Treasury has opened the government’s books for the last time before the election, and the numbers are better than they were in May. The Pre-election Economic and Fiscal Update released on Tuesday forecasts a deficit of $6.8 billion for the 2026/27 year, down from the $11.4 billion Treasury predicted in the May Budget.
The deficit is then expected to shrink to $0.8 billion the following year, which Finance Minister Nicola Willis described as “within a hair’s breadth of a surplus”. The books are still picked to return to surplus in 2028/29, but the surplus that year is now forecast at $4 billion rather than the $2.6 billion Treasury expected in May.
The better outlook means the Government expects to borrow $15 billion less over the next four years. Net debt is forecast to peak at 43.9 percent of GDP in 2028 and then fall to 39.5 percent by 2031, 1News reported. Government spending is forecast to drop below 30 percent of GDP in 2030/31.
There is a catch for household budgets. Treasury said the improvement was driven mainly by higher tax revenue, and much of that came from “higher and more persistent” inflation. Core Crown tax revenue has been revised up by $11.4 billion over four years. Some of that gain was offset by the Government’s decision to cancel next year’s fuel tax increase, and Willis noted the surplus would otherwise have arrived a year earlier.
Speaking to reporters in Wellington, Willis called the forecasts “very positive” and a “distinct improvement”, and said the track back to surplus was “noticeably better” than it looked in May.
“I am pleased that New Zealanders’ hard work, resilience and adaptability through tough economic times is bearing fruit,” she said. “From next year on, new government borrowing will be for capital investment, not to buy groceries.”
She also warned that the better picture was no licence for a big spend-up during the campaign. “It does not give a green light to open the chequebook.”
Asked whether voters deserved more direct tax relief, Willis did not give a straight answer, instead saying no new taxes or tax increases were needed. National’s economic plan, released on Monday, promises no new taxes, a surplus in 2028/29 and government spending below 30 percent of GDP. Earlier this month Willis signalled National wanted to deal with bracket creep if it could do so within its fiscal rules.
Treasury Secretary Iain Rennie said the conflict in the Middle East, which has pushed up oil prices, had held the economy back but not knocked it off course. “We believe the recovery has been delayed rather than derailed,” he said.
The economic forecasts in the update are broadly the same as in May. Annual average growth is expected to peak at 3 percent by March 2028, slightly down on the 3.2 percent forecast in the Budget. Unemployment is picked to fall from this year’s 5.6 percent peak to 4.3 percent by 2030, and inflation is expected to dip just below 2 percent in 2027.
The biggest change is in house prices. Treasury now expects house price growth of just 0.6 percent in 2027, well down on the 4 percent it forecast in May. It pointed to higher interest rates, more new housing and lower net migration.
Treasury put a strong caveat on all of its numbers. It said there was “considerable uncertainty”, with the risks tilted towards weaker growth and higher inflation, and that the main near-term unknown was how long the oil price shock would last. The forecasts were finalised in mid-August, and officials noted oil prices and interest rate expectations have both risen since then.
The longer-term picture is less comfortable. Treasury said that by 2031, 28 percent of the tax take will go on superannuation and interest costs. “Demographics place us on an unsustainable financial position,” Rennie said.
Infometrics economist Brad Olsen said the brighter short-term outlook could tempt parties into promises they cannot pay for. “The risk is that a better fiscal position provides more options for political parties this election,” he told 1News.
The other parties quickly put their own spin on the figures. Labour leader Chris Hipkins said the update was “the verdict” on National’s record, pointing out that debt, unemployment and inflation were staying higher for longer and that the surplus was still forecast later than in the update before the last election. ACT leader David Seymour said the numbers “vindicated” his party’s push for spending cuts.
Labour now faces its own test. It had held back detail on its spending plans until Treasury’s figures were out, and it has promised more money for public services. Its fiscal plan is expected to follow, and it will be judged against the same numbers Willis released today. Labour has already said it has costed its fuel tax freeze without revealing the figure.
The update lands about six weeks before election day, with the race tight. A 1News-Verian poll released on Monday had National and Labour level on 28 percent and the Greens up to 16 percent. For National the improved figures are a chance to argue its approach is working, while the opposition parties will point to the fact that the gains came mostly from inflation lifting the tax take rather than from a stronger economy.
If you are still weighing up which party’s economic plan suits you, you can take our voting tool to see which party best matches your views. For the latest numbers on growth, prices and jobs, see our NZ Economy Now dashboard.
Do the better numbers change how you see the Government’s economic record, or is an inflation-driven tax windfall nothing to celebrate? Tell us what you think in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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