The government's books are in better shape than expected, with Treasury forecasting a significantly smaller deficit and a path back to surplus that Finance Minister Nicola Willis called "within a hair's breadth" of breaking even a year ahead of schedule.
The Pre-election Economic and Fiscal Update, released Tuesday, put the deficit at $6.8 billion for 2026/27 — down sharply from the $11.4 billion forecast in May's Budget. The following year, that gap narrows to just $0.8 billion, before the books are expected to return to surplus in 2028/29, in line with National's election promise. That surplus is now tipped to reach $4 billion, well above the $2.6 billion Budget prediction.
The improved outlook means the government plans to borrow $15 billion less over the next four years. Net debt is forecast to peak at 43.9 percent of GDP in 2028, then start coming down.
Willis described the forecasts as "very positive" and a "distinct improvement" on May's numbers, saying the track to surplus was now "noticeably better than thought."
"I am pleased that New Zealanders' hard work, resilience and adaptability through tough economic times is bearing fruit," she told reporters. "From next year on, new government borrowing will be for capital investment, not to buy groceries."
But Treasury was blunt about what's driving the improvement: higher tax revenue, with core crown tax revenue revised up by $11.4 billion over four years. Officials pinned that largely on inflation running "higher and more persistent" than previously expected — meaning workers are being pushed into higher tax brackets rather than getting richer in real terms. The government's decision to cancel next year's fuel tax increase partly offset those gains; Willis noted that without that call, surplus would have been forecast a year earlier.
Asked whether voters deserved direct tax cuts given the better numbers, Willis sidestepped, saying only that no new taxes were needed and existing taxes would not go up. She also pushed back against any idea that the improved outlook opens the door to pre-election spending promises.
"It does not give a green light to open the chequebook," she said.
Treasury forecast average economic growth of 2.6 percent over the forecast period, with unemployment expected to fall from a peak of 5.6 percent this year to 4.3 percent. Officials flagged "considerable uncertainty," with risks tilted toward weaker growth and higher inflation. The main near-term wildcard is the oil price shock from the Middle East conflict — and Treasury noted that oil prices and interest rate expectations have both risen since its forecasts were locked in.
The update lands about six weeks before the election. A 1News-Verian poll released Monday had National and Labour level at 28 percent each, with the Greens at 16 percent. Labour has promised more spending on public services but held back its full fiscal plan until after Tuesday's release.