New Zealand Government Sees Improved Financial Outlook Despite Long-Term Challenges

The New Zealand Government's financial situation has taken a turn for the better, according to the latest Pre-election Economic and Fiscal Update. The update shows that a higher-than-expected tax intake in 2025/26 helped improve the fiscal outlook.

Treasury Secretary Iain Rennie said the economy is growing at 2.6% a year, but acknowledged that the recovery has been delayed rather than derailed due to the conflict in the Middle East pushing up oil prices.

The update forecasts a $4 billion surplus for 2028/29 on the OBEGALx accounting measure, which is about $1.4 billion higher than previously projected. Debt is forecast to rise and peak at 43.9% of GDP in 2028 before declining to 39.5% by 2031.

However, Finance Minister Nicola Willis was quick to caution that the forecasts were not a 'green light' to spend, emphasizing that borrowing would be used for capital projects from next year, such as infrastructure.

A concern raised by Infometrics economist Brad Olsen is that the positive outlook may tempt politicians to make promises they can't pay for or be ill-disciplined on spending. Rennie also highlighted the significant long-term headwinds facing New Zealand, including a growing burden of superannuation and interest rate costs.

The update points out that 28% of the tax take will be spent on superannuation and interest rate costs by 2031, which Treasury considers an unsustainable financial position.