New Zealand budget 2026 raises concerns over jobs, public sector cuts and long-term unemployment

New Zealand's Budget 2026 is likely to deepen labour market challenges rather than improve job security, according to a new analysis by the New Zealand Council of Trade Unions Te Kauae Kaimahi (NZCTU).

The union body argues that the Budget offers little to address rising unemployment, prolonged joblessness and workforce pressures, while significant cuts to public services could lead to thousands of job losses.

Unemployment remains high

The NZCTU highlighted that New Zealand now has more than 160,000 people unemployed, the highest level since the early 1990s. It also noted a sharp rise in long-term unemployment, with nearly 65,000 people out of work for more than six months in the March 2026 quarter.

Treasury forecasts cited in the report show unemployment rising to 5.5% in mid-2026 and remaining above 5% until late 2027.

According to the NZCTU, the Budget does not include a clear economic development strategy to create jobs or support workers struggling to re-enter the workforce.

Public sector job cuts

One of the report's biggest concerns is the government's plan to reduce the size of the core public service.

The government has set a target of reducing public sector staffing from just under 64,000 full-time equivalent employees to 55,000 by 2029. According to the NZCTU, this could result in around 9,000 fewer public sector jobs.

The report says the cuts will be driven by reductions in agency funding, organisational mergers and increased use of artificial intelligence.

The NZCTU warned that the reductions could place further pressure on public services while creating uncertainty for thousands of workers.

AI not a workforce solution

The report criticised the government's reliance on AI as a potential source of savings in the public sector.

According to the report, there is currently little evidence that AI can deliver the large productivity gains needed to justify workforce reductions. It argued that AI should be used to support workers rather than replace them and called for stronger plans to help employees transition into new roles if jobs are affected by technology.

Pressure on health workforce

The union body also raised concerns about workforce shortages in healthcare.

While Budget 2026 includes additional health funding and hospital infrastructure investment, the NZCTU said the package does not adequately address staffing challenges. It warned that continued pressure on the health system could encourage more healthcare professionals to leave for better pay and working conditions in Australia.

Labour compliance boost

One area welcomed by the NZCTU is additional funding for labour market enforcement.

Budget 2026 allocates funding to strengthen the compliance and investigations capabilities of Immigration New Zealand and the Labour Inspectorate. 

The investment will support three new teams comprising 22 full-time positions focused on immigration investigations, compliance and workplace rights enforcement.

However, the union body said further expansion would be needed in future budgets to tackle ongoing labour exploitation issues.

Education costs and youth employment

The report also pointed to growing challenges for young people entering the workforce.

The government has scrapped the Final-Year Fees Free programme and allowed tertiary tuition fees to rise by up to 6% in 2027. While additional funding has been allocated to accommodate rising student enrolments, the NZCTU said higher education costs could increase financial pressure on students at a time when youth unemployment remains elevated.

Outlook for workers

Overall, the NZCTU concluded that Budget 2026 does little to improve economic security for workers. The organisation argues that ongoing public sector cuts, high unemployment and a lack of a comprehensive job creation strategy could leave many workers facing continued uncertainty over the coming years.

The analysis was published by the New Zealand Council of Trade Unions Te Kauae Kaimahi (NZCTU) as part of its review of Budget 2026.