The Government’s books are forecast to be back in surplus sooner than expected as economic and fiscal outlooks improve.
The Treasury today released its latest economic and fiscal forecasts in the 2021 Half Year Economic and Fiscal Update.
“The New Zealand economy has performed well since the beginning of 2021, though that strength has been tested by the arrival of Delta,” Grant Robertson said.
“While the Treasury is forecasting a decline in GDP in the September quarter, the outlook is positive with a forecast bounce back in the December quarter of 3.7 percent.
“The labour market continues to be resilient with unemployment falling to a record 3.4 percent in the September quarter and Treasury forecasting a further drop to 3.1 percent in the March quarter before heading towards 4.1 percent at the end of the forecast period.
“Inflation is forecast to peak in the March quarter next year then fall across the rest of 2022 towards the Reserve Bank’s two percent mid-point over the rest of the forecast period.”
While the Operating Balance before Gains and Losses (OBEGAL) deficit increases in the current year it is expected to return to surplus in 2023/24. This is earlier than expected – at Budget 2021 the books were not projected to return to surplus until 2026/27.
Net debt is forecast to peak at 40.1 percent of GDP in 2022/23 before falling to 30.2 percent at the end of the forecast period. This is lower than the peak of 48 percent forecast at Budget 2021.
Core Crown expenses are forecast to drop significantly from 35.3 percent of GDP to 30.5 percent next year, and then track lower over the rest of the forecast period.
“We can look forward to 2022 with cautious optimism as the economic and fiscal outlook is good. Our Government invested in our people and businesses through the Delta outbreak and that investment is paying off as the economy recovers.
“There are challenges ahead with supply chain disruptions, higher inflation and ongoing COVID impacts that may affect these forecasts, but New Zealand is well placed to meet those challenges,” Grant Robertson said.