Budget 2025: $7 billion of extra borrowing, higher debt, wafer-thin surplus forecast for 2029

Thursday, 22 May 2025

The worsening global outlook has put a further dent in the Government’s fiscal outook, published by Treasury.

Savings in this year’s Budget won’t be enough to prevent the Government needing to borrow an extra $7 billion over and above previous forecasts, the Treasury has forecast.

Instead, the forecasts released by the Treasury on Budget Day show a further small deterioration in the already historically-bleak outlook for the government accounts.

But Finance Minister Nicola Willis said the Budget put the country on the right path to get back to surplus and put debt on a downward path.

Core Crown expenses are expected to come down by about $1b a year by the end of the forecast period in June 2029, but not enough to offset a forecast $3b annual drop in tax revenues caused by lower than previously-predicted economic growth.

The Treasury — which set its economic assumptions for the Budget on April 7 just five days after US President Trump’s “Liberation Day” tariff announcements when many equity markets were at their nadir — said it expected a slower economic recovery.

“Growth in New Zealand’s trading partners is forecast to average around 2% over the next two years, below the 3.3% average over the past two decades.”

Willis called the 3.2% growth in New Zealand economic activity that the Treasury is forecasting for next year as “still very healthy”.

Finance Minister Nicola Willis says the books have been hammered, but the “structural deficit” will be eliminated in 2029.

The Treasury now expects net core Crown debt to top $238 billion in June 2029, about $4b more than it had expected debt to reach when it compiled its previous forecast in December.

A silver-lining is that, as expected, it is still predicting the government will bring its books back into balance by the end of the forecast period, if any deficit at ACC is excluded.

But it is now forecasting only a miniscule surplus of $214m in the June 2029 year, down from its previous prediction of an already-small surplus of $1.9b.

The more traditional “Obegal” measure, which takes into account ACC, is for a $3b deficit that year.

The Treasury estimates the government will need to issue $175b of bonds to finance its outgoings during the five years to the end of June 2029, up from its previous $168b forecast.

The figure was about $2.5b higher than ANZ, the country’s largest bank, had been predicting ahead of the Budget.

Willis said a recovery was underway but its pace had been threatened by “recent tariff announcements” that had caused uncertainty and volatility around the world.

“The Treasury had pegged back its forecasts and downside risks remain.”

The Government’s books had taken a hammering over the past six years or so, she said.

“Under our fiscal management, Government debt will stablise, then start to come down.”

By 2029 “the structural deficit the previous government left us with will have been eliminated”, she said.

When measured as a percentage of GDP, net core Crown debt was also projected to be slightly lower than the Treasury had forecast in December, she also noted, at 46% of GDP in the year ending June 2028, as opposed to peaking at 46.5% a year earlier.