If the country sees a few lucky breaks, Budget 2026 shows a return to surplus in 2029.

The period of structural deficits will have lasted almost a decade.

Without those lucky breaks, including at the Strait of Hormuz, deficits will extend for longer. And it beggars belief that a decade of structural deficits is consistent with the fiscal responsibility provisions of the Public Finance Act.

Nobody should envy the Minister of Finance’s position.

Returning to structural surplus sounds simple enough. Government revenue as a share of the economy is higher than it was before Covid. Holding spending to the share of GDP Finance Minister Grant Robertson had set in 2019 would mean a comfortable return to surplus.

But in the interim, superannuation costs have risen considerably as the population ages. Health and debt financing costs have also risen, and defence spending must increase.

The government’s strategy to return to surplus depends on keeping a very tight rein on “operational allowances”: how government budgets for cost pressures across different spending areas. It also depends on ministries achieving savings targets.

Both will be challenging.

Treasury’s projections past 2030 reveal how maintaining a strict line on operating allowances versus accommodating normal demographic cost pressures affects surpluses.

Accommodating normal cost pressures for only two years reduces the 2032 surplus from 1.6% to 0.5% of GDP. Not keeping up with cost pressures will turn into political pressure well before 2030 and before any potential return to surplus.

Maintaining the government’s projected path through an election, coalition negotiations and three years of cost pressure is difficult. And managing the longer-term forecast requires major change to a large cost driver: superannuation.

During the budget’s question and answer period, Hon Nicola Willis and Hon David Seymour made abundantly clear that National and ACT will be campaigning on dealing with superannuation.

Failing to fix superannuation will mean substantial tax increases, large reductions in other areas of government spending, or both. The burden on younger people will rise substantially. And the only thing that might keep younger Kiwis from fleeing is that the pension situation in most other countries is even worse.

Fixing superannuation could see the opposite effect. Young, productive people abroad could unshackle themselves from soaring tax obligations and come to New Zealand.

In the short term, spending still must come down. But superannuation reform remains the largest and most necessary change – and biggest opportunity.

Listen to Dr Eric Crampton and Dr Oliver Hartwich discuss Budget 2026 on our latest podcast episode here.