New Zealand lowers budget deficit and debt forecast: tax revenue growth boosts prospects, surplus may be restored in fiscal year 2028-29

(1) The New Zealand government on Tuesday predicted that the budget deficit and debt levels would be lower than forecast in the May budget, and held an optimistic view of economic growth ahead of the November general election.(2) In an updated report released by the New Zealand Treasury ahead of the election, the operating balance excluding gains and losses (OBEGAL) for the fiscal year ending June 30, 2027 is projected to be a deficit of NZ$8.73 billion (US$4.94 billion), compared to the May forecast of a NZ$14.09 billion deficit.(3) The government now expects to restore an OBEGAL surplus in the 2028-29 fiscal year; the May budget forecasted a return to surplus in the 2029-2030 fiscal year.(4) New Zealand Finance Minister Willis stated that the improved forecasts are partly due to the economy performing better than expected in the previous fiscal year, resulting in higher tax revenue. She also said that in addition to increased tax income, government spending was slightly lower than anticipated, which had a positive impact on the fiscal situation.(5) However, she cautioned that much work remains to turn forecasts into reality and pointed out the obvious risks posed by ongoing turmoil in the Middle East.(6) The government is required to release its latest economic and fiscal forecasts before the November 7 general election. As economic growth has only just started to improve, inflation is back above 3%, and the unemployment rate is at a ten-year high, economic issues are gradually becoming a central topic in the election.(7) The Treasury stated that inflation is expected to return to the government’s target range of 1%–3% in the second quarter of 2027.