The Treasury, at the Budget, forecast the books returning to surplus by 2027/28 – a year later than National promised before last year’s election.
Stephens explained the amount of GST collected by the Crown had been “surprisingly low relative to underlying economic activity”.
“If this trend continues, there could be further downside risks to the Treasury’s revenue forecasts.”
Stephens’ speech precedes the Treasury updating its economic forecasts when it releases its Half-Year Economic and Fiscal Update, and Finance Minister Nicola Willis previewing Budget 2025 in her Budget Policy Statement on December 17.
Stephens noted the Treasury had revised down its assessment of future economic activity at successive updates.
“The key reason is accumulating evidence of a sustained productivity slowdown,” he said.
“New Zealand is currently running a structural fiscal deficit, with expenditure exceeding revenue. Economic growth falling short of expectations has been making it harder for the Government to bring the books back into balance.
“The fiscal challenges are compounded by longer-term pressures from population ageing and climate change.
“New Zealand is not alone. Productivity growth began slowing in New Zealand and around the world before the Global Financial Crisis and has fallen even further in the last decade.”
Stephens noted that since the September quarter of 2022, New Zealand’s per capita gross domestic product has fallen by 4.6%, making this a larger per-capita recession than the Global Financial Crisis of 2008-2010.
He said the Treasury’s Budget forecasts anticipated a return to economic growth in the second half of 2024, but the latest data now suggests that the recovery will begin later.
Coming back to Bishop, he noted the operating balance before gains and losses - the measure used to assess whether the books are in surplus or deficit - could fluctuate.
For example, in the past fiscal year, the books ended up deeper in deficit partly because of a court judgement broadening ACC’s cover and therefore increasing its future claims liability.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.
