Capital allowances
The capital allowance is the net new “one-off” funding the Government intends to allocate to capital projects in the Budget. Like operating allowances, capital allowances are a net concept, meaning that capital savings offset spending. The Government previously set capital allowances for Budgets 2026 to 2029 at $3.5 billion but recognised that capital packages could differ from these allowances given investment requirements are often uneven across time.
The actual net Budget 2026 capital package comes to $5.7 billion. This net capital package is made up of $7 billion of new capital funding less $1.3 billion of savings, which include expected capital receipts from the early monetisation of Chorus securities. The “lumpiness” of capital investments is demonstrated by the fact that funding for the Cambridge to Piarere Expressway ($1.8 billion) is around a third of the total net package.
The Government has increased the Budget 2029 capital allowance to $5 billion to reflect expected investments in defence and hospital projects. This increase has been factored into the fiscal forecasts. The capital allowances for Budgets 2027 and 2028 remain at $3.5 billion. Delivering value-for-money and productivity-enhancing capital investments will help ensure infrastructure meets New Zealanders' needs, and supports economic growth and resilience. But new capital spending in the Budget adds to government debt. If capital expenditure gets too high, there is a risk that government debt as a share of GDP will continue to rise and never turn down, contrary to the Government's fiscal strategy.