Treasury sees surplus in 2029, a year earlier than expected, but warns of ‘general uncertainty’
Thursday, 28 May 2026
The Government will get its books back to surplus a year earlier than previously expected, in the year ending June 2029, according to the Treasury’s central Budget forecast.
However, the positive development is based on an assumption that the economic impact of the Middle East crisis will be “temporary”.
The Treasury, this year, appeared to hedge its bets more than usual, referring to what it described as “general uncertainty” in its fiscal forecasts.
Despite a rosier headline outlook, which had not been expected by economists, Treasury estimated there was a 40% to 50% chance that the Government would not get back to surplus in the year to 2030.
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It also cautioned there was a 20% to 30% chance that Government debt would breach 50% of GDP, which is the highest level it advises debt should be allowed to rise in normal economic times.
In addition to the Middle East conflict, it listed the possibility that the Government would not achieve the planned $2.4b of near-term savings it is expecting from planned public service cuts among “new fiscal risks”.
The Government previously announced it was planning to cut baseline funding for most agencies by 12% over three years.
Treasury said that would require organisational changes across the public sector and a “transformation” in the way it delivered services. “These changes may take longer than anticipated to implement and/or may not eventuate in full,” it said.
In its Half Year Economic and Fiscal Update in December, the Treasury had been predicting a small operating surplus of $2.3b in the year to June, 2030, by the Government’s preferred “ObegalX” measure which excludes the accounts of ACC.
But its headline forecast is now for an ObegalX surplus of $2.6b in the year to June 2029 and a larger $6.1b surplus the following year.
The improved forecast is reflected in a drop in the likely size of the government debt, relative to Treasury’s previous forecasts, and an expected need to borrow less money than had been earler tipped — neither of which had been predicted by economists.
Finance Minister Nicola Willis said the Treasury’s “prudent central forecast” of an earlier return to surplus showed the benefits of disciplined economic management”, while noting the figures assumed the impact of the current fuel crisis would be temporary.
Among Treasury’s assumptions are that the economy will grow at the healthy clip of 2.3% in the year to June next year, and 3.2% the year after.
On that basis, it is expecting employment to grow by 220,000 jobs over the next four years, and for tax revenue to be $9 billion higher than forecast.
“Forecasts are not set in stone — they can move around and it takes a lot of work to turn them into reality,” Willis said.
Nevertheless, the forecast operating surplus would be the first in a decade, and Willis said it was “heartening to see that for the first time that surplus date is coming forward and not being pushed back”.
The Treasury now envisages net core Crown debt peaking at 46.1% of GDP in the year to June 2028, rather than 46.9%, despite its caveat that there was a fair chance of that going astray.
Ahead of Budget Day, ASB and Westpac had been expecting Treasury would report the debt-peak had been revised up to 48% of GDP and would signal a need to issue billions of dollars more bonds than it had forecast in December to finance that debt.
Instead, bond issuance over the next four years has been revised down by $6b, if all goes to Treasury’s central forecast.
“Reducing the country’s debt burden means more taxpayers’ money can go towards frontline services and infrastructure New Zealanders rely on,” Willis said.
“New Zealanders should have confidence today the Government is spending their money wisely, she said.