Nicola Willis unveiling the Half Yearly Economic and Fiscal Update yesterday.

The headline figures in yesterday’s opening of the books are ominous from a political point of view for the new Government.

The Half Yearly Economic and Fiscal Update shows the National-led Government going into the 2026 election year with falling GDP per head, slowing wage increases and rising unemployment.

Though the country will not technically be in recession, it will probably feel like it is. 

The only saving grace will be that interest rates will have fallen by then.

Whether that will be enough to ensure the re-election of the Government is an open question.

But the Treasury’s projections are not what any government would want to hear forecast for an election year.

A possible consolation might be that the figures and projections in the HYEFU were finalised on November 24, the day the coalition agreement was signed, so the document does not take into account any decisions made by the new Government.

In reality, the HYEFU is the same as what would have been presented had Labour remained in Government.

But it contains downward revisions of some key indicators since the pre-election forecasts.

Meantime the new Government has delayed the presentation of the Budget Policy Statement which they will now not produce until March next year.


Yesterday’s so-called “Mini Budget” was simply a slim folder of press statements gathering together economic announcements already made.

That delay on the Budget Policy Statement may be an indication of the volume of work awaiting the Government as it hunts for savings.

It has to.

For a start, it needs to find $715 million to make up for the Foreign (House) Buyer Tax, which was dropped after opposition from New Zealand First during the coalition negotiations.

That money was to be used to help fund the income tax cuts, which Willis reaffirmed yesterday and would begin July 1 next year.

A possible new avenue to provide at least some of the lost revenue was revealed yesterday with what Willis called an Inland Revenue Department Audit programme.

She said this built on the NZ First coalition agreement proposal that IRD would get more funding “to urgently expand the IRD tax audit capacity, minimise taxation losses due to insufficient IRD oversight, and to ensure greater integrity and fairness in our tax system.”

“I’ve been advised that this could contribute hundreds of millions of dollars to our bottom line,” she said.

Not only is the Government left scrambling to find money to pay for the tax cuts, but it also has to contend with a deteriorating economic outlook which has seen the Treasury revise GDP growth figures since the Pre-Election Economic and Fiscal Update (PREFU), which was finalised on August 28.

Core Crown tax revenue is therefore expected to be $1.6 billion lower out to 2028 compared to the Pre-election Update, in part reflecting a downgrade in business profits, “which persists across the forecast period, lowering the forecasts of both corporate and other personal tax revenue.”

Though revenue is down only slightly, Crown expenses are rising more vigorously.

The HYEFU says this reflects the impact of decisions at Budget 2023, the indexation of main benefit types, and higher debt servicing costs from a higher level of debt and high-interest rates.

“Beyond the current year, the growth in core Crown expenses is much more subdued, with an average increase per year of $5.2 billion,” it says.

“The expected increase reflects funding set aside for future Budgets, the increasing costs of New Zealand Superannuation and increases in debt servicing costs.

“With smaller nominal increases expected, core Crown expenses as a percentage of GDP fall from 33.4% in 2023/24 to 31.4% by 2027/28.”

The effect of this is to shrink the first surplus expected in 2026 – 27 from $2.1 billion to a very modest $100 million.

The National Party Fiscal Plan had forecasted a surplus of $2.9 billion that year. That included projected new savings of $197 million.

 So Willis has a substantial fiscal challenge in front of her.

That may explain why she is now saying that not only will she expect government departments and agencies to complete Labour’s baseline savings and operating allowance reductions, which will reach $1.4 billion in the 2026-27 year, but

But she will also be requiring National’s already announced 6.5 per cent reduction on top of that and, perhaps bowing to ACT, that will be increased to  7.5 per cent for agencies who have grown their staff by more than 50 per cent since 2017.

That could include the Ministries of Business Innovation and Employment, Education, Primary Industries, pacific Peoples, Transport and Environment.

There is also going to be ruler run over capital spending on Infrastructure Projects with “a health check” on the capital and infrastructure pipeline.

“The Auditor General last week noted the haphazard approach the outgoing Government has had to infrastructure, with a focus on announcements not delivery.

“As the half economic update notes, this has lead to an investment pipeline larger than agencies in the market have the capacity to deliver.

“I am asking ministers to identify high risk projects, to identify under-funding, cost blowouts and deliberate risks so that we can ensure we prioritise the delivery infrastructure.”

POLITIK (from left) Treasury Secretary Caralee McLiesh; Treasury Chief Economic Advisor, Dominick Stephens; Treasury Deputy Secretary, Budget and Public Investment, Struan Little listening to Nicola Willis present the HYEFU.

Willis confirmed that she would be seeking some amendments to the Public Finance Act to make public the total value of risks facing the Government and their potential impact on the fiscal forecasts. (Currently, risks are stated, but there is no value attached to them.)

The changes would also require regular public reporting on the progress of all significant capital investments and a specified list of time-limited funding.

Willis produced a list of 21 so-called “fiscal cliffs”, which were a mix of already identified risks facing the Government or programmes subject to time-limited funding.

However, the list did not specify the value of each cliff, so its potential fiscal risk could not be established.

Most of Willis’s nearly hour-long presentation and question and answer session focussed on fiscal issues.

However, sitting alongside the fiscal outlook in the HYEFU was an economic outlook.

This shows that GDP annual change forecasts for 2025, 2026 and 2027 have been dropping since the Budget.

Forecast GDP annual changes by Treasury through 2023


At the same time, the rate of change of GDP per head, a real measure of personal economic comfort, is negative over the next two years.

Couple this with forecast unemployment to be nearly 30 per cent higher at 4.8 per cent in 2026 and wage growth to have slowed by the same year to nearly half what it is now, and re-election year for National is looking grim.

That will be a big test of the Government’s commitment to the change in fiscal culture that Willis laid claim to yesterday.

“We will meet our commitments,” she said.

“In fact, one of the commitments that you will see reflected in our coalition agreements is that we all have a commitment to responsible economic management, to getting the books back in order and to reduce the amount of wasteful government spending across Government.

“That was a shared goal.

“We will, of course, have to carefully size the additional spending commitments that we have made over the course of the three budgets we will have in our term and we are working through those carefully.

“We are all in this together. 

“We want to deliver the core  commitment we made to New Zealand, which is better economic management.”