New Zealand’s Budget 2025 was announced by the New Zealand government today. It shows a troubling fiscal picture, made worse by weaker growth and new tax breaks. These changes have increased the predicted fiscal gaps over the next four years by a total of $22.2 billion. Consequently, lawmakers need to stick to their goal of getting back to a surplus by the fiscal year ending in June 2029. The government is projecting a NZD 12.1 billion deficit for FY26. This total, 2.6% of GDP, is well above previous estimates.
The government’s new fiscal strategy is displayed by this major shift. The FY26 deficit is now just over NZD 1.6 billion deficit wider than the projections from December 2024 Half-Year Economic and Fiscal Update (HYEFU). This change illustrates the fundamental, daunting challenges ahead as New Zealand tries to find its way through a rapidly changing and complicating economic environment.
To address these headwinds, Budget 2025 has re-balanced its near-term bond issuance. It intends to raise net debt across the forecast period by NZD 4 billion. Bond issuance for FY25 and FY26 has been cut by NZD 4 billion. Yet, this reduction is more than offset by increased borrowing projected in out years, including an increase of nearly NZD 6 billion in FY29.
Even with these amendments, gross issuance has exploded to a record NZD 175 billion across the four-year forecast period. This expansion has been 42% of the GDP. This change is an important acknowledgment of the federal government’s need to stay fiscally responsible in the face of mounting economic challenges.
Budget 2025 further underlines this tightening fiscal environment by capping the operating allowance at NZD 1.3 billion. That’s the smallest sum we’ve experienced in more than 10 years. This cut to America’s day-to-day operating capacity represents the more cautious hand of a new era of government spending in the face of expected deficits.
Operating spending stays the same at NZD 4 billion. This is a testament to the government’s commitment to invest in environmentally critical infrastructure, despite all the budgetary pressures.
Bader Al Sarraf and Nicholas Chia, analysts at Standard Chartered, emphasize that “while bond issuance for FY25 and FY26 was trimmed by NZD 4bn, this was offset by increases in later years – including a NZD 6bn uplift in FY29.” They further note that “on monetary policy, we believe Budget 2025 is unlikely to alter the RBNZ’s near-term path.”
The analysts highlight that “while fiscal policy supports disinflation, monetary policy will remain the primary anchor, particularly as global risks and medium-term pressures persist.” This analysis sheds light on the nuances of New Zealand’s economic policy, wholly animated by a desire to see the state balance fiscal discipline with growth requirements.