Election year starts here: what to expect from politics and the economy in 2026

Two Chrises, two rival coalitions, and lingering economic malaise will help define the political year ahead, writes 1News.co.nz's political specialist Justin Hu.

Prime Minister Christopher Luxon will hold a state of the nation speech later today, where he'll lay out his ambitions for the remainder of his first term.

The political year then ramps up through the month, with both National and Labour having their annual caucus retreats before MPs from all parties – except ACT – are set to appear at Rātana near Whanganui.

Parliament returns from its summer recess on January 27.

Luxon was expected to reveal an election date early in the year, with Parliament having to be dissolved in November at the latest.

Here are the key political stories to watch for over the rest of 2026.

The famous quote from Bill Clinton's campaign manager James Carville continues to hold true decades later – that it's the economy that the public focuses on.

Despite easing inflation and falling interest rates, the cost of living and the economy remain by far the dominant concerns for voters in New Zealand.

The Government's promise of a year of growth in 2025 fell flat as the recovery remained sluggish, with pleas to "survive til '25" instead morphing into hopeful wishes for 2026.

Labour and opposition parties will be looking to capitalise on the coalition's perceived impotence in tackling living costs.

Business confidence in the last quarter, on the other hand, was recorded at its highest level since March 2014, according to Institute of Economic Research survey figures released last week.

But whether households will eventually share that optimism remains an open question. The term "vibecession" – where official data improves while voters still feel the pinch – has grown in popularity to describe the disconnect over the past several years.

With falling rates passing through to households and growth in provincial areas, Luxon painted an optimistic picture of how Kiwis felt in his end-of-year interview with 1News.

"The Kiwis that I talk to every week are saying very clearly, look, we can see the economy strengthening. We can see things are turning, and they are hopeful, and I can see that more New Zealanders are starting to feel that, and that's a good thing," he said.

"I want to make sure that's what happens over the course of the coming year."

A December 1News Verian poll found 42% of voters believed the economy would be in a better state in the next 12 months, up 8% as compared to October. Meanwhile, 30% believed it would be worse, down 9% from two months prior.

Policy and reform are set to dominate the first half of the year as the Government faces a packed legislative agenda before the election campaign heats up.

The signing of New Zealand's free trade agreement with India is due in the first half of the year, promising the removal or reduction of tariffs on 95% of exports.

However, the deal has not impressed coalition partner Winston Peters, who has said NZ First will vote against it. As a result, National will need backing from Labour or the Greens to get the deal over the line.

Meanwhile, the second phase of the Royal Commission into the Covid-19 response is expected to deliver its final report by the end of February.

In May, Finance Minister Nicola Willis will present Budget 2026, which will be her final chance to make her mark on the Government's books before the election.

But with the operating allowance remaining at $2.4 billion and a return to surplus on hold for another year, the Budget is expected to deliver more trim than fat.

Elsewhere in Government, the Planning and Natural Environment Bills - sister replacements to the Resource Management Act - are high-priority legislation that the Government needs to pass by the middle of the year.

The coalition's sweeping reforms to local government are also set to reach a critical point this year, with legislation to abolish elected regional councillors and introduce rates caps expected to be introduced and passed.

RMA Minister Chris Bishop will have his work cut out in getting the swathe of bills through Parliament amid an election year.

In addition to those, he'll play a key role in refining the Government's upzoning mandates for Auckland as Housing Minister, which have reportedly been watered down.

A mega ministry merger was also underway between the ministries for environment, transport, housing and urban development, and parts of Internal Affairs. The Ministry of Cities, Environment, Regions and Transport was planned to be fully operational by July.

It's unusual heading into an election year with both major party leaders facing the question of whether they'll still be leading their parties come polling day.

But the notion of another Chris versus Chris contest remains likely – even if some speculate it might be a different Chris altogether for National.

Luxon dismissed mounting speculation about his leadership in December, saying he would "absolutely" lead his party to the election despite rumours of his senior colleague Chris Bishop waiting in the wings.

The PM's favourability and preferred prime minister polling have been historically low for an incumbent, with National's party vote continually jostling with Labour in the low-30s, according to the most recent 1News Verian polls.

Former prime minister Chris Hipkins has also faced questions about whether he'll continue to lead Labour, having led it to a shattering defeat three years ago.

But with his party polling semi-competitively with National and an absence of an obvious heir in waiting, Hipkins has seemingly reached 2026 in a stable position.

Replacing Hipkins would require triggering Labour's leadership selection process, which can potentially involve unions and members depending on caucus support levels - though not in the three months before an election.

For the past decade, three smaller parties - the Greens, ACT and NZ First - have dominated coalition discussions, but the historic unpopularity of both National and Labour has elevated their importance.

The combined vote share of the two major parties has been declining for years, with both now mostly polling in the low-to-mid 30s. As a result, the battle for third place has taken on new significance, with the minor parties eyeing a third place finish that would give them greater negotiating power on the left or right.

Political observers expect both major parties to attack each other over each other's "coalitions of chaos", with National likely to highlight Labour's dependence on both the Greens and Te Pati Māori, while Labour points to tensions between ACT and NZ First.

Peters has emerged as a potential kingmaker yet again, with NZ First consistently polling well above its 6% result in 2023 and seemingly at little risk of falling below the 5% threshold that often afflicts the party when in government.

Tax policy is once again shaping up as a battleground, with National planning to attack Labour's already-announced capital gains tax alongside the Greens and Te Pati Māori's more radical wealth tax proposals.

Luxon has also previously been open to bringing asset sales to the electorate - a suggestion that Labour will almost certainly use to attack National with.

Superannuation is emerging as another key issue, with both Labour and NZ First holding the line on raising the age of retirement, while National and ACT are open to lifting it.

The Māori seats will be one of the most unpredictable battlegrounds of the election.

Months of infighting by the current dominant party in the seats, Te Pati Māori, leave an open question as to whether Labour can take them back. It also opens the door for expelled MPs Takuta Ferris and Mariameno Kapa-Kingi to run as independents.

Kapa-Kingi had her party membership reinstated following an interim court decision, though a substantive court hearing into whether her expulsion was unlawful is scheduled for February.

Labour has declared it wants to win all seven Māori seats this year, seeking to reclaim the electorates it lost to Te Pati Māori in 2023.

Health has emerged as a defining election issue, with concern reaching record highs throughout 2025 as worries grew over a system under mounting pressure.

The Ipsos Issues Monitor from last year showed health hitting its highest level of concern since tracking began, with 42% of respondents naming it in their top three issues in October. Other issues raised were overwhelmingly about living costs and the economy.

As compared to three years ago, law and order issues are significantly less likely to be picked by Kiwis as their top issue, while housing has also declined as a relevant issue.

According to October Ipsos polling, Labour is now perceived as the political party most capable of handling four of the top five issues – cost of living, health, the economy and housing – while National is seen as most capable of managing law and order.

Election years have a habit of delivering surprises, and 2026 will shape up to be no exception, especially amid greater uncertainty overseas.

New Zealand's experience with US President Donald Trump's tariffs has already offered a preview of the disruption that could complicate a narrative around economic recovery.

The second year of Trump's term has again brought twitchy economic policy to the global order, with Reserve Bank Governor Anna Breman's dust-up with Winston Peters last week over the US Federal Reserve having already spilt over into local politics here.

Recent polls have also been upended by dramatic election-year shifts.

In 2023, Jacinda Ardern's shock resignation elevated Chris Hipkins to the prime ministership just as a cyclone wreaked devastation on the East Coast. Few could've predicted the subsequent resignation and flame-out of several of his Labour ministers.

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In 2020, the pandemic transformed voters' expectations and delivered Labour a historic landslide while National's caucus imploded under leadership turmoil.

And in 2017, Andrew Little's resignation just weeks before the election saw Ardern take over Labour, and Winston Peters return to the kingmaker position in coalition talks.