The government’s financial outlook has deteriorated, with no surplus expected until at least 2029, according to Treasury’s Half-Year Economic and Fiscal Update (Hyefu).
This delay pushes back the earlier forecast of a surplus by 2027/28. Treasury has attributed the worsening fiscal situation to declining productivity, slower economic growth, and lower-than-expected tax revenue.
To cover the shortfall, the Government plans to issue $2b more in bonds over the next four years—a 16% increase from May’s Budget forecast and quadruple what economists expected.
Finance Minister Nicola Willis admitted the challenge, saying, “We have a tough job on our hands.” Despite this, Willis has ruled out major spending cuts or new taxes, though she is exploring higher taxes for charities operating as businesses.
Core Crown debt is set to peak at 46.5% of GDP in 2026/27, far above Willis’s earlier pledge to bring debt below 40%. Rising superannuation costs and higher interest rates are key drivers of expenditure growth, with interest payments projected to hit $12 billion annually by 2028/29.
GDP growth is expected to remain sluggish, at 1.6% in 2025, with per capita GDP dipping negative for a second consecutive year. Treasury also forecasts a cumulative $13 billion drop in tax revenue through 2028, alongside $19.8 billion less in nominal GDP than previously projected.
Debt renewal will be required, The government has ruled out state asset sales this term.
Centrist Ltd.