HYEFU Shows NZ Recovery Strengthening as Govt Pushes for 2028/29 Surplus

Finance Minister Nicola Willis says the forecasts highlight both the opportunities and the challenges facing the Government as it works to stabilise debt and strengthen long-term economic resilience.

New Zealand’s latest Half Year Economic and Fiscal Update (HYEFU) confirms that while the country’s economic outlook is improving, continued discipline in government spending is essential to restoring the Crown’s accounts to surplus. Finance Minister Nicola Willis says the forecasts highlight both the opportunities and the challenges facing the Government as it works to stabilise debt and strengthen long-term economic resilience.

Willis said Treasury’s updated projections show encouraging signs of an accelerating recovery despite global uncertainty. “Despite the challenges of global events, Treasury is forecasting an accelerating economic recovery, underlining the importance of the Government’s focus on economic growth,” she said.

According to HYEFU, the economy is expected to grow 3 per cent in 2026, with inflation remaining low throughout the forecast period. Wage growth is projected to outpace inflation every year, offering real income gains for households. Over the next five years, about 270,000 new jobs are expected to be created, reflecting strengthening economic activity across multiple sectors.

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Fiscal Outlook: Surplus Target Maintained

At Budget 2025, Treasury had projected a small surplus in 2028/29 under the headline operating balance measure, OBEGALx. Updated forecasts now suggest a small deficit in that year. However, Willis reaffirmed the Government’s commitment to achieving a surplus regardless of the forecast shift.

“The Government is targeting an OBEGALx surplus in 2028/29,” she said. “This will support our goal to put net core Crown debt on a downward trajectory, ensuring New Zealand is better placed to respond to future shocks.”

Willis stressed that the Government will not react abruptly to forecast adjustments but will continue with its medium-term fiscal consolidation strategy, aiming to restore financial stability without undermining economic recovery.

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International Positioning and Debt Management

HYEFU indicates that New Zealand remains well-placed internationally. The Government is on track to return the books to surplus faster than countries such as Australia, the United Kingdom, and Canada, while continuing to maintain a prudent level of public debt.

Willis said the progress achieved to date reflects difficult but necessary decisions. “Over the past two years, the Government has had to take some tough decisions which collectively have delivered about $11 billion a year in savings,” she said. Without those measures, the deficit for this year would be $25 billion, and debt would be heading toward 59 per cent of GDP.

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Future Spending: Strict Controls and Clear Priorities

To maintain momentum, the Government has capped operating allowances for Budget 2026 at no more than $2.4 billion, significantly lower than the previous government’s average of $4.8 billion in its final three years.

Priority funding areas for the 2026 Budget will include:

• Health

• Education

• Defence

• Law and order

Willis said any additional spending outside these areas must be funded through savings or reprioritisation. Government agencies have been directed to continue identifying efficiencies and tightening expenditure.

“Achieving these fiscal goals will require ongoing restraint and tight control of discretionary spending,” she said. “Government agencies must keep seeking savings and efficiencies that support this disciplined approach.”