New Zealand forecasts smaller budget deficit as tax revenue grows

New Zealand's government has forecast a smaller budget deficit and lower debt compared to its May budget projection, ahead of the upcoming general election in November. The Treasury has predicted an operating balance prior to gains and losses deficit of NZ$8.73 billion in the fiscal year ending June 30, 2027, down from the previous forecast of NZ$14.09 billion.

The government now anticipates a return to an OBEGAL surplus in 2028-29, a change from the May Budget's forecast for 2029-2030. The economy is slowly recovering from a prolonged slump, and the Treasury's update has been closely monitored for indications of broader growth beyond the export sector. Prime Minister Nicola Willis attributed the improved figures partly to better-than-expected economic performance last year, resulting in higher tax revenue.

Government spending was also lower than expected, contributing to better-than-anticipated financial performance. However, Willis cautioned that there was much work to be done to translate these forecasts into reality, and highlighted ongoing geopolitical risks, particularly in the Middle East. The government is obliged to release revised economic and financial forecasts ahead of the November 7 general election.

Economic growth, high inflation, and unemployment at a decade-high are shaping up to be the main concerns heading into the election. Recent polls suggest the Labour Party could edge out the incumbent National Party and form a center-left coalition, though the outcome remains uncertain. Inflation is projected to return to the government's target range of 1% to 3% in the second quarter of 2027.