Central Otago mayor Tamah Alley has said Budget 2026 left the South Island short-changed, despite welcoming a new fund to help councils manage growth.

The budget introduced a $400 million Incentives for Growth Fund with payments to councils based on consented houses. Alley said it "feels like the first time central government has realised local government can't deal with this growth challenge on our own and they are actually willing to stump up some money to help us build the infrastructure that is needed to enable the growth that comes with more houses".

But she said the South Island deserved more investment. "Primary industries are pretty much carrying our country at the moment and it would be great to see more going into how we move our people around and how we support our people who are living here. But I think in these incredibly constrained times fiscally across New Zealand and across the world then it's not time to be splashing the cash too much," Alley said.

South Island Minister James Meager defended the budget as delivering for South Islanders. "It's a good balance between the need for fiscal constraint alongside investment in key priorities. So for us down in the south that's the same as everywhere else - health, education, law and order, and infrastructure - and there are some specific projects that benefit us directly but overall the budget is a good one for New Zealanders and, therefore, for South Islanders," he said.

The budget allocates $400 million for state highway resilience nationally, including South Island highways such as SH60 at Tākaka Hill, SH6 from Cromwell to Frankton, Frankton to Kingston, and Haast to Hāwea, and SH94 from Milford to Te Anau. It also includes land purchases in Queenstown for schools and a new police station in Greymouth.

Selwyn mayor Lydia Gliddon said the growth fund was insufficient. The district's population jumped 29% from 2018 to 2023, making it the country's fastest growing district. Selwyn could receive $9 million to $12 million from the fund, compared to a potential $49 million if 50% of GST on new builds was returned for infrastructure.

Queenstown Lakes mayor John Glover expressed disappointment the government continued to ignore calls for a bed tax or visitor levy. "Each year we are paying tens of millions of dollars in operating and capital costs to provide infrastructure and services that tourists use that we are not good at capturing the costs of," he said. Meager said a bed tax or visitor levy was not in the government's plans.