Photo: RNZ
Analysis - The opening of the books at Treasury on Tuesday revealed a bleak economic outlook, and a convenient new measure to improve that picture.
Finance Minister Nicola Willis has adopted a new financial indicator to measure the operating balance before gains and losses (OBEGAL). The result is the Crown reaching a surplus sooner than it will under the current measure once it removes ACC deficits from the picture.
Willis believes the ACC deficits, which reached $4.1 billion in 2023/24, have increasingly coloured the overall outlook.
As she pointed out, if this new measure, OBEGALx, had been adopted before this year's Budget, earlier forecasts would have shown a $166 million surplus in 2026/27.
That is not achievable due to the changes in fiscal forecasts, so instead the government is pushing its OBEGALx surplus out to the 27/28 financial year - a one-year delay in returning to surplus.
Treasury is currently forecasting a small OBEGALx deficit of $304m at that point but Willis' intention is that the government and Treasury's decisions ahead of then will allow it to reach surplus.
However, OBEGAL of old is still forecast to be in deficit in the 2028/29 financial year, with no clear indication of when it will reach surplus.
Another year of a deficit means it will be nine years of them - three years longer than after the Global Financial Crisis and Canterbury earthquakes.
Nicola Willis believes ACC deficits of over $4b have increasingly coloured the overall outlook. Photo: RNZ / Anneke Smith
Willis has defended the surplus being pushed out saying: "the hill we have to climb is steeper than it was a year ago".
She puts that down to unrealistic and overly optimistic outlooks by Treasury, which are now being unwound. Interestingly, Treasury didn't support the new OBEGALx measure, due to being worried about how it would be communicated.
The intention is to continue to report both measures in all future forecasting and Budgets.
The big indicators at Tuesday's Half Year Economic Fiscal Update (HYEFU) included unemployment peaking in mid-2025 at 5.4 percent before declining, core revenue being down to $13b in the forecasts through to 2028, and a trade policy uncertainty spike in response to incoming US President Donald Trump.
Willis denied the government was shifting the goalposts by creating OBEGALx - even under the new measure Willis will end up kicking wide, given the surplus is being pushed out by a year.
She noted, "it's a tough job, but we're up for it."
Finance Minister Nicola Willis speaks at today's fiscal update. Photo: RNZ / Anneke Smith
Adding to the tightening issues is her determination to keep operating allowances at future Budgets at $2.4b.
Much of that money is already considered spent on frontline services like health, and just keeping the lights on for public services.
Willis says it's a "point of principle" to keep within that promise, but while she's not prepared to increase them, she's also not prepared to reduce either, as there are programmes that will need to be financed - the redress for state care abuse survivors will be a big part of that.
As a result further savings will be needed across the board and the public service cuts seen over the past year are "the new normal", according to Willis.
"The idea that government can be different from every other household... is what got us in this mess in the first place."
A tightened belt and further cost cutting will help with meeting the financial restraints coming down the line but big questions remain around what else might be needed to plug the revenue gap.
Willis has committed to a charity tax announcement at next year's Budget, though the parameters of that are still being worked through, and a number of levies and private capital takes through tolls and value capture, for example.
The government has its work cut out for it over the next six months making everything add up.
A defence capability plan is due before May, the sunk Manawanui may need replacing, and there's an undisclosed redress fund for state care abuse survivors - all of which are big ticket items.
Willis insists no new programmes will be funded unless essential, and while she wouldn't commit to $6b in savings being found this time round, it's clear cuts to public services will be expected to do a lot of the heavy lifting.
