Treasury cuts deficit forecast in pre-election update
Treasury has cut its forecast deficit for 2026/27 to $6.8 billion in the Pre-election Economic and Fiscal Update (Prefu). That is down from the $11.4 billion deficit forecast in the May Budget. The update was published on 29 September 2026 and sets the independent starting point for the election campaign. RNZ
Treasury forecasts the deficit will fall to $0.8 billion the following year. It then forecasts a $4 billion surplus in 2028/29. The Budget had forecast a $2.6 billion surplus in that year.
Treasury said the better outlook is mainly due to higher tax revenue. It lifted its forecast for core Crown tax revenue, the tax collected by central government, by $11.4 billion over four years. It put the higher take in part down to "higher and more persistent" inflation.
As a result, Treasury said the Government plans to borrow $15 billion less over the next four years. It forecasts net debt, debt measured as a share of the economy, will peak at 43.9 percent of GDP in 2028 and then fall.
On the wider economy, Treasury forecasts growth will average 2.6 percent over the forecast period. It forecasts unemployment will fall from a peak of 5.6 percent this year to 4.3 percent.
The May Budget had set out the same path in GDP terms. It forecast an operating balance before gains and losses (OBEGAL), the Government's main surplus and deficit measure, of a 2.4 percent of GDP deficit in 2026/27 and a 0.5 percent of GDP surplus in 2028/29. Treasury Budget 2026 had brought the forecast return to surplus forward to 2028/29, a year earlier than forecast in December. Beehive
That Budget paired limits on spending with targeted revenue measures. Before it, the Government had signalled cuts to public service jobs to save costs. Reuters The Budget included a new levy on banks and insurers, including a surprise additional tax on banks worth $209 million, alongside changes affecting fringe benefit-taxed vehicles and an overhaul of charity donation rules. 1News
Prefu updates do not set policy. Treasury puts out official Economic and Fiscal Updates twice a year in non-election years, with forecast financial statements, and the pre-election update does the same job during the campaign. The 2023 Prefu had expected deficits to narrow in the near term and a return to surplus in 2026/27. Treasury
The broader context here is one Gallery regulars will recognise. A Prefu that lifts revenue and cuts borrowing gives Finance Minister Nicola Willis a cleaner starting point for the final weeks of the campaign. It also means closer checks on party promises, because costings will now be measured against this track rather than the Budget track.
In my view, the detail worth attention is where the upgrade comes from. Higher tax in dollar terms, supported by more persistent inflation, improves OBEGAL faster. It does not point to stronger real growth or less pressure on households. The questions are familiar. How much of the $11.4 billion revision is cyclical, how much lasts, and how lower borrowing sits with a debt peak still two years away.
