New Zealand shuns ‘sugar hits’ in budget, slashes growth forecast as Iran war jolts economy

New Zealand’s government presented a budget on May 28 that prioritized long-term fiscal stability over short-term voter incentives, amid growing economic risks tied to the Iran conflict. Finance Minister Nicola Willis stated the budget aimed to support New Zealanders while strengthening the economy, but dismissed calls for ‘sugar hits’—one-off spending measures—opted instead for disciplined spending and deeper public service cuts. The budget forecast a narrower deficit of NZ$15.06 billion for the fiscal year ending June 30, 2026, down from NZ$16.93 billion in December, and projected a return to surplus in 2029/2030. Growth expectations were slashed to 2.3% for 2027, down from 3.4% in December, due to inflation pressures and softer demand. Willis emphasized capital spending on defense, schools, and hospitals but warned of potential job losses in the public sector. Economic analysts expressed caution, with Westpac’s Kelly Eckhold noting downside risks to tax revenue forecasts and S&P Global Ratings warning of potential credit rating pressure. The Reserve Bank of New Zealand held interest rates at 2.25% but signaled further hikes to combat inflation, now expected to peak at 4% before easing to 1.6% in 2027. The opposition Labour Party criticized the budget, calling it inadequate for households facing rising costs and unemployment. Treasury adjusted bond issuance plans but maintained a tight fiscal approach, reflecting concerns over global shocks, including fuel price spikes and geopolitical tensions. The kiwi dollar dipped slightly, reflecting market uncertainty over the economic outlook.