worked for Finance Minister Nicola Willis, largely because the economy has failed to fire. And just as the early signs of recovery were finally starting to emerge at the start of the New Year, the Middle East crisis erupted, rendering all growth forecasts obsolete.
In fact, Treasury’s December 2025 Half‑Year Economic and Fiscal Update showed just how difficult it has been to revive the economy: instead of the country being on track for the $166 million surplus the coalition originally forecast in their first budget, a $10.4 billion deficit is expected. This would be followed by deficits of $5.1 billion next year and $0.9 billion the year after, with a modest $2.3 billion surplus not emerging until the 2029 financial year – if, and only if, spending discipline is maintained.
With global shocks such as the conflict in Iran and ongoing fuel‑price volatility having emerged since those updates, we are likely to see a return to surplus delayed even further when the budget is released on May 28.
Meanwhile core Crown expenses are still projected to fall gradually toward 30 per cent of GDP over the forecast period, as they have been driven by tight operating allowances and ongoing fiscal reprioritisation.
And while net core Crown debt had been expected to peak last year at 43.5 per cent of GDP, it is now forecast to rise to 46.9 per cent in the 2028 and 2029 financial years before slowly declining toward the 40 per cent target.
In response to this global disruption, rating agencies have grown more cautious. Fitch shifted its outlook on New Zealand’s AA+ rating to negative in March, while Moody’s did the same for its AAA rating in April, citing delayed fiscal consolidation, on-going deficits, persistent inflation – particularly in fuel, housing, and electricity – and risks from global uncertainty. These agencies have affirmed the underlying strength of New Zealand’s institutions but have effectively put the government ‘on notice’: if progress toward a surplus and debt stabilisation continues to slide, a formal downgrade in the coming years becomes a real possibility.
With economic headwinds delaying the coalition’s fiscal consolidation, the on-going deficits are resulting in continued high borrowing, rising interest costs, and very limited room for new spending or further tax relief. For households, the result is a sense that, despite the government’s best intentions, little is improving in their day‑to‑day lives.
Compounding this situation is the fact that several key policy reforms, that should have been helping to lift economic performance – most notably the long-awaited replacement of the Resource Management Act – have yet to be delivered. That means the promised benefits of cutting red tape, increasing housing supply, speeding up infrastructure delivery, and improving productivity have not materialised. Housing and infrastructure bottlenecks remain entrenched, and the long‑awaited step change in development speed and affordability has yet to occur.
The same pattern is evident in health, where the improvements voters were promised are slow to materialise.
This is another instance where the finger of blame can be pointed fairly and squarely at the Labour Party. Their agenda to introduce race-based co-governance control of health was foolish. The rushed disestablishment of the District Health Boards in the middle of the pandemic not only wasted $600 million, it destabilised the entire health system, leaving many regions without experienced leadership. Rebuilding capacity takes time and progress has been made more difficult by the aggressive stance of the trade unions that dominate the sector.
A further challenge for the coalition has been the public‑sector workforce itself. Many officials hired to advance Labour’s policy agenda are actively resisting efforts to unwind it. In several areas, the bureaucracy is dominant, with laws undermined in practice and ministerial directives only partially executed. The result is a system where the machinery of government is not consistently aligned with the elected government’s objectives. In this environment, advice to ministers cannot be trusted, with bills drafted by the bureaucracy – such as the RMA replacement – containing so many Labour-aligned provisions that should have been rejected, so that the new laws promise to be worse than the old.
Layered on top of the country’s economic anxiety is a period of political instability. In recent weeks, National’s internal tensions have spilled into the open, culminating in a caucus confidence vote in the prime minister. Public disagreements between coalition partners have reinforced the perception that the government is preoccupied with its own internal struggles rather than the country’s priorities.
The mainstream media has played a major role in amplifying the perception of instability through relentlessly hostile coverage and by hounding coalition MPs. This stands in stark contrast to the favourable treatment Labour received, not only in government, but also when Jacinda Ardern first became leader and their manic enthusiasm – which reached such a fever pitch that it became known as “Jacindamania” – helped to propel the party into a position where it could form a government in 2017.
Today, while the coalition is criticised at every turn, Labour not only receives supportive coverage, but so too does The Opportunities Party (TOP), which is clearly regarded as a more acceptable coalition partner for Labour than the Māori Party – if they reach the five per cent threshold to parliament.
All of this reinforces the view that the media should be providing fair and balanced journalism, not attempting to shape the political landscape nor influence the outcome of the election.
Beneath these immediate pressures lies a deeper constitutional unease. The debate over co‑governance, democratic accountability, and the future interpretation of the Treaty continues to simmer. While these issues may not dominate daily headlines, they shape long‑term public confidence in the integrity of New Zealand’s democratic institutions and remain a potent undercurrent in the election environment.
This week’s NZCPR Guest Commentator, Auckland University’s Professor Elizabeth Rata, has long followed Māoridom’s “aggressive march through public institutions to co-governance” and her views on the matter are clear:
The co-governance of New Zealand’s institutions, including parliament itself, by both a tribal entity and a democratic one is impossible. There is no ‘co’ in democratic governance.
Yet in spite of ‘co-governance’ being illegitimate, it continues to exist.
Professor Rata explains:
In the 1990s, I developed the theory of neotribal capitalism to explain a phenomenon occurring in New Zealand’s version of identity politics. The phenomenon was the rapid emergence of the neotribal corporation. These economic entities gained their initial capital in the 1980s by claiming Treaty of Waitangi Settlements on behalf of all Māori. They have since become the political and ideological vehicle for co-governance demands. This poses a serious threat to nearly two centuries of democratic nation-building by both Māori and colonists.
Those in charge of the neotribal corporations have grandiose ambitions. Not content with righting historical wrongs, their ambitions extend to acquiring both vast amounts of capital and political power … through ‘co-governance’.
Neotribal capitalists are rent-seekers living off the profits of others’ investment and labour. Acquiring capital as a tribal entitlement by falsely claiming to be the inheritors of history, their main ambition is to acquire political power.
The desire of tribal leaders for political power is insatiable – they want nothing less than control of the country, and to date successive governments have been foolish enough to entertain their greed. It has therefore been extremely disappointing to many voters that in spite of grandiose promises at the last election that the country would finally be freed from race-based laws and tribal co-governance, it is still there.
With hundreds of thousands of voters still undecided, the 2026 election remains fluid. In an environment of ongoing global uncertainty, questions over economic security, political stability, and the future of our constitutional arrangements are likely to dominate voter decisions. How the coalition responds to these intertwined pressures and delivers for those who backed it in 2023 – before parliament dissolves on 1 October – will be pivotal in shaping voter sentiment and, ultimately, the election outcome.
This article was originally published by the New Zealand Centre for Political Research.
