By Lucy Craymer
WELLINGTON (Reuters) -New Zealand’s government on Wednesday forecast a smaller budget deficit at its half-yearly economic update and described Prime Minister Christopher Luxon’s new centre-right administration’s plans as broadly neutral for the fiscal outlook.
The government forecast a budget deficit of NZ$9.32 billion ($5.84 billion) for the fiscal year ending June 30, 2024, larger than a deficit of NZ$11.38 billion forecast in the update released ahead of the election. It continues to expect a return to a NZ$140 million surplus by 2026/27.
Net debt under the old calculations, which includes a government-owned wealth fund and advances such as student loan repayments, was forecast to peak at 43.5% of gross domestic product (GDP) in 2023/24, Treasury said.
However, the forecasts were finalized on Nov. 24 ahead of the formation of the new government and do not take into account new policies or the surprisingly weak gross domestic product (GDP) data released last week.
Treasury said while the new government’s proposed spending cuts would improve the fiscal outlook in the update, it is “anticipated that once combined with other signaled commitments” the changes would be broadly neutral over the forecast period.
Finance minister Nicola Willis said in a statement that the government wanted to stop wasteful spending, improve value for money and drive resources out of the back-office and into frontline services.
The conservative government, which was elected in October campaigned to bring down inflation, reduce debt and had warned ahead of the release that the books had not been left in good shape. It had also promised to provide tax relief for those battling increased cost of living.
ANZ economists described the projected 2026-27 surplus as “wafer thin”, leaving the government very little room for fiscal surprises.
“With some immediate downside risk around the economic outlook, the Government will have some very tough decisions to make come Budget time in May,” ANZ said.
Willis announced some changes to taxation that would reduce taxes on landlords and said that social welfare benefits would increase at the rate of inflation from 2024.
The government also outlined spending cuts including axing 20 hours free of early childcare education for two-year olds, pulling funding for public transport improvements and stopping work on a new hydro scheme.
Green Party co-leader James Shaw said the decision to axe the free education for two-year olds would put families under huge pressure.
Treasury sees New Zealand’s economy continuing to grow over the coming year. However, these forecasts do not take into account weak GDP third quarter data released last week or the downward revisions to previous quarters.
The Reserve Bank of New Zealand is more pessimistic than Treasury, forecasting economic growth to remain flat in the fourth quarter before picking up early in 2024.
($1 = 1.5962 New Zealand dollars)
(Reporting by Lucy Craymer in SydneyEditing by Alasdair Pal and Sam Holmes)