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December 16, 2025
Aotearoa’s Economy Ends 2025 in Deep Struggle, Deficits Deepen and Growth Remains Weak
Waatea Team
Posted On December 16, 2025
As 2025 comes to and end the reality of an underperforming economy kicks in – inflation near the top of the band, food prices on the up, unemployment amongst Maori higher now than when Labour were in Government and now the Government’s books validate what many economists have known for a while – right doesnt mean better than left – Matthew Tukaki dives in:
As 2025 draws to a close, New Zealand’s economic outlook is facing mounting pressure. Latest Government fiscal forecasts show the nation’s hoped-for return to surplus has again slipped further into the future, with growing deficits, lower tax revenue and a weak recovery leaving households and communities under strain.
According to the Government’s Half-Year Economic and Fiscal Update (HYEFU), the expected operating deficit for the year to June 2026 is now forecast at $13.9 billion, significantly wider than earlier predictions, and a return to surplus is not expected until at least 2029/30. That is a year later than forecasts in May suggested, reflecting slower economic performance and a weaker tax take than anticipated.
The HYEFU figures underline that New Zealand’s public finances remain under sustained pressure. The Government’s books are in the red for longer, with deficits expected to persist through most of this decade. Growth forecasts are muted – below 1 percent this year before a modest pickup – and debt is set to peak at historically high levels before slowly easing.
Treasury officials have pointed to a combination of factors driving the deteriorating outlook, including a slower economic recovery following the downturn, a weaker than forecast tax base, and ongoing spending commitments. Those issues have combined to push the Government’s objective of a balanced budget several years into the future, creating a fiscal environment dominated by deficit management rather than investment.
For everyday New Zealanders, the economic slowdown is not an abstract figure. Sluggish growth and tight household finances are reflected in continued pressure on living costs, wages that lag behind inflation in many sectors, and uncertainty in key parts of the labour market. While unemployment is expected to trend lower in the medium term, many families continue to feel stretched.
The lower-than-expected tax take reported earlier in December is a symptom of the broader slowdown. Core Crown tax revenue – the money the Government collects from income tax, company tax, and GST – has fallen short of prior forecasts, signalling weaker activity in both business and household earnings.
In response, Finance Minister Nicola Willis has signalled a continued emphasis on fiscal discipline, including capped operating allowances for new spending and tighter spending controls across agencies. But critics argue that spending constraints amid weak growth risk further squeezing services that many New Zealanders rely on – including health, education, and support services for vulnerable communities.
Tight budgets and fiscal caution may help slow the growth of debt, but they also mean there is less room to support economic stimulus or social investments that could address entrenched inequities – a concern for Māori and other groups already disproportionately affected by economic hardship.
Cost-of-living pressures continue to weigh heavily on Māori whānau, as New Zealand faces ongoing risks of higher inflation and a slower-than-expected economic recovery.
Rising food prices, high rents, power bills and transport costs are stretching household budgets, with Māori disproportionately affected due to lower average incomes and higher exposure to insecure work and housing. For many whānau, everyday essentials are taking up a growing share of income, leaving little room for savings or unexpected costs.
Economists warn that while inflation has eased from its peak, it remains vulnerable to renewed pressure from global fuel prices, supply chain disruptions and domestic cost increases, including council rates and insurance. Any sustained uptick in inflation would further erode purchasing power, hitting low-income households first and hardest.
Community organisations say the impact is already visible, with increased demand for foodbanks and social support services, particularly in urban Māori communities. Advocates argue that without targeted relief and stronger income support, cost-of-living pressures risk deepening existing inequities.
As policymakers focus on fiscal restraint and inflation control, Māori leaders are calling for responses that recognise lived realities on the ground-ensuring efforts to stabilise the economy do not come at the expense of whānau wellbeing.
Treasury and independent forecasters expect the economy to gradually recover with growth strengthening over the coming years, but the pace remains modest. Inflation is predicted to stabilise around target levels, and the Reserve Bank has signalled a cautious monetary policy approach with interest rates likely to remain steady into 2026.
However, the headline takeaway for 2025 is clear: the Government’s books are in worse shape than expected, and the path back to surplus is longer and steeper than previously forecast. Economic challenges – from soft tax revenue to slow growth and enduring cost-of-living pressures – are now shaping the national conversation about what comes next for Aotearoa’s economy.
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