Neil Sands
New Zealand’s finances are in better shape that predicted in the May Budget but remain vulnerable to downside risks, particularly oil prices, according to pre-election economic data released by the Treasury on Tuesday.
The Pre-Election Economic and Fiscal Update (PREFU) said the emerging economic recovery had been delayed but not derailed by higher oil prices, which have fuelled inflation and led to interest rate hikes.
“Despite the uncertainty surrounding the outlook, the forecast is for the recovery to regain momentum in the second half of 2026 as oil and fuel prices ease, inflation moderates and real wages begin to recover,” it said.
In terms of government finances, Treasury now expects an operating balance deficit of $6.8 billion in the current financial year, down from the $11.4 billion forecast in the Budget.
The operating balance is still expected to return to surplus in 2029-30, but is tipped to be $4.0 billion in the black, rather than $2.6 billion.
A market note from ANZ described the predictions as “rosy” and noted they could easily change if there was any shift in government spending after the election.
“The eventual fiscal consolidation [is] dependent on both that outlook coming to pass and future governments sticking to the signalled operating and capital allowances set aside for future budgets,” it said.
Political perspectives
As expected in the heat of an election campaign, political parties had wildly differing takes on what the figures mean.
Nicola Willis
Finance Minister Nicola Willis said the positive outlook “reflects hard work by households and businesses, backed by a government focused on restoring fiscal discipline and driving economic growth.
“The upgraded forecast is driven to a large extent by actual improved performance. Businesses have been doing better than anticipated, which feeds into the government’s bottom line through increased tax revenue.”
Willis has hinted previously that National will address the increased taxes the government receives because of “bracket creep” but offered no immediate relief at Tuesday’s PREFU announcement, saying her party’s tax policy will be unveiled later in the campaign.
David Seymour
ACT leader David Seymour said the improved outlook was due to fiscal discipline imposed on the National-led coalition by his party.
“ACT’s repeated pushes to reduce spending have been vindicated,” he said. “It will require a larger ACT presence in government to hold the line on ending and preventing wasteful spending.”
Barbara Edmonds
Labour finance spokeswoman Barbara Edmonds did not address any specifics in the forecast, simply saying the figures showed “New Zealanders are worse off” under National’s leadership.
“This election the choice is clear: more cuts under National or investment in what matters with Labour,” she said. “Labour will be fiscally responsible, ambitious for the economy and focused on the future. We will return the books to surplus, bring debt down over time and invest in what matters.
Chloe Swarbrick
“Our full fiscal plan will be released shortly, setting out the numbers behind our commitments.
Green Party co-leader Chlöe Swarbrick, who this week said she wants to become finance minister if a left-leaning coalition wins power, said the improved outlook relied on tensions easing in the Middle East, showing the government had allowed the economy to remain too reliant on fossil fuels.
“Hope is not a plan, but it’s clear that’s all this government has as they sit on their hands and hope things get better,” she said. “We can’t re-open the Strait of Hormuz, but we can decarbonise our economy to reduce our exposure to fossil fuel price shocks.”
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