New Zealand trims deficit forecast ahead of November election

New Zealand's government on Tuesday projected a narrower budget deficit and lower debt than it forecast in May, offering Prime Minister Christopher Luxon a fiscal platform to campaign on ahead of the November 7 general election.

Treasury estimated an operating balance before gains and losses (OBEGAL) deficit of NZ$8.73 billion (US$4.94 billion) in the fiscal year ending June 30, 2027, down from the NZ$14.09 billion shortfall pencilled in at the May Budget. The government now expects to return to an OBEGAL surplus in 2028-29, a year earlier than the 2029-30 surplus previously projected.

Speaking at a news conference, Luxon described the forecasts as good news and credited his centre-right National Party-led administration with responsible economic management. He said the task now was to ensure the positive projections were realised.

Opposition parties seized on the economy's weakness over the past three years and the continuing strain on household budgets, arguing that the improved forecasts had yet to deliver meaningful relief. Labour finance spokesperson Barbara Edmonds said another term of a National government would mean higher unemployment, weaker growth and more public services at risk.

The update was closely watched for signs that a recovery is broadening beyond the export sector, with global geopolitical tensions and higher energy prices clouding the outlook. The economy is emerging only gradually from a prolonged downturn, inflation has climbed back above 3% and unemployment sits at a decade high, making the economy the central issue of the election campaign.

Recent polls put Labour narrowly ahead of National and on course to govern in a centre-left coalition, though the outcome remains too close to call.

Treasury said inflation was expected to return to the government's 1% to 3% target band in the second quarter of 2027, when annual GDP growth would be running at 2.9%. ANZ economists wrote in a note that Treasury's economic forecasts remain on the rosy side, with eventual fiscal consolidation dependent on that outlook materialising and future governments adhering to the signalled operating and capital allowances.