As Treasury prepares to publish the Pre-election Economic and Fiscal Update, bank economists aren’t expecting any big surprises in the Government’s finances and forecasts

Bank economists think big fiscal surprises are likely to be few and far between when the Treasury cracks open the Government’s books next week.

Ahead of the looming general election on November 7, the Treasury will be revealing the current state of the country’s finances with a Pre-election Economic and Fiscal Update (PREFU) on Tuesday, September 29.

PREFU 2026 will also update fiscal forecasts made in May’s Budget Economic and Fiscal Update (BEFU) at Budget 2026.

The PREFU shows what the Treasury, the Government’s lead economic and financial adviser, is observing in the current economic and fiscal climate before a general election. The PREFU replaces the Half Year Economic and Fiscal Update (HYEFU), which is normally published annually every December except in years that have a general election.

The PREFU also includes the Treasury’s future projections and potential risks over the forecast period, indicating what the economy is most likely to do to help inform decision-making.

In layman’s terms, the PREFU and HYEFU are like getting the chance to read the Treasury’s diary, juicy material for those who are economically minded and get a thrill from government fiscal updates.

Taking the pressure off

Economists at New Zealand's biggest banks aren’t bracing themselves for dramatic changes or surprises in next week’s forecasts, with most taking the view that PREFU 2026 could reflect a less optimistic outlook in some areas and a slightly more positive one in others.

BNZ is keen to see if the Government’s operating deficit (OBEGALx) continues to track to surplus by 2028/29, according to BNZ senior economist Doug Steel, “albeit from a smaller deficit starting point.”

Operating Balance Before Gains and Losses, or OBEGAL, was previously the standard measure of the Government’s annual spending since 2008. OBEGAL excluded valuation changes which can impact the overall operating balance.

However, Finance Minister Nicola Willis adopted a new fiscal indicator in 2024 called OBEGALx, which excludes the Accident Compensation Corporation (ACC) because the ACC is supposed to be a self-funding entity long term.

“OBEGALx was tracking well below (to the tune of $3.0b) Budget forecasts in the 11 months to May, courtesy of stronger-than-forecast revenue, lower-than-forecast expenses, as well as favourable results from State-Owned Enterprises,” Steel said.

“The core Crown residual cash deficit was around $2.0b smaller than Treasury forecast in the 11 months to May, which, if sustained, will be available for allocation either taking some pressure off the Government’s funding requirements or for allocation elsewhere. The economic projections will matter too.”

Less rosy

ASB senior economist Mark Smith described the upcoming PREFU as “more of a placeholder.”

“Trying to tease out the market and monetary policy implications could be a fraught exercise, given the multitude of factors that impact the fiscal outlook and the fact that fiscal policy settings could well change,” he said.

“However, the key takeout is the deterioration in the fiscal position since the Global Financial Crisis has left the fiscal position less well placed to absorb adverse shocks. There remains a strong need to rebuild fiscal buffers given longer-term challenges posed by population ageing, climate change and NZ’s acute infrastructure requirements.”

While ASB economists have been reassured by the resilience shown by the NZ economy since May, Smith said reasons for caution remained, including a “less rosy” terms of trade outlook, higher interest rates and a weaker outlook for population growth.

“On balance, the PREFU forecasts for the latter part of the projection period are expected to be shaded down relative to Budget 2026,” he said.

ANZ senior economist Miles Workman noted that key economic data since Budget 2026 have landed in the “ballpark” of the Treasury’s forecast, “with a mix of overs and unders.” He said PREFU 2026 could be a refresh of that.

“However, some medium-term BEFU assumptions looked optimistic to us, and monetary policy has tightened more aggressively than the BEFU forecast assumed, suggesting risks are skewed toward a downgrade,” he said.

With Brent crude oil prices having recently risen well over USD100/bbl, Workman said this was “unsurprisingly” much more volatile than the BEFU assumed back in its May forecasts.

“The Treasury's BEFU forecast assumed Brent would be approaching USD80/bbl by year-end and ease to USD75/bbl by end-2027. However, given the oil price could have been closer to USD80/bbl than USD100/bbl when the Treasury finalised its forecast, it’s hard to know what their updated assumption will look like,” he said.

Any treats?

According to Westpac NZ senior economist Darren Gibbs, the bank’s best guess is that PREFU 2026 will point to a fiscal outlook that is “broadly similar” to the Budget 2026 forecasts, but with slightly more favourable near-term outcomes.

“[...] it is possible that the Treasury slightly upgrades at least its near-term economic and fiscal forecast, providing the Minister of Finance with the ‘treat’ that she said she was hoping for when speaking at a recent financial markets conference in Auckland,” he said.

“Most fiscal updates during her tenure have been far from treats, given the run of significant revenue downgrades that was only broken with the release of Budget 2026.”

Gibbs said looking beyond the current year, if the Treasury adopts a more optimistic view of the economic outlook than Westpac NZ is expecting, there may also be scope for a “modest downward revision” to Treasury’s outyear forecast.

“That said, we think that the market should treat these medium-term forecasts with some caution given the approaching general election and the possibility that a change in the composition of the government or economic factors could quickly invalidate the assumptions on which the PREFU forecast is likely to be based.”