Few presents for National, Labour or us in the Budget outlook
Sunday, 7 December 2025
Vernon Small is a journalist and former Labour Government advisor.
OPINION: It’s the final countdown.
Just 10 more alarm clocks until Treasury delivers its last judgement for 2025 on the economy and the Government’s books.
Then it’s a Merry Political Christmas all round; the season of practised goodwill, party gatherings, turkeys, rivals eyeing the baubles of office, tortured political metaphors and some harmless coup-plotting around the BBQ.
Amid the speculative angst over the Reserve Bank’s stance – will the official cash rate go lower than 2.25%? How soon will mortgage rates rise again? – there has been little focus on the half year economic and fiscal update (Hyefu) to be made public on December 16.
And fair enough too.
Read more by Vernon Small:
The outlook for interest rates has a far greater impact on individuals and households, and hence the political landscape, than the big-number arcania of Treasury’s forecasts.
But the official economic and fiscal outlook and how much money politicians will have, or more likely won’t have, to play with will be a key influence on election year politics.
The early warning signs for the Hyefu are mixed, with odds on a subdued but improved economic outlook, (at least from the dire 0.9% contraction in June) paired with a deterioration in the fiscal balance.
That could see the expected surplus delayed again, beyond the slim $214m surplus tipped for 2029 under the Government’s new finance minister-friendly Obegalx measure.
So not one, but two elections away.
This week’s financial statements for the four months to the end of October gave a hint of what lies ahead.
The GST take was up $500 million, suggesting some growth in domestic spending in the September quarter over the same quarter in 2024, but corporate tax was down by a similar amount.
The overall tax take was down $620 million on the May Budget forecast while spending was slightly higher.
The upshot was that the old-fashioned Obegal measure of the surplus or deficit was tracking $440m further into the red than expected in May, pushing the deficit to $5.2 billion. The Obegalx was $705m worse at just under $5 billion.
(The current forecast for the full year to June 2026 is for a $12 billion deficit under the new Obegalx measure and $15.7 billion under Obegal.)
Net core Crown debt was $4.5 billion lower than forecast at $186.5 billion or 42.8% of GDP, although that data is volatile month to month so it may not be an established trend.
However, with net core Crown debt having grown from $155 billion in June 2023 to an expected $200 billion by June 2026, even a modest improvement is unlikely to quieten the right-leaning Taxpayer Union’s extraordinary months-long assault on Finance Minister Nicola Willis’ record.
The fragile economic recovery and the wan-looking fiscal and debt tracks leave National and the coalition with a quandary.
Do they go modern day Scrooge and institute another round of austerity-adjacent policies that risk throttling an election year recovery? Or do they own the growing deficit on the promise of better numbers ahead? Either way, significant election year tax cuts will surely be off the table when the Government unveils the Hyefu and its companion-piece, the Budget Policy Statement.
On the surface the deteriorating budget numbers look like a factory for tailor-made Labour attack lines. “They promised to make things better, but they made things worse,” is already the underpinning spin in most of their press releases.
But while Labour may be enjoying its new status as the party best-trusted to handle the economy and the cost of living crisis, it has Budget problems of its own. And they won’t be solved by the small amount of cash its anaemic capital gains tax will deliver long term after paying for three free GP visits.
Normally you might expect Labour to run a much more expansive fiscal policy, especially in an election year.
But its finance spokesperson Barbara Edmonds, who is instinctively more fiscally conservative than most of the MPs around her, appeared to drive a fistful of stakes into the ground at the party’s annual conference in Auckland last weekend.
On top of warning that you can’t say yes to everything, and that politics is all about choices (as it undoubtedly is) she also promised to balance the books using the favoured analogy of centre-right finance ministers – the household budget as proxy for the country’s budget. (If households could issue their own currency and had the power to tax it might be a fair comparison.)
It’s a choice soundbite with a responsible ring but it has worrying undertones for those on the left of the party who lost the battle to promise a more revenue-rich wealth tax or at least a more comprehensive capital gains tax than the one the party has adopted.
It also begs some significant questions about the quantity of cash behind promises already made or implied.
The biggest, and one that is being well picked over by the media, is the cost of restoring the pay equity regime scrapped by the Government at an estimated saving of $12 billion bucks.
Leader Chris Hipkins and Edmonds have been careful not to be too specific or confirm the $12 billion figure. Politically they want to blame the Government for charging $12 billion to the wage packets of women and the low paid while hoping they can find a much smaller invoice for the same work.
Good luck with that.
It’s hard to see the end of year forecast next week delivering much early Christmas cheer for either Willis or Edmonds.
Pass the humbugs, please.
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