Government maintained its goal of returning to a surplus by FY29; but deficit path has widened materially. Growth forecasts were downgraded across the forecast horizon. Near-term issuance trimmed, but total borrowing over the forecast horizon revised up by NZD 4bn. The budget does little to shift the near-term monetary policy outlook, Standard Chartered's economists Bader Al Sarraf and Nicholas Chia report.

Margins getting tighter

"New Zealand’s Budget 2025 struck a tone of near-term restraint, cutting the operating allowance to NZD 1.3bn – the lowest in over a decade – while keeping capital spending steady at NZD 4bn. Despite this, a weaker growth backdrop and new tax incentives have widened the projected fiscal deficits over the next four years. The government maintained its target of returning to a surplus by FY29 (ending June 2029), although a deficit of NZD 12.1bn (2.6% of GDP) is still forecast for FY26 – around NZD 1.6bn wider than projected in the December 2024 Half-Year Economic and Fiscal Update (HYEFU). We see the risk of further slippage beyond this forecast if growth underperforms or spending pressures re-emerge."

"While bond issuance for FY25 and FY26 was trimmed by NZD 4bn, this was offset by increases in later years – including a NZD 6bn uplift in FY29. Overall, gross issuance over the four-year forecast is up NZD 4bn to NZD 175bn (42% of GDP). Despite near-term relief, the funding task remains sizeable as maturities from the Reserve Bank of New Zealand’s (RBNZ’s) Large-Scale Asset Purchase (LSAP) programme roll off and debt servicing costs rise."

"On monetary policy, we believe Budget 2025 is unlikely to alter the RBNZ’s near-term path. For the RBNZ, we think the message is clear: while fiscal policy supports disinflation, monetary policy will remain the primary anchor, particularly as global risks and medium-term pressures persist."