New Zealand’s finance minister is due to deliver his annual budget on Thursday ahead of October’s general election.

Economists forecasts a return to surplus in 2026, a year later than expected in the December fiscal update, coupled with increased borrowing.

Prime Minister Chris Hipkins has called the budget a “no frills” budget that won’t feature a great deal of substantial additional spending or tax relief. Furthermore, the central bank cautioned that loose fiscal policy wouldn’t help efforts to curtail runaway inflation, Bloomberg reports.

“The government has been warned by the Reserve Bank of New Zealand (RBNZ) that a profligate fiscal package will be countered by even higher interest rates,” said Mark Smith, senior economist at ASB Bank in Auckland. “Expect the messaging to be prioritised toward a few key priorities amid a no-frills budget backdrop.”

Following on from the central bank, back in December the Treasury also forecast New Zealand would face a recession in 2023. The effect of an activity slowdown on tax revenue was apparent in government accounts for the nine months up to March, which revealed a lower-than-forecast sales and business tax take.

Moreover, surging inflation, which stood at 6.7% in Q1 has edged up wages for government workers, as well as other costs.

Economists added that due to the pressure on the government’s accounts, Treasury’s predictions the budget deficit will reduce to under NZ$500 million in 2024 have been quashed. Indeed, ASB sees a NZ$3 billion shortfall next year. There will now likely be a sixth consecutive deficit in 2025, the Bloomberg report adds, before a return to surplus in 2026.

In addition, the finance minister has already stated the government has found NZ$4 billion over the next four years from savings and reprioritisations. Such initiatives include curbing certain programs and making the most of underspending from previously announced schemes.

Robertson added that the majority of this additional funding has been allocated to dealing with cost pressures within government agencies delivering key services such as housing, education and health.