New Zealand forecasts smaller budget deficit as tax revenue grows

By Lucy Craymer

WELLINGTON, Sept 29 (Reuters) - ‌New Zealand's government ​on ​Tuesday forecast a smaller budget deficit and a lower debt than projected in its May Budget, while striking an upbeat tone on ‌economic growth ahead of a general election in November.

In a pre-election ⁠update, New Zealand's Treasury forecast an operating balance before gains and losses (OBEGAL) deficit of NZ$8.73 billion ($4.94 ‌billion) in the fiscal year ‌ending June 30, 2027, compared with a NZ$14.09 billion deficit forecast in May.

The government now forecasts a return to an OBEGAL surplus in 2028-29, compared with ​the May Budget forecast of 2029-2030.

The economy is only gradually emerging from prolonged weakness, with the Treasury update closely watched for signs the recovery is ⁠broadening beyond the export sector, as global geopolitical tensions and soaring energy prices cloud the outlook.

New Zealand Finance ​Minister Nicola Willis said in a press conference that the improved results were in part due to the economy performing better ​than expected in the last financial year, ‌resulting in higher tax revenue.

"In addition to greater tax revenue, the books have benefited from government spend being a little lower ⁠than expected," Willis added.

However, she warned that there was a lot of work to be done to turn forecasts into reality and said there were clear risks from the ongoing ⁠instability in the Middle East.

The government is required to release updated economic and financial forecasts ​ahead of the general election on November 7. With economic growth only just starting to improve, inflation back above 3% and unemployment sitting at a decade high, the economy is shaping ‌up as the key issue in November's election.

Recent polls show Labour edging out the incumbent National Party and governing in ‌a centre-left coalition, though the result is still too close to call.

The Treasury said ⁠inflation is set to return to ‌the government's target band ​of 1% to 3% in the second quarter of 2027.

($1 = 1.7662 New Zealand dollars)

(Reporting by Lucy Craymer; Editing by Alasdair Pal and ‌Muralikumar Anantharaman)

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