The Government’s books are looking stronger than expected, with Treasury forecasting smaller deficits, lower borrowing and a quicker return to surplus, although higher inflation has also helped boost tax revenue.
The Pre-election Economic and Fiscal Update forecast a deficit of $8.7 billion for 2026/27, compared with $14.1 billion forecast in May. On the OBEGALx measure, a $4 billion surplus is expected in 2028/29, about $1.4 billion higher than forecast, with the return to surplus a year earlier than expected.
The improved outlook partly reflected higher tax revenue in 2025/26, due to better economic activity and what Treasury described as “higher and more persistent inflation”. The Government said it would borrow about $15 billion less over the next four years.
Debt is forecast to peak at 43.9% of GDP in 2028 before falling to 39.5% by 2031, while government spending is expected to drop below 30% of GDP by 2030/31.
At a speech in Christchurch, Luxon said the figures showed National’s economic management was working, while Finance Minister Nicola Willis called them “very positive”.
Treasury Secretary Iain Rennie warned of longer-term pressures from an ageing population, with superannuation and interest costs to consume about 28% of tax revenue by 2031.
Meanwhile, a Dutch environmental group has lodged a complaint with the European Commission alleging New Zealand has breached climate commitments contained in its free trade agreement with the European Union. The group claims the Government weakened environmental protections to encourage trade or investment and has failed to effectively implement the Paris Agreement.
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If this govt stopped playing weather god and stopped supporting Maori activism, we poor old New Zealand citizens would be rolling in it.
Luxon said the figures showed National’s economic management was working, while Finance Minister Nicola Willis called them “very positive”. What the fork tongues mean is that we the people will pay via government policy of persistent inflation due to government fiscal mismanagement (borrowing).
Persistent inflation (which is always and everywhere a monetary phenomenon) swells nominal Crown revenue, acting as a stealth fiscal tool (government policy). Governments collect higher income and GST revenues without formally voting for tax hikes. Thresholds were adjusted in mid-2024, but critics note it only offset a fraction of cumulative long-term inflation. Inflation acts as a silent tax by eroding purchasing power and generating unlegislated revenue for governments through bracket creep. Nominal wage increases push workers into higher tax brackets without real wealth gains. Rising prices (loss of currency purchasing power) decrease the real value of your cash and savings and it disproportionately harms fixed-income earners and lower-income households who spend most of cash flow on essentials.