Nicola Willis. Photo: Samuel Rillstone / RNZ
The government's books are set to remain deeply in the red for the near term as a big dent in the tax take and higher expenses deliver continued budget deficits.
But the government has adopted a new measure of its finances, excluding the impact of ACC, which it said has distorted previous forecasts and had the potential to affect spending decisions.
Under the new measure the deficits for the next three years would rise less than forecast in the May budget and see a surplus posted in 2027/28.
Using the established measure the deficits would rise more than expected in the budget and a surplus was not expected in the forecast period to 2028/29.
Finance Minister Nicola Willis said the forecasts showed the economic downturn started sooner and was deeper than had been previously thought
She said the worsening of the financial backdrop was not a result of government decisions.
"It has been driven largely by Treasury unwinding overly optimistic assumptions about the state of the economy."
She said getting the books back into the black was the priority.
"That remains our intention," she told a news briefing.
She said that would be achieved by the continued consolidation of spending as it looked to economic recovery driven by lower interest rates to increase the tax take.
Tax take hit, no big spending cuts
Willis said the government would continue with its tight financial discipline as it faced a $13 billion hit to the tax take over the next four years.
She said budgets for the next two years would stick to an allowance of $2.4b for new policies, and departments had been told they could not expect new funding and should be finding new savings.
Willis reiterated there would be no slash and burn or tax hikes to cover near term pressures.
"I do not think either of these is the right thing to do."
The Treasury forecasts showed an economy having turned the corner but likely to show only tepid growth through next year, with the previous expectation of strong migration and tourism having faded.
Other indicators such as inflation, unemployment, and trade were little changed from the May budget.
However, pressure on revenue and expenses were expected to need more borrowing, which was increased by $20b over the next four years.
The accompanying policy statement for next year's budget set four priorities to lift economic growth; implement social investment for better services; tight control on spending; and delivering infrastructure projects.
"We have a tough job on our hands," Willis said.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
