National claims Labour's "economic mismanagement" has resulted in difficulties for New Zealand's economy, with Kiwis hit by high inflation and high interest rates.
The centre-right party has seized on some headline figures from the Pre-election Economic and Fiscal Update (PREFU) released on Tuesday, including the revelation that a return to surplus has been pushed out a year and interest rates are forecast to remain higher for long.
ACT has highlighted rising debt and the resulting interest bill it leaves New Zealand, while the Greens say the numbers show the need for a wealth tax.
But despite the doom and gloom being projected by some, the financial books do have bright points that the Government is celebrating - there's no sign of another recession, wages are pacing ahead of inflation, and unemployment is below the long-term average.
The longer-than-expected path to surplus has been caused in part by tax revenue not coming in as high as what was projected in May's Budget.
Finance Minister Grant Robertson said the $2.9 billion shortfall in tax revenue - much of which comes down to a low corporate tax take - comes as there has been "further deterioration in the global economy, particularly in China".
He said the relatively low unemployment, wage growth, and rising economic growth showed the economy was "turning a corner" even if there remained challenges ahead.
"The PREFU shows New Zealand remains resilient in the face of challenging conditions thanks to the Government's economic plan," the Finance Minister said.
"We are striking a balance between supporting New Zealanders with cost of living pressures and investing in strong public services and a resilient infrastructure network while carefully managing our resources to ensure the long-term sustainability of the economy."
Speaking later after PREFU was unveiled, Luxon said the report showed "six years of Labour's economic mismanagement will continue to hit Kiwis in their backpocket, with their forecast showing a sustained economic slowdown, high inflation and high interest rates".
"According to Treasury, the economic slowdown is expected to last for another 18 months as interest rates stay higher than longer to combat persistently high inflation driven by Labour's addiction to spending," he said.
His deputy and finance spokesperson Nicola Willis said the forecasts "paint a concerning picture about the New Zealand economy and the Government's books".
"Put simply, Labour has left the cupboard bare. After years of spending up a storm, the day of reckoning is now here. This update forecasts ongoing deficits, ballooning debt and very little cash left in the kitty, lacklustre economic growth is now forecast, with high inflation and interest rates forecast to put a massive handbrake on all Kiwis working hard to get ahead."
On inflation, the Treasury is expecting the Consumer Price Index annual rate to be back within the target range of 1-3 percent by the end of next year.
While annual inflation has been easing - it was down to 6 percent in the June quarter - the PREFU found domestic price pressures are persisting, leading to a need for interest rates to remain elevated for longer.
Interest rates are affected by the official cash rate (OCR), which is the domain of the Reserve Bank. The point of increasing the OCR is to hike interest rates, bringing down consumption and therefore inflation.
The cause of high inflation has been the topic of heated political debate over the past two years, with the Government pointing to international factors like the war in Ukraine and COVID supply chain issues, as well as domestic challenges like Cyclone Gabrielle.
The Opposition has, however, focused on Government spending, arguing it was contributed to heating up the economy at a time when it needed to be cooled.
One of the main points identified in Treasury's report was that net migration was about to reach a peak of 100,000 people, about 33,000 more than expected in May.
"Net migration will boost the supply of labour and help ease acute labour shortages that have developed in some industries," the PREFU said.
"On balance, it is expected the demand generated from migration will outweigh the supply boost to the labour market when assessed across the whole economy. Consequently, this adds to inflation pressure and leads to higher interest rates for a longer period."
PREFU also projected that New Zealand's OBEGAL - operating balance before gains and losses - wouldn't return to a surplus until the 2026/27 year, a year later than previously thought.
The lower-than-expected tax take contributed to this, while Government expenses are also up.
Expenses, which were $112.4 billion for 2023, came in $200 million less than what was predicted. Much of this spending went towards cost of living payments, the North Island weather events, benefits, and the higher cost of servicing debt.
ACT's David Seymour said this higher spending requires more borrowing.
"Net debt is forecast to reach $100 billion by 2025. They've given up on New Zealand and New Zealanders need to give up on them," he said.
"More debt means more interest. The interest bill is forecast to be $9.2 billion by 2026, exactly twice the $4.6 billion expected in BEFU 2022. We refer to the 2022 budget because COVID was over when those forecasts have made, yet the situation is much worse than forecast then.
"New Zealand is now spending more as a country on interest than primary and secondary school education, and twice as much as is spent on Police, courts and Corrections combined. Kiwis' taxes aren't paying for public services, they're paying for Labour's mismanagement."
Net debt, which was just $5.4 billion in 2019, has risen to $71.4 billion. That's $400 million more than what was expected in the Budget.
As a percentage of GDP, net debt is 18.1 percent. The forecast shows net debt to reach 22.8 percent of GDP in 2025, before then falling to 21 percent by 2027.
Robertson said these debt levels compare favourably to countries New Zealand compares itself with. For example, net debt in Australia will reach 36 percent, while in the United Kingdom, it will reach 95 percent.
Meanwhile, the Greens argue that PREFU shows the need for a wealth tax, which the party is campaigning on at the election.
"The case has never been clearer for changing the tax system to raise the money needed to invest in things that will make a real difference to people - like increasing Working for Families, doubling Best Start, and building thousands more warm dry homes," said finance spokesperson Julie Anne Genter.
"While the books are better than expected, it is completely ridiculous that both of the major parties are resigned to cutting back spending and public services instead of making the tax system fairer. This will impact lower income people most of all."
The Labour Party has ruled out implementing a wealth tax, instead wanting GST to be removed from fresh and frozen fruit and vegetables. Leader Chris Hipkins said now is not the right time to be experimenting with a wealth tax.
