Treasury forecasts smaller deficits and less debt in pre-election update

The Treasury's Pre-election Economic and Fiscal Forecast (PREFU) indicates the Government will run smaller deficits and accumulate less debt than previously expected. This improvement is attributed to higher tax revenues, largely due to the impact of inflation on the Crown's coffers. The Treasury expects the proportion of GDP accounted for by tax to rise from 27.6% last year to 29.1% by the end of the forecast period.

The Government is now forecast to return to an Obegal surplus by June 2029, which is one year earlier than previously predicted. Finance Minister Nicola Willis stated this update reflects work done to "restore fiscal discipline". She noted that the Government expects to issue $15 billion less debt over the forecast period.

Despite the improved fiscal outlook, the Treasury warned that economic growth forecasts remain largely unchanged. Treasury secretary Iain Rennie noted that the balance of risks is "skewed towards weaker growth". The forecasts were finalised before a US$15-per barrel jump in oil prices and a rise in 10-year bond yields.

Economic headwinds, including unpredictable trade wars and actual wars, have delayed the economic recovery. Unemployment has reached a slightly higher level than anticipated in May, and house price growth has been adjusted from 4% to 0.6% for next year. Economist Cameron Bagrie described the PREFU as containing "heroic assumptions".

Compiled from reports by The Post and Newsroom.