New Zealand Budget Outlook Shows Prolonged Deficits Despite Economic Recovery Hopes

New Zealand has released updated financial forecasts showing the government is unlikely to return to a budget surplus over the next five years, as weak economic conditions continue to outweigh strict fiscal discipline. The projections were published Tuesday as part of the country’s half-year economic and fiscal update, highlighting ongoing challenges for the South Pacific nation’s economy.

New Zealand’s economy has contracted in three of the past five quarters, with recovery slowed by subdued consumer spending, uncertainty around U.S. trade policy, and a fragile global economic outlook. Despite these headwinds, the government remains cautiously optimistic. Treasury now expects third-quarter gross domestic product data, due Thursday, to show growth of 0.9%, suggesting the economy may be turning a corner.

Finance Minister Nicola Willis said recent indicators point to gradual improvement, noting that economic growth is expected to strengthen over the next 18 months. She emphasized that the government will continue to maintain tight control over spending while prioritizing sectors such as health, education, defence, and law and order in the upcoming May budget.

The latest forecasts show a budget deficit of NZ$16.93 billion for the current financial year, wider than the NZ$15.60 billion deficit projected in May. Including costs related to the national accident insurance scheme, the government does not expect to achieve a surplus within the five-year forecast window. By the year ending June 30, 2030, the deficit is projected to narrow significantly to NZ$60 million.

Economic growth expectations have been revised lower in the near term. GDP growth is now forecast at 1.7% for the year ending June 30, 2026, down from a previous estimate of 2.9%. Growth is expected to rebound to 3.4% in the following financial year. Inflation for 2025–2026 is projected at 2.4%, slightly higher than earlier forecasts.

Net debt, excluding advances, is expected to peak at 46.9% of GDP in 2027–2028, marginally higher than earlier estimates. While the government insists fiscal discipline will continue, critics argue that restrained spending could further weigh on economic recovery amid rising external risks.