The New Zealand government pushed back its estimated return to a budget surplus by one year as the recent flooding and cyclone added to uncertainty and ramped up costs.
In the Budget 2023 announcement on Thursday, Finance Minister Grant Robertson said the budget will return to surplus in 2025/26, only one year later than previously forecast and the economy will avoid a recession.
He said the government books will be impacted by added costs of the extreme weather events, higher inflation costs and lower growth.
The Operating Balance Excluding Gains and Losses is projected to record a deficit of NZ$7.0 billion in the 2022/23 fiscal year, and a deficit of NZ$7.6 billion in 2023/24.
The government aims to achieve an average surplus in the range of zero to two percent of GDP over the forecast period.
The treasury projected net debt to peak at 22 percent of GDP in 2024, before reducing to 18.4 percent of GDP at the end of the forecast period. These figures are well below the government’s debt ceiling of 30 percent.
The deterioration in the government’s books was worse than expected, Westpac said. That said, the government still meets its fiscal targets, but with even less headroom than before, the firm noted.
The treasury expects the economy to avoid a recession underpinned by stronger tourism as well as the rebuilding work after the flooding and cyclone events.
The economy is forecast to expand 3.2 percent in the year to June 2023, before slowing to 1.0 percent in the following year. Growth is then expected to grow around 3.0 percent in the June 2026 and June 2027.
At the same time, the government projected inflation to continue easing and hit the central bank’s target band of 1 to 3 percent late next year.
By the beginning of 2025, government spending is projected to fall by 5 percent with over half of this decline already having occurred since June 2022. “This means the Government is doing its bit to avoid adding to inflation pressures,” Robertson said.
Unemployment is projected to rise to 5.3 percent in the December 2024 quarter and remain there until the September 2025 quarter. At the end of the forecast period, unemployment will be back below 5 percent.
“Supporting New Zealanders with the cost of living is a key priority for Budget 2023,” Robertson said.