New Zealand’s Treasury has released preliminary budget forecasts showing economic recovery, though officials acknowledge the forecasts will likely be impacted by the ongoing conflict in the Middle East. Finance Minister Nicola Willis said the government is monitoring fuel prices and is open to delaying a planned fuel tax hike, but is resisting calls for a cut.
Economic Forecasts Released Amidst Global Uncertainty
Treasury’s forecasts indicate the economy grew 1.7% last year and is expected to grow 3% this year and next. These figures represent an improvement over previous forecasts published in December.
Willis attributed the positive outlook to factors including low interest rates, high export prices, a recovery in tourism, and increasing consumer confidence. However, she noted these figures were made before the recent escalation of conflict and are subject to change.
Impact of Conflict on New Zealand Economy
Officials estimate a conflict lasting three months or more could have an inflationary impact of 0.5 to 1 percentage point and reduce real GDP by 0.2 to 0.4 percentage points.
Oil prices have increased nearly 50% since February 28, coinciding with attacks involving the United States and Israel in Iran. Willis stated there is currently no challenge to New Zealand’s fuel security, with up to 28 days of stock already in the country and another 29 days en route.
Fuel Tax Debate
The government is resisting calls from the Taxpayers’ Union to cut fuel excise, a measure previously implemented by the Ardern government. Willis argued that such a cut would ultimately be funded by borrowing, similar to the previous experience.
Fuel taxes have not been raised since 2020 and do not adjust with inflation, necessitating periodic increases to maintain their real value. Cabinet previously agreed to raise fuel taxes by 12 cents a litre in 2027, 6 cents in 2028, and 4 cents each year thereafter, though these increases may not be sufficient to fully fund the government’s road building program.
Willis indicated the government is open to reconsidering the planned fuel tax hikes, as the necessary legislation has not yet been drafted or introduced to Parliament. However, she cautioned that reducing revenue from fuel taxes would impact funding available for road repairs and rebuilding after climatic events.
The Commerce Commission has been asked to increase monitoring of fuel prices to prevent retailers from taking advantage of the situation.
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