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Books Brighten, But Inflation Delivers a Sting in the Tail
Finance Minister Nicola Willis has received a pre-election boost, with Treasury’s latest forecasts showing the Government books improving faster than expected — but much of the improvement comes from higher tax revenue linked to stronger and more persistent inflation.
The Pre-election Economic and Fiscal Update forecasts a $6.8 billion deficit in 2026/27, substantially better than the $11.4 billion deficit forecast at the May Budget.
The deficit is forecast to shrink to just $800 million in 2027/28, before the books return to surplus in 2028/29. That surplus is now forecast at $4 billion, compared with the $2.6 billion expected at Budget time.
The improved outlook means the Government expects to borrow $15 billion less over the next four years, with net debt forecast to peak at 43.9 percent of GDP in 2028 before beginning to fall.
But there is a sting in the tail for households. Treasury says a major driver of the improved fiscal position is higher tax revenue, with core Crown tax receipts revised upwards by $11.4 billion over four years, partly reflecting inflation remaining higher for longer.
Growth is forecast to average around 2.6 percent over the forecast period, while unemployment is expected to fall from its 5.6 percent peak towards 4.3 percent.
Treasury is also warning of considerable uncertainty, with risks tilted towards weaker growth and higher inflation. International oil prices and instability in the Middle East remain significant risks to the outlook.
Radio Waatea is talking with economist Matt Roskruge, who has been inside the Treasury PREFU lock-up examining the numbers first-hand. We will unpack what the forecasts really mean, whether the improvement is as strong as the headline numbers suggest, and most importantly what they could mean for Māori households, jobs, the cost of living and the wider Māori economy.
With Election 2026 approaching, the political argument will be about who can best manage the Government books. For whānau, however, the bigger question may be much simpler — when will improving numbers in Wellington start being felt around the kitchen table?
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