Government’s 2024 Growth & Inflation Estimates Revised Down Sharply

The new government has released its Budget Policy Statement which will guide its decisions for the 2024 budget which will be published on 30 May. But the scenario it is starting with involves slower growth and tax revenues, and as a result a surplus is not likely until 2028, but that is not a “given”.

• The updated economic scenario includes the higher multi-year capital allowance, but not any of the “announced or proposed” policy changes. They will be included in the May budget. Updated fiscal forecasts are also not included in today’s statement.
• 2024 growth has been revised down sharply since the Half Year Update to 0.1% from 1.5% but 2025 has been revised up to 2.1% from 1.5%. This doesn’t impact the unemployment rate materially for this year but it is now forecast to be 0.3pp lower next year and the year after.
• Inflation has been revised down sharply for 2024 to 3.3%, close to the top of the RBNZ’s band, from 4.1% in the mid-year update, with it easing to 2.2% in 2025 (revised down from 2.5%. Despite the RBNZ’s independence, Treasurer Willis said that there’s “scope” for rate cuts later this year, which was likely driven by the downward revisions to Treasury’s inflation forecasts.
• Tax revenues have been adjusted downwards over the forecast horizon with 2026 2.6% lower than in the Half Year Update. The government still plans to cut taxes for all income levels but won’t need to borrow to achieve this election promise.
• The government is going to target net debt of 20-40% of GDP.