Treasury gives Willis pre-election boost as surplus forecast improves

Nicola Willis has been given a pre-election reprieve, with Treasury painting a brighter picture of the government's finances in the short term.But the update comes with a sting in the tail for voters, with the recovery largely driven by an increased tax take due to "higher and more persistent" inflation.And longer-term risks remain.The Pre-election Economic and Fiscal Update (Prefu) - released on Tuesday - forecast a deficit of $6.8 billion in 2026/27, down from the May Budget's $11.4 billion prediction.Officials expected that to narrow to just $0.8b the next year - what Willis described as "within a hair's breadth of a surplus".The books were still picked to return to surplus in 2028/29, in line with National's election pledge. And it's a larger-than-expected surplus too - $4b, compared to the Budget prediction of $2.6b.The improved forecasts meant the government intended to borrow $15 billion less over the next four years. Net debt was forecast to peak at 43.9 percent of GDP in 2028, before beginning to bend down.Addressing reporters at Prefu's publication, Willis described the forecasts as "very positive" and a "distinct improvement".RNZ / Samuel RillstoneWillis said the track back to surplus was now "noticeably better" than thought in May."I am pleased that New Zealanders' hard work, resilience and adaptability through tough economic times is bearing fruit."From next year on, new government borrowing will be for capital investment, not to buy groceries."Treasury said the improved picture was primarily driven by "higher tax revenue" with core crown tax revenue being revised up by $11.4b over a four-year period.That was partly offset by the government's decision to cancel next year's fuel tax increase.Willis highlighted the importance of that decision, noting that the numbers would have otherwise predicted surplus a year earlier.Asked whether voters deserved more direct tax relief, Willis equivocated, instead saying "no new taxes" were needed, nor any increase to existing taxes.She also warned voters that the improved picture did not give politicians license for a big spend-up this election campaign."It does not give a green light to open the chequebook."Secretary to the Treasury Iain RennieRNZ / Samuel RillstoneThe economy was forecast to grow an average of 2.6 percent over the forecast period, while unemployment was picked to trend down from this year's 5.6 percent peak to eventually reach 4.3 percent.Treasury caveated all its numbers, noting "considerable uncertainty" and risks skewed towards weaker growth and higher inflation.The main uncertainty in the near term was the "persistence of the oil price shock" arising from the Middle East conflict.Officials also noted that oil prices and interest rate expectations have increased since their forecasts were finalised.The figures arrive about six weeks before the election, with National under pressure to convince voters its policies are working.A 1News-Verian poll released on Monday put National and Labour level on 28 percent, while the Greens climbed to 16 percent.National's economic plan, released on Monday, promised no new taxes, a surplus in 2028/29 and government spending below 30 percent of GDP.Willis also previously signalled that National wanted to address income-tax bracket creep if it could do so within its fiscal rules.Labour faces a different test, having punted questions about its spending plans until after the Prefu's reveal. It has promised more spending on public services.