Willis's Surplus Hopes Hang in Balance of Uncertainty

The release of New Zealand's Pre-Election Fiscal Update (PREFU) has been met with optimism from Finance Minister Nicola Willis, who claims that 'hard work' is finally paying off. However, a closer look at the numbers reveals a more nuanced picture.

According to the PREFU, the government is on track to achieve a surplus in 2030/31, but this comes with several caveats. Firstly, there's a one-in-five chance that the errors in the calculations will be the same size as the predicted surplus, which would wipe out any gains.

Moreover, Treasury's predictions have not accounted for potential disruptions caused by the looming El Nino and rising prices of petrol, diesel, and jet fuel. These external costs could give inflation a boost, impacting household spending and economic growth.

The government's revenue increase is largely driven by higher tax revenue, which has increased from 30.4% of GDP in 2025/26 to 31.8% of GDP in 2030/31. However, this comes at the expense of fiscal drag, where inflation pushes taxpayers into higher tax brackets, and higher government charges on fuel excise duty, road user charges, and electricity.

The PREFU also hints at further job cuts and reductions in public services to balance the books. This is concerning given the dire state of New Zealand's public health system and ageing population, which requires more complex and costly treatments.