Economists caution against complacency in wake of brighter Budget forecast

Thursday, 28 May 2026

The Treasury’s improved Budget forecasts that see the Government return to surplus a year earlier than expected in 2029 have been labelled optimistic by several economists.

Finance Minister Nicola Willis said the Treasury was confident the country would bounce back and return to “not only healthy levels of growth but accelerating growth over the forecast period”.

But ANZ senior economist Miles Workman labelled Treasury’s overall outlook “rose-tinted”.

“GDP is expected to be $2 billion higher to June 2030 than forecast in December’s Half-Year Update. Tax revenue is expected to be $10b higher.

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“This looks optimistic to us. That said, while we see downside risk to the Treasury’s forecast, given the degree of uncertainty around everyone’s forecasts at present we certainly wouldn’t say they are outside a plausible range,” he said.

Westpac chief economist Kelly Eckhold said it was generally true that most forecasts had to be treated with caution.

“But in the current environment the short-term outlook is obviously heavily determined by what happens with the Iran war, and I think the assumptions that have gone into the Budget forecast strike a pretty optimistic tone,” he said.

The Treasury itself signalled in its Budget documentation that there was plenty that could go wrong.

Despite bringing forward its forecast for an operating surplus to 2029, it estimated there was only a “50% to 60%” chance it would be achieved by the year ending June 2030, thereby implying there was a 40% to 50% chance of there being no surplus even a year later.

It drew further attention to the uncertainty of its forecasts by assessing there was a 20% to 30% chance of net core Crown debt blowing out above its recommended cap by rising higher than 50% of GDP during the forecast period.

Eckhold said the central scenario Treasury was presenting for 2027 and 2028 could be described as “a tax-rich growth profile”.

“It’s one where we appear to be having quite good terms of trade, so our export prices are very strong relative to our import prices, so that’s like the profit margin for a country.

“There’s enormous uncertainty about these numbers. The $2.6b forecast surplus for 2029 is quite thin and it doesn’t take much to change before that goes wrong.”

There was also a bit of optimism in the Treasury’s short-term forecasts for the economy, he said. It is predicting economic growth of 2.3% in the year to June next year.

“Their central view seems to be the war in Iran will blow over relatively quickly, won’t cause a lot of persistent inflation, and that means that the Reserve Bank doesn’t have to really significantly raise interest rates for another year.

“So that’s a pretty optimistic take. I think that we shouldn’t be complacent.”

Infometrics chief economist Brad Olsen described the Treasury’s forecasts somewhat differently, as “maybe a tad optimistic”.

“Clearly economic conditions are flipping hard to forecast at the moment,” he said.

But forecasts from the Treasury still carried weight, and the Government’s fiscal restraint was not only evident in planned public service cuts, he suggested, pointing also to a modest levy on banks and insurers that was announced on Budget Day.

“The bank levy I do think signals a real change from the Government of saying ‘we’re not going to just spend, spend, spend; we’re going to figure out other ways to fund stuff’.”

Eckhold expected credit ratings agencies — two of which recently attached a negative outlook to their ratings of New Zealand sovereign debt — would attach weight to the earlier forecast surplus date.

“That will be a feather in the cap for the minister and could be something that means the ratings agencies wait a bit longer [for any downgrade].”

BusinessNZ chief economist John Pask was similarly guarded.

“While the key economic indicators were predicted to improve over time, the ability to get back to surplus will be dependent on solid economic growth over the forecast period,” he said.

“Given the fraught geopolitical landscape in which this Budget was delivered, these outcomes require an optimistic set of resolutions, some of which are beyond New Zealand’s influence alone.”