New Zealand's inflation will fall back within the Reserve Bank's (RBNZ) target range later this year, Treasury forecasts suggest.
But a still-soft tax revenue outlook and a mix of negative and weak economic growth means the Government's books aren't expected to return to surplus until 2027/28.
That negative growth coincides with falling inflation, with consumer price increases expected to fall back within the RBNZ's 1-3 percent target range by the end of this year.
"Compared to the Half Year Economic and Fiscal Update 2023... the fiscal outlook is weaker than previously expected, with operating balance before gains and losses (OBEGAL) returning to surplus in 2027/28, a year later than previously forecast," the Budget Economic and Fiscal Update (BEFU) said.
"A softer economic outlook and a lower forecast for business income tax revenue means our forecast for core Crown tax revenue is lower compared to the Half Year Update, across the forecast period.
"While tax policy changes contribute to the overall reduction in core Crown tax revenue, the Government's tax package does not change the headline fiscal indicators as it has been offset by other decisions taken through Budget 2024."
Core Crown tax revenue for this year was forecast to be $119 billion, compared to $122b forecast in December's Half Year Update.
"Despite worsened economic conditions, the Government is putting the books in order and is on track to deliver an OBEGAL surplus in 2027/28. We will stop net debt going up and put it on a downward track," Finance Minister Nicola Willis said.
OBEGAL was expected to record a deficit of $11 billion this year. That is forecast to be followed by three successive deficits before a $1.5 billion surplus in 2028.
"The expected improvement in OBEGAL is underpinned by stable growth in tax revenue, while core Crown expenses start to decline as a share of GDP," the BEFU said.
According to Willis, the Government's "fiscal consolidation means that, in the medium-term, interest rates may be lower than would otherwise be the case".
"A return to responsible economic management means New Zealanders can be confident better times lie ahead," she said.
