New Zealand Targets Budget Surplus Amid Mideast Conflict

New Zealand Targets Return to Budget Surplus

The New Zealand government's latest budget showed signs of fiscal improvement, but outlined an economic outlook marked by slower growth and higher inflation due to the Iran war. The Treasury said the Middle East conflict has resulted in a transitory shock to the economy.

Economic Outlook and Projections

The Treasury now expects the economy to expand just 1.2% in the 12 months ending June 2026, with inflation peaking at 4.0% in the final quarter. Absent the Middle East conflict, growth would have been around 0.7 percentage point higher. For the following year, real GDP growth is expected to accelerate to 2.3%.

Fiscal Deficit and Surplus Path

Finance Minister Nicola Willis said despite the chaos, the Treasury is forecasting a return to surplus a year earlier than expected. The deficit for the current fiscal year is projected at NZ$15.06 billion, down from the previous NZ$16.93 billion. Surpluses of 0.5% of GDP in 2028-2029 and 1.1% in 2029-2030 are expected.

Responsible Spending and Investments

The budget hewed closely to responsible spending, earmarking NZ$7 billion for capital investment to strengthen infrastructure and support jobs. Total government spending is expected to reach NZ$155 billion in the next financial year. Treasury forecasts employment will grow by 220,000 over four years, with wage growth averaging 3.1%.