New Zealand forecasts larger budget deficit but improved economy

NEW Zealand’s government on Tuesday forecast a larger budget deficit, higher debt but better than expected economic conditions in the year ahead, as it opened its books and updated forecasts heading into the October election.

The government forecast a budget deficit of NZ$11.38 billion (S$9.14 billion) for the fiscal year ending June 30, 2024, larger than a deficit of NZ$7.56 billion forecast at the budget in May. It now expects to return to surplus by 2026/27.

Net debt under the old method of calculation was forecast to peak at 43.6 per cent of gross domestic product (GDP) in 2023/24, Treasury said.

Finance minister Grant Robertson said in a statement that since the May budget the global economy had deteriorated, which was having a direct impact on New Zealand’s economy while government tax revenue was also falling.

The government has released revised fiscal forecasts as required ahead of the general election on Oct 14.

With the country in a technical recession and inflation at three-decade highs, the economy is shaping up as the key issue as New Zealanders head to the polls.

However, the economy, which contracted in the fourth quarter of 2022 and the first quarter of 2023, is holding up better than expected and is expected to remain in positive territory over the next year, according to economic and fiscal update from the Treasury.

“The economy is holding its own in an uncertain global environment,” said Robertson. “Our economic plan to support New Zealanders dealing with the cost of living while investing in building a stronger, more resilient and inclusive economy is working.”

In May, the government announced heavy spending on infrastructure, including new schools and the health system. Opposition parties have criticised the Labour government’s spending as contributing to inflation.

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Inflation will not return to the government’s target band of 1 per cent to 3 per cent until late 2024, according to the Treasury’s update. In the second quarter of 2023, consumer prices were 6.0 per cent higher than a year earlier, well outside the band.

The Reserve Bank of New Zealand is more pessimistic than Treasury, forecasting a contraction in the third and fourth quarters of 2023, a result of steep interest rate rises it has implemented to control inflation. REUTERS