New Zealand’s surplus forecast has been pulled forward to 2028-29, with independent economist Cameron Bagrie saying the improvement owes more to the mechanics of inflation than to genuine fiscal discipline.

Bagrie, Lead Economist at Bagrie Economics, says the 2026 Budget is a “broccoli budget,” a characterisation drawn from the Bill English era. 

“Not many people like broccoli, but broccoli tends to be pretty good for you,” he says. 

“This government’s been pretty late to the party in regard to turning the fiscal position around. 

“Their first couple of budgets were what’s called loose budgets, adding a bit more money into the economy than what they were taking out.”

Despite Treasury lowering its growth forecasts, the surplus target has moved forward a year. Bagrie says this reflects what he calls the “magic of inflation”: inflation boosts nominal GDP and pushes revenue higher through fiscal drag, while the government banks that gain without matching it on the expense side. 

“Imagine running a business; if you take the revenue boost from inflation, you expect to have the cost boost on the other side,” he says.

Bagrie says any finance minister faces an impossible trinity, needing to balance fiscal credibility, infrastructure investment and core government services but able to deliver only two of the three. 

“This government has obviously decided that infrastructure and returning to surplus are their two priorities.

“You’re going to see core government services suffer over the next three years.”

Two credit rating agencies have placed New Zealand on negative watch, Bagrie says. Government expenses are forecast to shrink by about 2.3 percentage points of GDP over three years, and the Ministry of Primary Industries faces required cuts of 4 to 5% of its expenses.

Bagrie says this budget should have been delivered in 2024 rather than proceeding with that year’s tax relief package. 

“The government should have gone hard earlier, and by 2026 they might have had a little bit more flex within the budget to dish out a few more treats.”

New Zealand’s average productivity growth over the past decade has been 0.3% a year, against 2.9% in the United States in the past year alone. 

“I think New Zealanders have become too risk-averse.

“The epicenter of any economy is the ability to take and manage risk.” 

New Zealand is also behind on embracing AI and digitalisation, he says. 

“They are full steam ahead in regard to embracing technology, and New Zealanders, we’re behind the eight ball in regard to that. 

“We’ve got a lot of catch-up to play.”

CountryWide CONNECT with Andy Thompson & Sarah Perriam-Lampp is our daily rural show livestreamed from 11am-1pm. Visit country-wide.co.nz on how to watch/listen or download the CountryWide CONNECT mobile app, available on Apple iOS and Android.